26.05.2022

UNLIKE BULGARIA, ROMANIA IS IN NO HURRY TO ADOPT THE EURO

Romania has once again postponed its target date for joining the eurozone. The convergence program for the period 2022-2025 lacks a specific date for the adoption of the euro. Instead, the priorities are the socio-economic recovery from the Covid-19 pandemic and reducing the effects of the war in Ukraine.

Unlike Romania, Bulgaria sets January 1, 2024 as the final date for the introduction of the euro, and Croatia, which last joined the EU in 2013, will replace the kuna on January 1, 2023. From July 10, 2020, the Bulgarian lev and the Croatian kuna are included in the exchange rate mechanism (ERM II) or the so-called eurozone waiting room.

Bulgaria is approaching the eurozone, and Romania - the zone of financial turmoil, writes in an article on the topic political analyst of the newspaper Adevarul Ion Ionica.

In principle, all EU countries are obliged to join the euro area at some point, with some exceptions. The exception was the United Kingdom, which negotiated the preservation of the British pound and eventually left the EU. Denmark remains the only exception in the EU from the changeover to the euro, as it has a "opt-out clause" that it has negotiated. The last country to adopt the single European currency was Lithuania - on 1 January 2015, Sweden and Poland are the other two major economies not yet in the eurozone, along with the Czech Republic and Hungary.

After missing a deadline after the deadline for the changeover to the euro, Romania has completely given up on setting a target date, Romanian media reported. In the 2022-2025 convergence program sent to Brussels, the government of Nicolae Chuka evasively noted that it was pursuing the euro, but that its efforts were focused on economic and social recovery from the pandemic and mitigating the negative effects of the war in Ukraine.

Even before the Russian invasion of Ukraine began, Finance Minister Adrian Kachu said 2029 was a realistic goal for joining the euro. The previous deadlines officially adopted by the government were 2024 and 2019. Romania's likely future prime minister in May 2023, Marcel Cholacu, who now heads the Chamber of Deputies, recently said the country's priority is Schengen and OECD membership.

The economy is not in good shape

In order for Romania to give up the leu, the budget deficit must not exceed 3 percent of gross domestic product, public debt must be limited to less than 60 percent of GDP, and inflation must not be more than 1.5 percent higher than the average for the best performing euro area countries.

In addition, the country must have a stable exchange rate - it must participate in the exchange rate mechanism (ERM II) for at least two years without significant deviation from the central rate of ERM II, and the long-term interest rate must not exceed more than two percent the interest rate of the three Member States with the best indicators of price stability.

Marcel Cholacu claims that when his Social Democratic Party was overthrown in 2019, there was only one benchmark left for adopting the euro. "Right now, after a right-wing government, I'm not afraid to say it - we lost two or three criteria," he said in early May.

"Like the pandemic, the war in Ukraine found Romania unprepared or at least incapable of adapting quickly to a new reality," said analyst Ionica. "Romania entered the pandemic with large deficits and came out with even bigger ones," he said, noting that the state was committed to paying more and more and was borrowing more than 8 per cent.

At the same time, economic growth forecasts are steadily deteriorating. The European Commission expects the Romanian economy to slow to 2.6 per cent in 2022 as inflation cuts disposable income and the war in neighboring Ukraine affects confidence in the economy, supply chains and investment. The International Monetary Fund recently lowered its expectations for the Romanian economy - instead of the expected 4.8% growth in the autumn, it is now projected at 2.2%. The EBRD has lowered expectations to 2.5 per cent, and the World Bank expects even more modest Romanian GDP growth of 1.9 per cent this year.

In the coming months, inflation will rise more sharply than expected and is likely to fall below 10% only after mid-2023, according to the Central Bank. In April, inflation in the country reached 13.76% on an annual basis compared to 10.55% in March, according to official data.

The cost of postponing the euro

Romania's macroeconomic indicators "look very bad", says economics professor Christian Paun. He believes the country is not giving a good signal by delaying entry into the eurozone, as it shows its reluctance to integrate so strongly.

Paun also does not accept the excuse of "external crises". "External crises come and go all the time. If it's not a war, there will be a tsunami on an island tomorrow, and then another disaster will happen," the economist said. "After all, a financially stable country is much more resilient to any external crisis," added Professor Paun.

"The non-adoption of the single currency is costing each of us, especially the private sector, the business sector, of everything that means the healthy development of Romania", warns Christian Paun, quoted by Free Europe.

Another professor of economics, Mircea Kosha, believes that the main advantage of eurozone membership is the possible negative situation. "If you are close to a difficult situation, as Greece was more than 10 years ago, if you are close to bankruptcy, the European Union will not let you fall. The European Bank intervenes immediately, as it cannot accept a difficulty in one of the links in the chain If you are not in the euro and you are in a desperate situation, it is difficult to ask for help from elsewhere," Kosha said.

He acknowledged that Romania could not boast a secure horizon for joining the euro, and said focusing on membership of the Schengen area and the Organization for Economic Co-operation and Development (OECD) were more realistic goals. "The OECD greatly enhances the image of the country that is part of this club. From this point of view, we hope to have greater market access when borrowing. An OECD country is more reliable and has lower interest rates." he notes.

The professor of economics assesses Bulgaria's ambitions to join the eurozone on January 1, 2024 as a "political statement". "I reviewed Bulgaria's data and saw no successes that could lead to the fulfillment of the conditions by 2024, especially since Bulgaria, as well as Romania and the whole of Europe, are entering a period of crisis, which ultimately will not exist. to meet the criteria. For now, it seems to me that this is more of a political statement," Mircea Kosha told RFI.