Adopting the euro: Romanian perspectives in the context of the global financial crisis

• Author: Oros, A. - O'Sullivan, P.
• Position: PhD. Student, Lucian Blaga University of Sibiu - Letterkenny Institute of Technology, Ireland
• Pages: 139-148

Bulletin of the Transilvania University of Braşov • Vol. 6 (55) •No. 1 - 2013

Series V: Economic Sciences

ADOPTING THE EURO: ROMANIAN

PERSPECTIVES IN THE CONTEXT OF

THE GLOBAL FINANCIAL CRISIS

A. OROS

1 P. O’SULLIVAN2

Abstract: The objective of this paper is to examine Romania’s capacity to

fulfil the nominal convergence criteria in the current context, in order to

follow the calendar proposed for eur o adoption in 2 015. The paper analyzed

the evolution of all five criteria under the impact of the cur rent financial

crisis a nd also looked at the forecast provided by nationa l and inter national

author ities. The study was conducted considering the rela tive situa tion with

the euro a rea. The main finding is that the actua l tar get for euro a doption

could be complied with, pr ovided further progr ess is made. We ha ve also

fond that the ta rget should be a chieved as it would represent a str ong

stimulus for the local government to implement additional measures to

reduce public indebtedness a nd inflationar y pressure.

Key words: Romania, Euro, nominal convergence cr iteria, financial cr isis.

1 PhD. Student, Lucian Blaga University of Sibiu.

2 Letterkenny Institute of Technology, Ireland.

1. Introduction

The euro area is a unique model of

economic and monetary union: it

comprises 17 European Union member

states, most of them different as regards

economic development, political system,

culture and mentality, but who decided to

adopt the euro as a common currency and

legal tender. As Mundell (1961) stated in

his seminal paper, “supra-money”, a

concept which was debated a long time,

finally came into existence. (Mundell,

1961).

Based on the gross domestic product

(GDP) and population, the Eurozone is a

leading global player in the world

economy. As noticed in Table 1, in 2011

the euro area was the second largest

economic entity in the world after the

United States, but well beyond China. The

euro has also become the second most

widely used international currency, with a

rising share in foreign exchange reserves

from 17.9% in 1999 to a peak of 27.7% in

2009, and to 25% in 2011.

Looking at the data presented above, we

could conclude that it is a tremendous

privilege to join such a “club”. However, is

it possible for Romania to adopt the euro in

2015 as originally planned? Did the current

financial crisis affect the attainment of the

nominal convergence criteria? Is it

Romania still “on track”? These are the

questions we will try to answer in the

following chapters. The paper is structured

as follows. Chapter 2 presents the

advantages and disadvantages of adopting

the single currency and also options for

Romania. Chapter 3 analyzes the evolution

of the five nominal convergence criteria