ECB-New EU made progress on euro area convergence

By Krista Hughes

FRANKFURT, Dec 5 (Reuters) - European Union newcomers have made progress towards meeting entry criteria for the euro zone but more work needs to be done, especially on public finances, the European Central Bank said on Tuesday.

In its latest convergence report, the ECB confirmed that high budget gaps were a problem for countries including Hungary, Poland and the Czech Republic.

High inflation was an obstacle for Slovakia, Estonia, Latvia and Malta, the ECB said, noting that dynamic economic growth and oil price rises had pushed inflation up in most countries since the last euro entry report two years ago.

"Compared with the situation described in the convergence report prepared in 2004, many of the countries under review have made progress with economic convergence, but in some countries there have also been setbacks," the ECB said.

"Further fiscal consolidation is required in most of the countries."

The report assessed whether euro candidates met criteria on inflation, budget deficits, exchange rate stability and long-term interest rates as well as criteria such as central bank independence.

It assessed only eight of the 10 countries that joined the EU in 2004, as Slovenia has already secured entry from the start of next year and Lithuania was assessed earlier this year and failed on account of excessive inflation. Sweden was also included in the report.

The ECB said the proportion of countries meeting the inflation and budget deficit criteria had improved since 2004. Four of the nine countries assessed passed the low inflation test, compared with four of 11 in 2004, and only five posted excessive deficits, compared with six countries in 2004.

Seven countries had long-term interest rates below the reference value, assessed at 6.2 percent, compared with six in 2004. ((Reuters Messaging: krista.hughes.reuters.com@reuters.net; Editing by Gerrard Raven; Frankfurt newsroom +49 69 7565 1313))

Keywords: EUROZONE CONVERGENCE/ECB