An insight in Malta’s timeline prior to joining the euro zone by Melvyn Mangion
On Tuesday 27th February 2007 the Government of Malta presented to the European Commission and the European Central Bank a request to assess the country’s success in achieving the Maastricht convergence criteria, which are indispensable, in their entirety, for an EU Member State to be able to join the eurozone.
This is an important milestone on the road to euro adoption; however the start of this road goes back to 1st May 2004 when Malta joined the European Union. It is through EU membership that Malta can and shall become a member of the eurozone since this step is indeed one of the requirements of EU membership. Nonetheless, Malta had joined the EU, like the other nine countries joining in 2004, and the two that joined in 2007, as a Member State with a derogation, meaning that while Malta was exempted from joining the eurozone immediately, it was to do so once the convergence criteria where met.
These criteria request a budget deficit of less than 3% of GDP; a public debt which is lower, or sustainably approaching 60% of GDP; the inflation rate, observed over a period of one year before the examination, cannot exceed by more than 2 percentage points that of, the three best performing EU Member States in terms of price stability; the average nominal long-term interest rate must not exceed that of the three best-performing Member States in terms of price stability by more than two percentage points. the currency of the Member State should have respected the normal fluctuation margins against the euro provided for by the exchange rate mechanism of the EU without severe tensions (not exceeding + or — 15%, , for at least two years before the examination.
Considering that this last requirement refers to a two year timeline, the first logical step in the road towards adoption of the euro was the accession into the Exchange Rate Mechanism (ERM II). We joined the ERM II on the 2nd of May 2005.
Joining the ERM II means fixing a central parity rate for the national currency against the euro. While criteria for joining the euro is to participate for two years in the ERM II without fluctuating the central parity rate by more than 15%, upwards or downwards, the Government of Malta took a commitment to keep the rate as fixed as agreed on the date of accession into ERM II, that is at 0.429300.
Despite the fact that both the European Commission and the European Central Bank will be providing assessment reports on Malta’s success or otherwise in reaching the criteria, the final decision on whether the country eventually has fulfilled the criteria and is thus able to join the eurozone is taken by the ECOFIN Council (that is the Council of Ministers representing the Ministers of Finance. This decision is taken after consultation with the European Parliament and the European Council, representing the Heads of State and Government of the EU Member States. Considering the different consultations involved, the most realistic date for confirmation or otherwise of Malta’s accession into the eurozone will be provided in the ECOFIN meeting scheduled in July, shortly after the start of the Portuguese Presidency.
Last year there were three countries who originally intended to apply for a convergence report. However, Estonia did drop out their plans. Lithuania and Slovenia did ask for a convergence report. While Slovenia did make it through without much hassle, Lithuania did fail the test. This year it’s Malta’s and Cyprus’ turn. Cyprus did apply for the report in January. It’s the turn of the Mediterranean islands to get their economy to test. Let’s wait and see.
Meanwhile, the National Euro Changeover Committee’s will keep on with its information and educational campaign while working on the technical preparations which a change to the second strongest currency in the world demands.
Contact Melvyn Mangion at www.melvynmangion.com
