Romania and the eurozone

Romania is not ready to adopt the European single currency.

Bogdan Matei, 02.06.2022, 14:00

While
Romania is still to join the euro officially, the single European
currency is de facto the country’s currency. The Central Bank of
Romania has for the last few years maintained an exchange rate of 5
lei for one euro, which makes it easier for the population and
political decision makers to make future plans. The costs of the
major infrastructure projects presented by the authorities are
estimated in euros. The price of land and property is published in
euros, even though real estate transactions are signed in the
national currency, the leu. When writing about the plum jobs the
politicians in power, across the spectrum, secure for their party
clientele, the media usually take the euro as a reference point.
Looking at the prosecutor’s indictments in anti-corruption cases,
we also note that most corrupt officials receive their bribes in
euros. The millions of Romanians living and working in western Europe
send money to their relatives in their home country in euros.

Despite
this, Romania is not fulfilling at the moment any of the conditions
to join the eurozone. In keeping with the Maastricht Treaty of 1992,
these conditions are stability of prices, solid and sustainable
public finances, exchange rate stability and long-term convergence of
interest rates. Moreover, according to the latest convergence report
published by the European Commission on Wednesday, of all of the 27
EU member states, Romania is the only one to be subject to the
excessive deficit procedure. Bulgaria, the Czech Republic, Hungary,
Poland and Sweden, while also not members of the eurozone, are all
better rated by the Commission. Despite joining the European Union in
2013, six years after Romania, Croatia may be able to adopt the euro
on 1st January 2023, if the Eurogroup and the European
Council support the Commission’s proposal.

The
paradox noted by commentators was that back in 2016, Romania did meet
three of the four conditions for joining the eurozone. The only
condition still to be met was that referring to the exchange rate, as
well as an additional condition imposed by the European Commission,
namely legislative compatibility. In other words, the economic
policies of the governments that came to power afterwards, both on
the right and on the left, single-party and coalitions, only eroded
Romania’s compatibility with the eurozone.

It’s
true that the Covid-19 pandemic brought about two years of utter
confusion in the economy and in society, and uncertainties still
persist following Russia’s invasion of Ukraine. In recent months,
prices have exploded, interest rates are constantly going up and
public finances are far from being solid and sustainable, while the
country is borrowing at a pace described by the media as dizzying. (CM)