European Exchange Rate Mechanism - Current Status of The ERM II

Current Status of The ERM II

On 1 May 2004, the ten National Central Banks (NCBs) of the new member countries became party to the ERM II Central Bank Agreement. The national currencies themselves were to become part of the ERM II at dates to be agreed.

The Estonian kroon, Lithuanian litas, and Slovenian tolar were included in the ERM II on 28 June 2004; the Cypriot pound, the Latvian lats and the Maltese lira on 2 May 2005; the Slovak koruna on 28 November 2005. The currencies of the three largest countries which joined the European Union on 1 May 2004 (the Polish złoty, the Czech koruna, and the Hungarian forint) and the two countries which joined on 1 January 2007 (the Bulgarian lev,the Romanian leu) are expected to follow eventually.

Other countries to have since joined the eurozone, and hence left ERM II, include Slovenia (1 January 2007), Cyprus (1 January 2008), Malta (1 January 2008), Slovakia (1 January 2009) and Estonia (1 January 2011).

The Hungarian Ministry of Finance said that Hungary originally wanted to adopt the euro in 2010, but this has been delayed. Experts say that the earliest date when Hungary will adopt the euro is 2015. Bulgaria wanted to apply for ERM II membership as soon as possible after the EU entry. In November 2009, Bulgaria confirmed that it planned apply for joining ERM II in early 2010, but was forced to delay its application for at least one year after updated figures put the budget deficit for 2009 at 3.7% of GDP, outside the Maastricht criteria. Romania initially planned to join ERM in 2010–2012, but after the onset of the Euro crisis, postponed this indefinitely, citing concerns about its workforce productivity.

Sweden is legally obliged to participate in the ERM II, in accordance with its Treaty of Accession, to meet the convergence criteria required for joining the eurozone, but has deliberately chosen to stay out of the mechanism. This choice is currently tolerated by the ECB, but it has warned that such an option will not be permitted for newer union members.

The Swiss Franc had always floated independently until its currency appreciation became unsustainable during the Eurozone debt crisis, at which point it made a compromise to keep the exchange rate at a minimum of 1.20 francs to the euro, which does not constitute a peg. It is important to note that Switzerland is not officially a member of ERM II as it is not an EU member and expresses no ambitions to become an EU member.