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On 1 January 2001 Greece became the twelfth member of the eurozone following approval [Decision 2000/427/EC] of Greece's accession to the single currency by the European Council at its meeting in Santa Maria da Feira on 19 June 2000. At the meeting, the irrevocable conversion rate [Regulation/2000/1478/EC] of the drachma vis à vis the euro was set at GRD 340.750 effective from 1 January 2001, which is equal to its central rate within the Exchange Rate Mechanism (ERM II), applying as of 17 January 2000.
The Greek government had submitted a formal application to join the euro zone on 9 March 2000 with a view to adopting the single European currency as of 1 January 2001, in accordance with Article 122 (paragraph 2) of the EU Treaty
Background
For many years there have been hopes, ambitions and proposals to establish an Economic and Monetary Union (EMU) in the European Union. However, it was only in the Treaty on European Union, 1992 (the "Maastricht Treaty") that a formal timetable and mechanism was laid down to achieve the objective.
It was conceived that there would be three stages in the process to full EMU. During the second stage (1994-1998) Member States that wished to participate in the third stage were expected to pursue economic policies that led to Convergence. This would be measured by whether Members States satisfied a number of Convergence criteria.
During the spring of 1998 the European Commission [European Economy, No.65, 1998] and the European Monetary Institute submitted separate reports to the European Council, which presented their analysis of "the progress made in the fulfilment by the Member States of their obligations regarding the achievement of economic and monetary union". In May 1998 the European Council [PRES/98/124] made their Decision 98/317/EC as to which countries would proceed to Stage Three of EMU as from 1 January 1999:
"On the basis of the Council recommendation adopted the previous day and following the European Parliament's Opinion delivered in the morning, the Council -meeting in the composition of Heads of State or Government - unanimously decided that eleven Member States, namely, Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, The Netherlands, Austria, Portugal and Finland fulfil the necessary conditions for the adoption of the single currency on 1 January 1999. These countries will therefore participate in the third stage of Economic and Monetary Union".
Thus the four Member States that did not adopt the single currency as from 1 January 1999 were the United Kingdom, Denmark, Sweden and Greece. The reasons for each country were different.
The case of Greece
Greece was the only one of the four non-participating countries that unequivocally wished to participate from the beginning but it did not meet the convergence criteria. The new Socialist Government that took office in September 1996 under Prime Minister Costas Simitis put Greece's entry into the single currency by 1 January 2001 as one the key priorities for its term in office. Indeed, the rigorous economic policies pursued by this Greek government since it came to power have been with this objective in mind. In 1998 the drachma was put into the Exchange-Rate Mechanism (ERM). The European Commission expressed satisfaction at this development:
The chosen central rate for the drachma is in line with the fundamental characteristics of the Greek economy. The government's accompanying economic programme includes ambitious measures to consolidate public finances, privatisation and public sector restructuring, and reform of the labour market and the social security system. These factors will contribute to the credibility of Greek economic policy and to monetary stability in the single market.
The entry of the Drachma and the accompanying measures reflect the determination of Greece to make progress with achieving a high degree of sustainable convergence, the precondition to join the euro. The Commission encourages the Greek authorities to persevere in this direction.
Press Release [IP/98/255]
A detailed account of the convergence policies of the Greek Government in the past few years is available in "The 1999 update to the Hellenic Convergence Programme: 1999-2002" issued in December 1999 by the Ministry of National Economy and Finance of Greece. The report concludes that the economic policy pursued has successfully satisfied the following four objectives:
- the completion of the process of nominal convergence by satisfaction of all five Maastricht criteria at the beginning of 2000.
- a smooth transition to the common currency while preserving the nominal gains achieved.
- the improvement of competitiveness within the euro area by intensifying structural reforms and preserving macroeconomic stability.
- the balancing of aggregate demand and supply growth, ensuring the reduction of the unemployment rate while preserving price stability.
In January 2000 the Council of the European Union adopted an essentially favourable Opinion on the Greek convergence programme:
The Council notes with satisfaction the significant improvement in public finances in recent years. Developments over the past year indicate that the budgetary target set in the 1998 convergence programme has been met: the general government deficit is estimated at 1.5% at the end of 1999, 0.6% of GDP lower than projected in the 1998 programme; the debt ratio was reduced by 1.2 percentage points to 104.2% of GDP.
The updated programme is based on macroeconomic projections showing strong investment-led growth and medium-term price stability. The 1999 update, building on the budgetary consolidation achieved so far and on good prospects for GDP growth, is projecting the general government deficit to turn to a surplus of 0.2% of GDP in 2002. The debt ratio is projected to fall to 98.0% of GDP in 2002. The Council considers that the underlying budgetary position of the general government provides an adequate safety margin in the course of the programme to prevent the deficit from breaching the 3% of GDP threshold in normal circumstances. In this sense, the updated convergence programme complies with the requirements of the Stability and Growth Pact.
Considerable progress has been made over the past year in reducing price inflation; the deflator of private consumption exceeded marginally the projection of the 1998 programme in 1998, while no deviation is estimated for 1999 from the projected average rate of increase of 2.5%; however, the increase in oil prices is slowing down the process of disinflation at present.
The Council considers that within the high growth environment projected in the convergence programme, particular effort must be made by Greece to ensure that the progress made towards disinflation acquires a lasting character; such an effort seems to be all the more necessary in view of the convergence of monetary conditions in Greece to those prevailing in the euro zone and the potential implications of such a development on demand and prices; in this context, the Council welcomes the revaluation of the central rate of the Greek drachma as from 17 January 2000 which will support the authorities in their efforts to further reduce inflation in Greece; the Council invites the Greek government to reinforce the anti-inflationary stance of the policy instruments at its disposal, including budgetary and incomes policies; the wage agreements in 2000 in both public and private sectors and the co-operation of all social partners are essential to secure an environment of low-inflation. As regards budgetary policy, the budgetary targets set in the programme are considered by the Council as a minimum and the Greek authorities are invited to do their best to achieve better outcomes than planned; in addition, the Council considers that the Greek authorities must be ready to tighten fiscal policy further from 2001 if inflation pressures emerge.
The Council acknowledges that considerable progress has been made in recent period in Greece in introducing structural reforms, namely in the functioning of the wider public sector; it invites the Greek government to continue decisively in this direction by reinforcing the momentum of reforms with a view to enhancing competitive conditions and the good operation of labour, goods and capital markets; such reforms are necessary both in order to enhance the productive potential of the economy and to reduce inflationary pressures.
Press Release [PRES/00/19], Official Journal C60, 2.3.00, p4
The Bank of Greece provides information on Progress towards the adoption of the euro in Greece.
Greece's formal application to join the euro
The formal application by the Greek authorities on the 9 March 2000 to join the single currency was the culmination of the economic strategy pursued by the Greek government since 1996. The Prime Minister, Costas Simitis said:
"Today is an historic moment for the country. It opens a new era of security, stability and development".
The European Commission welcomed the development, saying in a press statement:
"EU Commission President Romano Prodi and Pedro Solbes, Commissioner for Economic and Monetary Affairs welcome today's application of the Greek government to join the third stage of Economic and Monetary Union. An enlarged EMU area will be positive both for the euro-zone area and for the countries joining. This application comes close after the positive Council decision in November 1999 on the abrogation of Greece's excessive deficit and the Council's opinion on the Greek convergence programme in January 2000. The Commission will examine the progress made by Greece in fulfilling the convergence criteria set out in the Treaty in good time and make a recommendation to the Council.
[Press Release: IP/00/240]
The Portuguese EU Presidency also welcomed the application. According to an Athens news agency, Portugal's ambassador to Greece was quoted as saying:
"It is a positive move towards EU integration and reflects the substantial progress of the Greek economy in line with that of the other EU Member States... The Portuguese Presidency is happy that a final decision will be taken at an EU summit in Santa Maria da Feira, Portugal in June..."
On 3 May 2000, the European Commission adopted its annual convergence report [COM(2000)277 final] in which it concluded that:
"Greece fulfils the necessary conditions to adopt the single currency, the euro"
Press Release: IP/00/442
On the basis of the report and the parallel report issued by the European Central Bank, the European Commission decided to issue a proposal [COM(2000)274 final] to the Council for the adoption of the single currency by Greece on 1 January 2001.
The European Parliament debated the issue at its plenary session on 17 May 2000 and approved the European Commission's proposal without amendment. The European Council meeting in Santa Maria da Feira on 19 June 2000 under the Portuguese Presidency adopted the proposal, making Greece the twelfth member of the eurozone. In addition to the decision by the Council to approve Greece's accession to the single currency by the European Council, EU leaders also agreed on the irrevocable conversion rate [Regulation/2000/1478/EC] of the drachma vis à vis the euro, which was set at GRD 340.750.
Two years after other EU Member States joined the eurozone, Greece finally became a member on 1 January 2001 having made much progress in order to meet the economic criteria necessary for membership of the single currency. The Greek Finance Minister, Ioannis Papandoniou, described it as:
"A historic day that would place Greece firmly at the heart of Europe".
Further information within European Sources Online:
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25.11.99: |
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Ian Thomson
Executive Editor, European Sources Online
Compiled: 11 March 2000
Revised: August 2002
On 1 January 2001 Greece became the twelfth member of the eurozone following approval [Decision 2000/427/EC] of Greece's accession to the single currency by the European Council at its meeting in Santa Maria da Feira on 19 June 2000.
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