Debt Ratio Theories - Debt and Europe - The Maastricht criteria

On 1st January 1999, 11 countries joined a European Monetary Union and created a single currency - the Euro. The Euro became legal tender in these countries on 1st January 2002. The UK was not one of these countries, though may hold a referendum on whether to join the Euro when five economic tests set by the Chancellor are met. For a single currency to work the economies need to be following similar patterns of growth and similar policies - they need to be converging. The Maastricht Treaty therefore set a series of convergence criteria. One of these was that the debt ratio of economies that wanted to join the single currency should be less than 60% of GDP. This was meant to ensure that the countries involved had not been borrowing excessively over the years.

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