To summarize, the data indicate that inflation and interest rate convergenceare taking place in the European Union. The outlook for the next two yearsanticipates further convergence with respect to these two criteria. In contrast,the public finances of the EU members have worsened since the establishmentof the convergence criteria. Although the government budget balances of mostmember states are expected to improve through 1996, the debt ratios areunlikely to show significant improvement. Turning to the exchange ratecriterion, five countries are not members of the ERM and thus do not meet theconvergence criterion. For the remaining 10 countries, although the widerbands eliminated tensions within the ERM between August 1993 and March1995, there is now evidence that even these bands can not prevent pressurefrom accumulating on weak currencies.

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