Question

For EU membership what is meant by nominal convergence? What is meant by fiscal convergence?

Answer 1

The EU convergence are the criteria which European Union member states are required to meet to enter the third stage of the Economic and Monetary Union and adopt the euro as their currency.The EU members states that as part of the preprations for introduction of euro the covergence crietria are formally defined as a set of macroeconomics indicator which measures :

• Price stablity to show inflation is controlled.
• soundness and sustainability of public finances.
• Exchange rates stability through participation in the exchange rate mechanism.
• Long term interest rates to assess the durability of the convergence.

Economic effeciency considerations have lead us to anticipated pressure for the development of a fairly extensive system of fiscal fedralism under european monetary union. Fiscal convergence is based on simple game theoretically framework where agents agress on the long term goals.