BANCA COMERCIALA ROMANA S.A.

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RADU CRACIUN

  |  26.06.2014

Romania’s euro membership: a moving target?

During the past years, Romania’s euro membership has become a moving target. The latest set deadline is 2019. We see this new timeline as very ambitious and believe that a more realistic time span should go beyond 2021.

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BANCA COMERCIALA ROMANA S.A.

RADU CRACIUN

RADU CRACIUN

BANCA COMERCIALA ROMANA S.A.

Unlike its neighbors, Romania’s plans to join the Eurozone have remained unchanged even at the height of the crisis. To what extent is the euro a viable currency?

 

Context
At a time when Hungary and Poland have put on hold their plans to join the euro, Romania is over and over again making new plans to join the single currency in the not so distant future. During the past seven years, Romanian officials have transformed the date when Romania should join the Euro Area into a moving target, as reflected in Figure 1. The start of the arrows show the moment when the statement was made, while the tip of the arrow points to the planned euro accession date mentioned in that specific statement.

 

What made Romania so much keener than other countries in the region to preserve the euro project? The perspective of euro membership in a determined period of time was a project that historically has been strongly supported by the central bank. During the past two decades, Romania’s appetite for reforms was rather mild and, therefore, ambitious objectives such as EU membership or the need for the safety belt provided by the IMF have been the motivating factors that made Romania  swallow even the bitter reform pills, which otherwise would have been refused, offering at the same time scapegoats for the unpopular decisions. Once the EU membership objective was reached, the central bank advocated the need for another objective aimed to act as an anchor for the economic decisions of the Romanian governments, meant to support Romania’s
convergence story.

  

 

Looking at Figure 1, the use of a Eurozone membership target as a carrot aimed at speeding up reform did not seem to work too well. Moreover, the financial crisis exposed even more the mistakes made in the past, making Romania’s euro membership date a moving target.

 

The latest statements from decision makers suggest that 2019 is the current euro membership target. But how realistic is this target this time? In order to answer this question, we should look at the nominal convergence criteria, which are the formal qualification criteria, and at the real convergence criteria, which tend to provide the real image of the country’s ability to cope with the competitive forces in the Eurozone.

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