PPP

Maastricht criteria

Convergence criteria, also known as the Maastricht criteria, are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union (EMU) and adopt the euro. The four main criteria are based on Article 121(1) of the European Community Treaty. Those member countries who are to adopt the euro need to meet certain criteria which include:
1. Inflation rate: No more than 1.5 percentage points higher than the 3 best-performing member states of the EU (based on inflation).
2. Government finance:
Annual government deficit:
The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. If not, it is at least required to reach a level close to 3%. Only exceptional and temporary excesses would be granted for exceptional cases.
Government debt:
The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Even if the target cannot be achieved due to the specific conditions, the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.
3. Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM II) under the European Monetary System (EMS) for 2 consecutive years and should not have devaluated its currency during the period.
4. Long-term interest rates: The nominal long-term interest rate must not be more than 2 percetage points higher than the 3 best-performing member states (based on inflation).
The purpose of setting the criteria is to maintain the price stability within the Eurozone even with the inclusion of new member states.

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