The country needs a new reform package to increase the competitiveness of its economy before attempting to adopt the euro, said economists during last week’s Emerging Funding for the Real Economy event.
Attendees largely agreed that Romania will fulfill all the nominal convergence criteria related to inflation and the public deficit by 2019, the target set by the government for joining the Euro zone. However, the main challenge is bringing individuals’ standard of living closer to the average of the more advanced economies in Western Europe.
“The biggest issue for Romania is the real convergence criteria: in my opinion, we cannot reach 60 percent of the GDP per capita in the Euro zone by 2019. There were countries that joined the Euro zone with a smaller GDP per capita, but I do not think this will be possible this time. 2019 as an accession date is an anchor for reforms and I believe it is an important one, although we will join it later,” Dan Bucsa, CEE economist at UniCredit Bank in London, told BR.
He added that the bank estimates it will be “pretty difficult” for Romania to achieve real convergence with the 18-member Euro zone bloc before 2025.
Euro zone preparations
The structural reform of state-owned companies and changes in the immigration law, to compensate for population aging, are two options the country should look into before adopting the euro, according to Bogdan Olteanu, deputy governor of the National Bank of Romania (NBR).
He suggested that policymakers also focus on increasing labor participation, by encouraging more people from the countryside to find employment in industrial areas in the cities.
Lucian Anghel, president of the board at the Bucharest Stock Exchange (BSE) and CEO of BCR Pensii, commented that Euro zone accession should be turned into a national strategic goal, such as joining NATO and the EU in the last decade.
“In my opinion it is not the date itself (…) that is extremely important (…) We need to have this national project, with a clear detailed program – which institutions are responsible, what measures and what structural reforms must we make to meet the real convergence criteria, because the nominal ones will be fulfilled,” he added.
Anghel stated that the country’s participation in the Exchange Rate Mechanism (ERM II) should be limited to two years. One of the convergence criteria, this involves the exchange rate of a non-euro area nation being fixed against the euro and allowed to fluctuate within certain limits.
Meanwhile, the local economy is expected to continue growing this year, in line with other EU members.
Bucsa of UniCredit tipped Poland’s economic growth to exceed 3 percent this year, while approaching the same level in Hungary and the Czech Republic. Romania’s economy is set to grow by 2.7-2.8 percent in 2014, excluding agricultural output. Last year it gained 2.4 percent, stripping out the effect of the good harvest, while combined GDP growth stood at 3.5 percent.