The Romanian Economy and the Euro

Romania meets most conditions to join eurozone, but move is not to be rushed, says National Bank Governor.

Mihai Pelin, 28.11.2014, 13:59

Romania should not rush into joining the eurozone, even if it meets most requirements in this respect, the Governor of the National Bank of Romania, Mugur Isarescu has recently said. He explained the central bank supports the plans to adopt the euro in 2019, but said this step should only be made when Romania has truly come close to the development level and the economic performance of the eurozone countries.

Romania currently meets all five official requirements for joining the eurozone known as “the Maastricht criteria,” as well as ten out of the eleven criteria for identifying macroeconomic imbalances applicable across the EU. The country still has an economic development level, which is far from that in other western countries, and for this reason Romania should not rush into joining the eurozone, Mugur Isarescu argues:

“Incredible as it may sound, all five Maastricht criteria are met, and by all indications they have been met in a sustainable manner. We have moved from the bottom to the top, but we must not be overenthusiastic about it. We can’t think about adopting the euro just yet, not even in two years’ time. We support the idea of joining the eurozone as an anchor and a target, but we cannot hasten this process, because this requires a different approach and the problems of the Romanian economy are different from those of the eurozone.”

The convergence criteria have to do with the financial policy, the level and stability of prices, interest rates and currency exchange rates, a budget deficit below 3% of the GDP and a public debt below 60%. Economic analysts believe that, in order to avoid major imbalances, Romania may join the eurozone only after its GDP per capita has reached at least 60% of the European average, instead of slightly over 50% at present.

The International Monetary Fund has revised its estimates concerning Romania’s GDP growth for 2014 to 2.4%, while the Romanian authorities expect a 2.8% economic growth rate. Last year the Romanian economy grew by 3.5%, which was one of the highest growth rates in Europe. Even so, the country needs a 5% annual growth rate in order to achieve convergence with the Western economies and to shift to the single currency in 2019, a goal which, according to experts, is very ambitious and impossible to reach without efficient policies.