Report and Accounts 1999 - International Monetary Cooperation

International Monetary Cooperation

On 1 January 1999, on the commencement of the third stage of Economic and Monetary Union, EMU, 11 of the 15 EU member states adopted the euro as the single currency. As a consequence of the Edinburgh Agreement Denmark did not adopt the euro. The other three EU member states which are not part of the euro area are the UK, Sweden and Greece. Greece will apply for membership in March 2000. Initially the euro is "account money", but on 1 January 2002 euro banknotes and coins will be put into circulation. The introduction of the euro has changed the nature of monetary and economic cooperation within the EU since the main issue is now the formulation of the single monetary policy and the coordination of economic policy in the 11 euro area member states.

During 1999 there was no need for the large-scale support from the IMF to crisis-stricken countries which was required in 1997 and 1998.

Denmark and EMU

Denmark has not adopted the euro. As an element of the Edinburgh Agreement, which was approved together with the Maastricht Treaty by referendum in 1993, the Danish government announced Denmark's non-participation in the third stage of EMU.

However, Denmark does participate in the Exchange-Rate Mechanism, ERM II, thereby continuing the Danish fixed-exchange-rate policy. In ERM II the Danish krone is pegged to the euro. The standard fluctuation band in ERM II is +/- 15 per cent, but member states with a favourable convergence position may conclude an agreement concerning a narrower fluctuation band. Denmark has concluded such an agreement whereby the krone may fluctuate against the euro within a fluctuation band of +/- 2.25 per cent from the central rate ^[1]. The fluctuation band is a safety net since in practice the Nationalbank stabilises the krone within a narrower band. The central rate of the krone against the euro was fixed on 31 December 1998 on the basis of the krone's previous central rate against the D-mark and the conversion rate for the D-mark against the euro.

In August 1999 the Danish Prime Minister announced that Denmark would hold a referendum on the adoption of the euro. The referendum is expected to be held after the Social Democratic Party's congress in September 2000 and before the next parliamentary elections, i.e. no later than at the beginning of 2002.

In response to a number of questions from the Folketing (Parliament) to the Minister for Economic Affairs in December 1999 the Ministry of Economic Affairs submitted the "Outline National Changeover Plan, Changeover to the euro in case of Danish participation". This plan was prepared in cooperation with stakeholder organisations, the financial sector, other ministries and Danmarks Nationalbank. Its purpose is to provide an outline of the course of events as well as the applicable schedules in the event of endorsement of Denmark's adoption of the euro in a future referendum.

According to the plan a period of up to 3-4 years from a positive referendum result to the introduction of euro banknotes and coins is estimated for Denmark's changeover to the euro, cf. Box 5.

Box 5 Outline for Denmark's Possible Changeover to the Euro

Around 1 year	Up to 2-3 years	Max. 2 months
From a positive referen-dum result until Den-mark joins the euro area with the euro as "account money".	From Denmark's participation in the euro area until circulation of euro banknotes and coins.	From circulation of euro bank-notes and coins until krone bank-notes and coins have been ex-changed for euro.

Source:

Ministry of Economic Affairs "Outline National Changeover Plan, Changeover to the euro in case of Danish participation".

Around 1 year is allocated for Denmark's preparations for participation in the euro area, including the introduction of the euro as "account money". A period of up to 2-3 years is then outlined to prepare all elements of society for the circulation of euro banknotes and coins, and finally a period of not more than 2 months is envisaged for the exchange of krone banknotes and coins for euro.

In order for the euro to be introduced in Denmark the Nationalbank must be prepared for membership of the Eurosystem consisting of the European Central Bank, ECB, and the national central banks of the euro area member states. This will entail amendment of the Danmarks Nationalbank Act, as well as a number of adjustments to the Nationalbank's areas of responsibility and many of its systems.

As a consequence of the requirements imposed on the central banks of all EU member states some of the Nationalbank's areas of responsibility require adjustment, regardless of whether Denmark adopts the euro or not. This for example applies to payment systems. The Nationalbank already participates in TARGET, the joint payment system of the EU central banks, but on more restrictive terms than the euro area member states, cf. p. 78. Moreover, the Nationalbank has embarked on the restructuring of its statistics, cf. p. 97.

Participation in the Eurosystem will require extensive development of other areas of work, in particular accounting, but also adjustments to the monetary-policy instruments and preparation for the redenomination and issue of central-government debt in euro. In addition, the establishment of an initial stock and the preparation of subsequent ongoing production of euro banknotes and coins for circulation in Denmark will also be necessary.

The changes required of the Nationalbank if Denmark decides to adopt the euro are described in a chapter of the changeover plan of the Ministry of Economic Affairs. This chapter is included as an Annex to this Annual Report, cf. p. 151. With regard to the Nationalbank the period outlined for the necessary adjustments prior to the introduction of the euro as "account money" is around 1 year calculated from the date of endorsement by referendum. An additional period of approximately 1 year is considered to be necessary for the Nationalbank to complete the preparations for the circulation of euro banknotes and coins. According to the changeover plan of the Ministry of Economic Affairs other sectors, not least the general-government sector, require somewhat longer periods of preparation before euro banknotes and coins can be introduced.

The Other EU Member States Not Participating in the Euro

The 11 EU member states which adopted the euro on 1 January 1999 are Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland. Besides Denmark three other EU member states are not part of the euro area. These are Greece, Sweden and the UK.

Greece
The Greek government will apply for membership of the euro area in March 2000.

In the convergence assessment in spring 1998 Greece did not fulfil the economic criteria for participation in the euro area and therefore could not adopt the euro on 1 January 1999. Since then the Greek economy has shown considerable convergence towards the other EU member states. For example, Greece's government-budget deficit in 1999 is estimated to be 1.9 per cent of GDP, compared to a deficit of 4.0 per cent of GDP in 1997. Against this background the Council of Ministers of Economic Affairs and Finance in the EU, the ECOFIN Council, in November 1999 decided to remove Greece from the list of countries with an excessive budget deficit. Greece now fulfils the convergence criteria concerning the government-budget deficit and debt.

At the request of Greece, in January 2000 the central rate of the Greek drachma in ERM II was revalued by 3.5 per cent against the euro. For a prolonged period up to the revaluation the drachma had been 6-7 per cent stronger than the central rate. The fluctuation band for the Greek drachma in ERM II is +/- 15 per cent.

According to the Treaty the assessment of whether a member state fulfils the criteria for participation in the third stage of EMU is to be repeated at least every second year ^[2]. If Greece in the spring of 2000 is found to comply with all convergence criteria it will probably join the euro area as from 1 January 2001. Greece then expects to be able to introduce euro banknotes and coins together with the present 11 euro area member states by 1 January 2002. The decision on Greek participation is expected to be taken at the EU summit in June 2000.

Sweden
In Sweden the Riksdag (Parliament) in December 1997 adopted the government's recommendation that Sweden does not participate in the third stage of EMU from the start, but that participation from a later date is possible, provided that it is approved by the people of Sweden in connection with a general election or referendum. Neither a referendum date nor an overall schedule for the subsequent changeover period have yet been decided on.

The parliamentary decision of 1997 states that practical preparations for the euro should be made in all sectors of society in order to preserve Sweden's room to manoeuvre even though it did not participate in EMU from the start. In August 1999 the government decided that the government authorities and agencies should initiate comprehensive analysis work focusing on the changeover period required for the general-government sector. The result is expected to be submitted in March 2000.

In October 1999 Riksbanken, the Swedish central bank, submitted an analysis of the time required for preparations in the financial sector. The banking sector outlines a period of around 18 months for the preparations from the political decision on participation until full participation, including the euro. Riksbanken's own target is to be prepared for EMU participation 12 months after the political decision is taken.

On the selection of the EU member states to participate in the third stage of EMU in the spring of 1998 the assessment was that Sweden did not fulfil the exchange-rate criterion for participation in the single currency since Sweden did not participate in the exchange-rate mechanism under the EMS at that time ^[3]. Sweden's convergence situation will be reassessed in the spring of 2000.

Like the UK, Sweden does not participate in ERM II. However, the Swedish government has announced that if Sweden decides to adopt the euro, a logical first step would be to link the Swedish krona to ERM II.

The UK
Like Denmark, the UK has invoked its treaty-bound right not to participate in the third stage of EMU. The British government has reserved the right to participate at a later stage if EMU functions satisfactorily and is found to be economically beneficial to the UK. Moreover, the government has announced that participation would require endorsement by referendum.

In February 1999 the British government issued a changeover plan for British participation in the euro area. It appears that a changeover to the euro in the UK is expected to require around 3 years from a referendum until the conclusion of the introduction of euro banknotes and coins.

The Introduction of the Euro

Practical significance
Since 1 January 1999 the euro has existed as "account money" in the 11 euro area member states. It is thus possible to hold accounts and transact electronic payments in euro in connection with e.g. securities trading.

On the introduction of the euro the national currencies of the 11 participating member states ceased to exist as independent currencies and the financial markets began to trade in the new single currency, the euro. During the changeover period the national currencies are to be regarded as various subdenominations of the euro. For example, the D-mark is exactly 1/1.95583 euro ^[4]. The exchange rates between the national currencies and the euro are thus fixed.

The official conversion rates must be applied to conversion between the 11 national currencies and the euro. The European Commission recommends that any conversion fees charged are stated separately and are not included in the conversion rate.

During 1999 the euro achieved considerable importance on the international financial markets, which inter alia is reflected by the position of the euro area in the global economy ^[5]. This development is supported by the integration of the money and bond markets of the euro area.

Private individuals in the euro area have not yet experienced any major changes as a consequence of the introduction of the euro. Although prices in euro are displayed in many euro area member states cash payments will still be made in the 11 national currencies (D-mark, franc, etc.) until 2002 when the euro is introduced as a currency for cash transactions and fully replaces the national banknotes and coins.

The production of euro banknotes and coins is under way in most of the participating countries. The euro banknotes will be the same for all countries, while the coins will have a common and a national side ^[6]. The design of the euro banknotes and the common side of the euro coins was already decided in 1997. All member states participating in the single currency from the outset have subsequently published the design of the national side of their euro coins. There will be eight different euro coins (1, 2, 5, 10, 20 and 50 eurocent, and 1 and 2 euro) and seven different euro banknotes (5, 10, 20, 50, 100, 200 and 500 euro). Until January 2002, when the first euro banknotes and coins are put into circulation, around 13 billion euro banknotes and 56 billion euro coins will be manufactured.

In November 1999 the ECOFIN Council adopted a declaration on a very rapid changeover to euro banknotes and coins in 2002. The objective is that the majority of cash transactions will be made in euro no later than 14 days after the commencement of the circulation of euro banknotes and coins on 1 January 2002. After a period of between four weeks and two months the period of double circulation of banknotes and coins in both national currencies and euro is expected to be completed. This is a significant reduction of the period, which was stated to be maximum six months at the EU summit in Madrid in 1995. By 1 March 2002 at the latest the national banknotes and coins will thus no longer be legal tender, but may be exchanged at the national central banks for a longer period thereafter.

Significance to EU cooperation
The introduction of the euro has profoundly changed the monetary and the economic-political cooperation within the EU. After a number of years of focus on the preparations for the third stage of EMU the dominant issue now is the ongoing formulation of the single monetary policy among the central banks and the consequences of the adoption of the single currency for the other economic policies of the 11 euro area member states.

The Nationalbank participates in the ongoing work of the ECB to a considerably lesser extent than under the ECB's predecessor, the European Monetary Institute, EMI.

With regard to the economic-political cooperation within the ECOFIN Council as a consequence of the introduction of the euro an ever-increasing element of the discussions, e.g. the exchange of views on economic trends, is now conducted within the informal forum for the ministers of economic affairs and finance of the 11 euro area member states, euro-11. At the same time the closer cooperation has increased the need for coordination of the euro area member states' standpoints on the issues under discussion in international fora, e.g. G7 ^[7] and IMF. In the second half of 1999 the Finnish EU Presidency thereby gained a new function when the President of ECOFIN represented the euro area member states in the G7's discussions of currency issues.

The European Central Bank and the Eurosystem

The national central banks of the 11 euro area member states and the ECB together constitute the Eurosystem ^[8]. The organisation of the ECB is described in further detail in Box 6. The Eurosystem is responsible for monetary policy in the euro area.

Box 6 The Organisation of the ECB

The ECB has three governing bodies: the Executive Board, the Governing Council and the General Council. The Executive Board is responsible for the day-to-day running of the ECB, and the implementation of the monetary-policy decisions. Wim Duisenberg is President of the Executive Board which consists of six members in total.

Monetary-policy decisions are taken by the ECB's Governing Council consisting of the central-bank governors of the 11 participating member states, as well as the ECB's Executive Board. The Governing Council normally meets every two weeks especially with a view to deciding on interest-rate adjustments if necessary. The practical implementation of the decisions of the Governing Council is predominantly the responsibility of the participating national central banks.

The General Council consists of the President and Vice President of the Executive Board, as well as the governors of the central banks of all 15 EU member states, including Danmarks Nationalbank. The General Council primarily contributes to the preparations for participation in the euro area should one of the non-participating EU member states adopt the euro. Furthermore, the General Council contributes to the ECB's advisory functions and to the collection of statistical information.

Throughout the year extensive information was published on the ECB's decisions and the operations of the Eurosystem via such channels as the ECB's Monthly Bulletin and the President's monthly press conferences after meetings of the Governing Council.

The ECB is owned by the national central banks, which have contributed capital. The capital contribution of each central bank depends on the member state's economy and population size. Each national central bank's share of the ECB corresponds to its contribution to the total capital. The ECB's profit or loss is distributed proportionally among the national central banks according to their ownership share.

The four EU central banks which are outside the Eurosystem have paid up 5 per cent of the amount they would have contributed, had they joined the Eurosystem. The interest on this amount covers the expenses related to the ECB tasks which concern all 15 member states.

The Eurosystem's primary objective is to maintain price stability. The Governing Council has defined price stability as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2 per cent.

The monetary-policy strategy is based on two pillars which together form the basis for the monetary-policy decisions. One pillar consists of a reference value for growth in the broad monetary aggregate, M3. For 2000 this reference value has been fixed at 4½ per cent, which is unchanged from 1999. The second pillar consists of a broadly based assessment of the outlook for price developments on the basis of a number of leading indicators such as wages, exchange rates, bond prices and the yield curve, various measures of activity in real terms, fiscal-policy indicators, price and cost indices, and business and consumer surveys.

During 1999 the ECB managed interest rates and liquidity solely by means of the regular monetary-policy instruments, i.e. main refinancing operations, longer-term refinancing operations, two standing facilities and a minimum reserve system ^[9]. Among the ECB's monetary-policy instruments the main refinancing operations play a key role in monetary policy. They consist of weekly tenders for liquidity with a maturity of two weeks, cf. p. 34. Longer-term refinancing operations are monthly tenders for liquidity with a maturity of three months. Their significance to monetary policy is limited, however. The allocation of liquidity via the main refinancing operations and the longer-term refinancing operations is always on the basis of collateral in securities.

The standing facilities are a marginal lending facility and a deposit facility with the purpose of supplying and absorbing day-to-day liquidity respectively.

The minimum reserve system of the Eurosystem imposes minimum reserve requirements on the credit institutions in the euro area member states corresponding to 2 per cent of selected liabilities. These reserves are subject to interest at the ECB's rate of interest for the main refinancing operations. One objective of the minimum reserve system is to contribute to stabilising money-market interest rates.

The ECB's interest-rate adjustments in 1999 are described on p. 32.

The Stability and Growth Pact

After the ECOFIN Council's decision in November 1999 to remove Greece from the list of countries with excessive budget deficits all EU member states now comply with the Treaty's criterion concerning the government budget. All member states' government-budget deficits are below the limit of 3 per cent of GDP. Some member states, including Greece, have a government debt which is considerably higher than the Treaty's limit of 60 per cent of GDP, but since the debt is being reduced these member states are nonetheless found to comply with the Treaty's criterion.

To ensure fiscal discipline in the longer term the Stability and Growth Pact was adopted in June 1997 ^[10]. The Stability and Growth Pact entered into force simultaneously with the introduction of the euro and imposes an obligation on all 15 EU member states to aim for a government budgetary position "close to balance or in surplus in the medium term". This is an extension of the Treaty's criterion of a budget deficit not exceeding 3 per cent of GDP.

Each EU member state has prepared a national programme for compliance with the requirements set out in the Stability and Growth Pact in the period up to 2002. In March 1999 the ECOFIN Council completed its first review of the 15 member states' programmes after the entry into force of the Stability and Growth Pact and stated an opinion on each programme. The conclusion of the ECOFIN Council was that all member states comply with the provisions of the Stability and Growth Pact concerning a budget deficit close to balance or in surplus in the medium term. However, some euro area member states' programmes were criticised for an overweight of budget-adjustment measures towards the end of the projection period and to the effect that much of the budget adjustment was the result of "passive gains" from declining interest rates and expected higher growth. However, the main point of criticism was that some member states only just comply with the criterion for the medium-term objective, which means that they have no safety margin for unexpected events.

The member states are required to update their programmes on an annual basis. The first updated programmes were available towards the end of 1999.

The International Monetary Fund, IMF

In 1999 the activities of the IMF were concentrated on ensuring financing of the special facilities for developing countries and on long-term adjustments to the IMF's surveillance scheme. The purpose of the adjustments is to make the international financial system more resistant to shocks.

Lending by the IMF declined in 1999 as especially the Asian economies stabilised and there was less need for extensive loan facilities than in the two preceding years. The IMF's liquidity saw a strong improvement after the increase in quota contributions which entered into force on 22 January 1999, cf. the 1998 Annual Report, p. 93.

At the annual meeting in September 1999 it was decided to establish a permanent committee, the International Monetary and Financial Committee, IMFC, to replace the temporary Interim Committee. The IMF's management and committees are described in Box 7.

Box 7 The IMF's Management and Committees

The Board of Governors is the highest decision-making body of the IMF. It consists of a governor (normally a central-bank governor or a minister of finance) and an alternate governor for each member country. The Board of Governors normally meets once a year ("the annual meeting").

The IMF's Executive Board is responsible for conducting the day-to-day business of the IMF. It normally meets several times a week. The Chairman of the Executive Board is the IMF's Managing Director. The Board consists of 24 Directors who are appointed or elected by member countries or by groups of countries. The Nordic countries and the Baltic countries are represented by one Director who is appointed by the countries' governors. According to an informal agreement the country holding the directorship (1998-99 Denmark, 2000-01 Finland) will also coordinate the views of the Nordic countries and Baltic countries on issues discussed by the Executive Board.

The number of votes of each country or group of countries in the IMF's Board of Governors and Executive Board depends on that country or group of countries' total IMF quota. The Nordic-Baltic group holds 3.59 per cent of the votes in the Executive Board.

In November 1999 it was decided to replace the Nordic-Baltic Constituency Committee with the Nordic-Baltic Monetary and Financial Committee.

In the autumn of 1999 the Interim Committee (IC) became the International Monetary and Financial Committee (IMFC). This is an advisory committee made up of 24 ministers and central-bank governors. The members represent the same countries and groups of countries as in the IMF's Executive Board. The Committee normally meets twice a year. Since the autumn of 1998 the Committee has also met at alternate level 1-3 weeks before the actual IC/IMFC meeting.

Debt initiative and financing schemes for developing countries
1999 saw a breakthrough in the international negotiations on financing of the debt-relief initiative for the poorest developing countries, the HIPC (Heavily Indebted Poor Countries) initiative. As a major multilateral lender to developing countries the IMF, together with the World Bank, played an important role in this initiative. At the annual meeting of the IMF in September 1999 agreement was reached on the financing of the IMF's participation in the debt-relief scheme for the HIPC. The meeting also adopted the financing scheme for another IMF loan facility directed especially at developing countries, ESAF (Enhanced Structural Adjustment Facility). The financing of these special facilities is kept separate from the IMF's general resources. The facilities are financed by direct contributions from the industrialised countries in particular, and by transfer from special IMF funds. The financing of the IMF's own contribution to the special facilities for developing countries is described in Box 8.

Box 8 Financing of the IMF's Special Facilities for Developing Countries

In accordance with the IMF's Articles of Agreement the IMF's general resources, i.e. drawings on the member countries' central banks, and the IMF's general reserves, may not be reserved for a certain group of member countries. The IMF's general resources cannot thus be used to finance special facilities for developing countries, which therefore require separate financing.

These facilities are subject to separate financing via bilateral contributions from the industrialised countries in particular or by transfer from other special funds in the IMF. In order to supplement the bilateral contributions, it was decided at the annual meeting in 1999 that the IMF would revalue a proportion (14 million ounces) of its gold by selling and repurchasing this gold at market price from countries which repay IMF loans. By far the largest proportion of the IMF's gold is valued in the IMF's balance sheet at a book value of SDR 35 per ounce, while the market price is considerably higher (SDR 212 per ounce at end-1999)¹. The revaluation of the gold enables the IMF to transfer the recorded profit from the general resources to the special funds to finance the special facilities for the developing countries.

At the same time the IMF intends to increase its drawings on the member countries' central banks in order to increase its investments in interest-bearing assets. The return on the IMF's increased investments will be used to finance the IMF's costs in connection with the debt reduction initiative and for interest subsidies on the Enhanced Structural Adjustment Facility.

To prevent a reduction of the IMF's ordinary revenue, the interest on deposits from member countries contributing to the financing of the IMF is reduced, while the interest is increased with regard to countries which borrow from the IMF's general resources.

1	Previously the IMF sold minor shares of its gold in the market and used the profit to finance the special facilities for the developing countries.

At the annual meeting it was also decided that in the future the IMF will focus more on poverty reduction in the countries receiving assistance under ESAF. As a consequence, ESAF was renamed PRGF (Poverty Reduction and Growth Facility). This entails that the countries receiving assistance under this facility must prepare actual poverty reduction programmes.

Denmark's contribution to the ESAF facility so far has been approximately kr. 30 million per year. Denmark's contribution to PRGF and to the IMF's participation in this debt-relief initiative are financed via Denmark's development assistance budget.

In December 1999 the Parliamentary Finance Committee endorsed the government guarantee to the Nationalbank enabling the Nationalbank to grant loans to PRGF. Together with other industrialised countries, Denmark has thus met the IMF's request for extension of the loan ceiling for the PRGF facility by SDR 2 billion. Denmark's share of this amount will be SDR 100 million or approximately kr. 1 billion.

Extended control of the use of IMF funds
In the light of suspected abuse of government funds and corruption in Russia and Indonesia, the IMF introduced special extended control of the use of disbursed funds in connection with loans to these two countries.

Russia's arrangement to borrow, amounting to USD 4.5 billion in July 1999, became conditional on the preparation and publication of independent auditors' reports with a view to investigating suspected abuse of previously disbursed IMF funds at the Russian central bank, as well as investigating the relationship between the Russian central bank and its branches abroad.

The reports found no indications of abuse of IMF funds by the Russian central bank. On the other hand, under a previous arrangement to borrow from the IMF funds had been retransferred from the branches to the central bank so that the central bank was able to state artificially high international reserves. This constituted a significant breach of the loan agreement with the IMF.

Disbursements to Russia in July under the new loan were therefore subject to extended control. As part of the special control measures the first tranche of USD 640 million was held in an account with the IMF for servicing Russia's previous debt to the IMF. This means that Russia has no access to the disbursed funds. No disbursements have been made under the IMF's arrangement with Russia since July 1999.

In 1999, as in previous years Russia met its debt-service obligations to the IMF. In net terms Russia's repayments exceed the disbursements made to Russia under new loans.

The IMF also required preparation and publication of an independent auditors' report in Indonesia. This survey disclosed corruption involving both the Indonesian government and the central bank. In September 1999 the IMF therefore postponed further disbursements under the existing arrangement with Indonesia. The last disbursement of USD 460 million was made at the beginning of August 1999.

Increased transparency and extension of the IMF's surveillance
In recent years the IMF has prepared data dissemination standards, cf. p. 94, and other standards for transparency in fiscal policy as well as monetary and financial policy. This work has now become even more important in the light of the experiences of the countries affected by financial crises in 1997-98. Their experiences indicate a need for increased transparency in the countries' formulation of their economic policies. Furthermore, international standards, particularly with regard to supervision of financial enterprises, should be implemented in all member countries in order to reduce the vulnerability of their financial sectors to unforeseen shocks.

The IMF and the World Bank have initiated a joint pilot project to provide for early detection of possible weaknesses in a country's financial sector. In its surveillance of the member countries the IMF will focus on those aspects of the development in the financial sector which are of macroeconomic significance. The most important conclusions will be incorporated in the IMF's reports on the member countries.

Furthermore, the IMF has initiated a pilot project on voluntary publication of the reports prepared on member countries. These reports are the regular reports on economic trends in the member countries, as well as the reports prepared when a country applies for an IMF loan. A summary of the reports is published in the Press Information Notices, PINs, for all countries. Denmark has approved the publication of the IMF's reports on Denmark, and the latest IMF report on Denmark was published on 26 August 1999.

Footnotes

[1] The central rate for the Danish krone is kr. 7.46038 per euro.

[2] Greece and Sweden are the only two member states to be assessed in the convergence assessment in the spring of 2000, as Denmark and the UK, in accordance with their derogation protocols, are subject to convergence assessment only at their own request.

[3] The convergence criteria for the transition to the third stage according to the Maastricht Treaty: as a main rule the government deficit must not exceed 3 per cent of GDP and the government debt must not exceed 60 per cent of GDP. Average inflation, measured as the growth in consumer prices against the same month of the previous year, must not exceed by more than 1.5 percentage points the inflation rates of the – maximum three – best-performing member states with regard to price stability for a period of one year prior to the selection. For a period of one year prior to the selection the average long-term government bond yield or the average yield on equivalent securities must not exceed by more than 2 percentage points the yields in the – maximum three – best-performing member states with regard to price stability. Finally, the member states must have complied with the normal fluctuation margins in the ERM for at least two years without serious tensions.

[4] The exchange rates between the national currencies and the euro were fixed on 31 December 1998. The 11 official conversion rates are shown in Table 13 on p. 175.

[5] In 1999 the euro area's share of the world's total GDP was approximately 16 per cent, while the USA's share was approximately 21 per cent and Japan's share approximately 8 per cent. In 1999 the euro area's population was 291 million, the USA's 271 million and Japan's 126 million.

[6] The design of the euro banknotes and coins can be viewed at e.g. the euro Web site of the European Commission: www.europa.eu.int/euro.

[7] G7 comprises the USA, Canada, Germany, the UK, France, Italy and Japan.

[8] The Treaty uses the term the European System of Central Banks, ESCB, which in some contexts comprises the ECB and the national central banks of all 15 EU member states, and in other contexts comprises only the ECB and the national central banks of the euro area member states. The ECB introduced the Eurosystem as the name of the central-bank structure under which the ESCB carries out the tasks related to the third stage of EMU.

[9] The Eurosystem's operational framework is described in further detail in General documentation on ESCB monetary policy instruments and procedures, which is available on the ECB's Web site at www.ecb.int/pub/pub01.htm.

[10] The Stability and Growth Pact formally consists of a summit resolution and two Council regulations: Resolution of the European Council, Official Journal C 236, 2 August 1997 p. 1, and the two regulations: Official Journal L 209, 2 august 1997, p. 1ff.

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Version 1.0 April 2000 Nationalbanken.
Published by Danmarks Nationalbank April 2000, http://www.nationalbanken.dk