LONDON (CNNfn) - The European Commission recommended Wednesday that Greece should become the 12th member of the euro zone, paving the way for EU government leaders to approve Greece's adoption of the common European currency on Jan. 1, 2001.|
The Commission, the executive arm of the European Union, said Greece passed all economic tests needed to participate in the single currency launched in January 1999 by 11 of the 15 member states. Greece was the only EU member that failed on grounds of economic performance to join the euro zone at its inception. Since then, Athens has managed to slash its budget deficit, control inflation and reduce debt.
However, the European Central Bank warned it had "ongoing concerns" about the country's progress toward key economic targets. The ECB's convergence report said Greece's ratios of debt to gross domestic product (GDP) and budget deficit to GDP were declining, but not fast enough. The bank urged Greece to take stronger fiscal measures.
"There must be an ongoing concern as to whether the ratio of government debt to GDP will be sufficiently diminishing and approaching the reference value at a satisfactory pace, and whether the sustainability of the fiscal position has been achieved," the ECB said.
In setting the conditions for the creation of a common currency, EU members decreed that any country applying to join must keep its government budget deficit below 3 percent of GDP and aim for a surplus. The value of all outstanding public debt must also be below 60 percent of GDP. Not all euro member countries' economies currently meet those conditions, however.
European Union leaders will make the final decision on Greece's application to join the euro zone at a summit in Portugal on June 19 and 20.
The euro fell to a record low against the dollar on Wednesday, drifting as low as $0.8975. It has weakened by more than 23 percent against the dollar since launch in January 1999.
The ECB's report covered both Greece and Sweden, but only Greece has formally applied to join monetary union. Sweden is expected to hold a referendum next year before formally applying.
The Commission said Sweden had yet to meet all criteria to join the euro zone, citing Stockholm's decision not to put the Swedish crown in the EU's exchange rate mechanism (ERM), a system that ties a currency to the value of the euro without fixing its exchange rate rigidly.
"Sweden does not fulfill the exchange-rate criterion," the Commission said, adding that Sweden's central bank legislation was also not in line with the requirements for countries wanting to adopt the euro.
The Commission's conclusion had been expected, as the Swedish government has made clear it does not yet want to join the euro zone.
--from staff and wire reports