FACTBOX-How ERM-2 outs are faring on their way to euro

    Dec 5 (Reuters) - The European Commission and the European 
Central Bank published reports on Tuesday on the progress 
towards euro adoption of EU members yet to join the single 
currency. 
    All euro candidates must spend at least two years in the 
ERM-2 currency regime to show their currencies are stable 
against the euro in a +/-15 percent band around a fixed parity. 
    They also need to meet criteria on long-term interest rate 
convergence, inflation, public debt and budget deficits as a 
ratio to gross domestic product. 
    Slovenia, due to adopt the euro on Jan. 1, 2007, is so far 
the only one of 10 countries that joined the EU in 2004 to 
secure euro zone membership. 
    Following is a summary of the performance of three largest 
new EU members that have yet to join the ERM-2. 
     
    FOR A FACTBOX ON PROGRESS OF ERM-2 MEMBERS PLEASE 
DOUBLE-CLICK ON [ID:nL05630391] 
     
    CZECH REPUBLIC 
    TARGET FOR EURO ADOPTION: The caretaker government abandoned 
its previous 2010 target and scrapped plans to join the ERM-2 in 
2007. No new target set. 
    EURO ZONE ENTRY CRITERIA: 
    * Currency regime: free float with inflation targeting. 
    * Public finances: The European Commission forecasts the 
deficit at 3.5 percent of GDP this year, 3.6 percent in 2007 
and 3.2 percent in 2008. Joint Czech finance ministry and 
central bank forecasts are more pessimistic, predicting the 
deficit at 4.0 percent next year and 3.5 percent in 2008. The 
shortfall is forecast to reach the euro entry limit of 3.0 
percent in 2009. 
    The public debt is seen just above 30 percent of GDP in 
2006-2009, about half of the EU's 60-percent benchmark. 
    * Prices: The European Commission expects EU-norm inflation 
to creep up to 2.9 percent in 2008 from 2.5 percent this year. 
Czech forecasts see inflation at 2.5 percent in 2008 and 2009. 
They estimate the euro zone entry limit will stand at 3.0 
percent over that period. 
    BIGGEST CHALLENGE: Stalled healthcare and pension reforms 
because of political deadlock and increased social spending 
threaten budget targets. 
     
    HUNGARY 
    TARGET FOR EURO ADOPTION: The government has dropped its 2010 
target, no new goal set. 
    EURO ZONE ENTRY CRITERIA: 
    * Currency regime: free float within +/-15 percent band. 
    * Public finances: The European Commission forecasts the 
budget deficit will fall from record 10.1 percent of GDP this 
year to 7.4 percent in 2007 and 5.6 percent in 2008. Budapest is 
more optimistic, predicting the deficit will fall to 6.8 percent 
next year and 4.3 percent in 2008 and reach 2.7 percent in 2010. 
    Public debt is seen exceeding 70 percent in 2007 and 2008. 
    * Prices: The European Commission sees EU-norm inflation 
spiking up to 6.8 percent next year from 3.9 percent this year 
and returning to 3.9 percent in 2008. Budapest's forecasts  are 
more optimistic with inflation seen at 3.3 percent in 2008. 
    BIGGEST CHALLENGE: Implementing in full planned fiscal 
austerity measures to get runaway deficits under control again 
in the face of anti-government protests and unrest. Economists 
also say tax and regulated price increases should be 
complemented by more aggressive spending cuts. 
     
    POLAND 
    TARGET FOR EURO ADOPTION: No set target. The government says 
it wants to meet entry criteria in 2009 and possibly hold a 
referendum on the euro in 2010. 
    EURO ZONE ENTRY CRITERIA: 
    * Currency regime: free float with inflation targeting. 
    * Public finances: Warsaw's convergence plan aims for a 
budget gap of 3.4 percent next year, 3.1 percent in 2007 and 2.9 
percent in 2009. The European Commission forecasts the shortfall 
at 4.0 percent in 2007 and 3.9 percent in 2008. 
    Public debt, as monitored by Brussels, is expected to hover 
just above 40 percent in 2006-2008. 
    * Prices: The European Commission expects EU-norm inflation 
to reach 2.8 percent in 2008 climbing from 1.4 percent this 
year. The government, however, sees inflation capped at 2.5 
percent until 2009. 
    BIGGEST CHALLENGE: Deficit-cutting plans rely almost solely 
on strong economic growth, any slowdown would threaten the 
targets. 
 ((Compiled by Tomasz Janowski; editing by David 
Christian-Edwards, Stephen Nisbet; Reuters Messaging: 
tomasz.janowski.reuters.com@reuters.net, tel. +48 22 653 9719)) 
  Keywords: EUROZONE CONVERGENCE/OUTS