Is the Estonian model applicable to Romanian economy in adopting the euro?!

AuthorRadu, I. - Ulici, M. L. - Petcu, A.
PositionPhD. Student, Babes Bolyai University of Cluj Napoca - Commercial Academy of Satu Mare - PhD. Student, Bucharest Academy of Economic Sciences
Pages71-86
Bulletin of the Transilvania University of Braşov • Vol. 6 (55) No. 1 - 2013
Series V: Economic Sciences
IS THE ESTONIAN MODEL APPLICABLE
TO ROMANIAN ECONOMY
IN ADOPTING THE EURO?!
I. RADU
1 M.-L. CIUPAC-ULICI2 A. PETCU3
Abstract: Euro adoption has become a logica l step towar d the integra tion
of ea ch Eur opean sta te in the EU, even though a t the time the bail-out is
more often discussed. Romania’s new status, which was obtained in 2007,
makes it n ecessar y for our countr y to think twice about its duty on a ssuring
stability and secur ity in the South-Easter n Europe, especia lly for the
Romanian economy. Since the Eur o adoption pr ocess is a controversial one,
in this paper we aim to express our concerns regar ding the major changes
driven from other member states of the Euro Area , i.e. the Estonian model.
Along with this model, our paper attempts to assess the a dvantag es a nd
disadvanta ges of the Romanian economy and to highligh t their effects on
ensuring a sustainable development for Romania
Key words: Europea n Monetar y Union, common cur rency, ERM II,
sustainab le economy, Estonian model.
1 PhD. Student, Babes Bolyai University of Cluj Napoca.
2 Commercial Academy of Satu Mare.
3 PhD. Student, Bucharest Academy of Economic Sciences.
1. Introduction
All new EU members aiming to join the
Euro Zone are bound to face more
challenges in the process of entering the
Monetary Union under the very serious
impact of the financial crisis. Even if at the
time the Euro bailout was widely disputed,
the “euroisation” seemed to be the way to
go ahead the crisis, since Robert Mundell
(Nobel economist widely recognized as
“the godfather of the euro”) states that “the
more countries accede to a monetary
union, the lower the internal and external
instability is and the more efficient the
currency becomes”, adding later that “a
currency union is like an alliance
shedding a small member with more
liabilities than assets can make the union
stronger”. Now, the Greece’s case showed
the fragility of the Euro, a reason why
various economists like Paul Krugman and
other claim that the euro was a mistake and
Mundell’s paper “The theory of optimum
currency areas” has deficiencies in terms
of fiscal and labour mobility, since Europe
did not have either and therefore “the
creation of the Euro Zone violated the
basic economic rule known as optimum
currency area (Robert Mundell. Euro is
the way to stay, Financia l Post, Jun 10,
2012). As a consequence, the Greek crisis
repercussions could be felt in the entire
Europe, especially in the Euro zone, since
the uncertainty regarding the Greek
Bulletin of the Transilvania University of Braşov • Vol. 6 (55) No. 1 - 2013 • Series V
72
economy continues to steadily erode the
support for Euro and poses the risk of a
further depreciation of the common
currency against the USD. given the
circumstances, the main European
Principle of Stability is affected and with
this, all the European countries, especially
the Euro Zone members, face a bad
situation since they have to repay their
debts in a depreciated currency.
In response to the worldwide financial
crisis, governments have bailed out their
large banks and some of their large
companies, thereby earnings equity stakes
in these enterprises. In the process, these
governments have accumulated massive
deficits. On the contrary, Estonia presents
on one hand a particular situation and an
opposite example for the euro’s resilience.
Following a reforming process started in
2004, Estonia transformed itself into a
dynamic economy, gaining recognition for
its sound fiscal record, economic freedom
and capacity to develop new technologies.
Moreover, Estonia has adopted the Euro
beginning with the 1st January 2011 and
joined the Euro Zone when things were
complicated in both European and world
economies. Following other post-
communist countries, Slovenia and
Slovakia, Estonia became the third one
which has fulfilled the Maastricht Criteria
on inflation, debt and the budget deficit.
Therefore, in order to reorient Romania’s
economy toward Euro adoption, we
conducted the current study for analysing
the best suitable or unsuitable measures or
conditions to adopt the euro.
The paper is organized as follows. The
first section provides a brief background
on the Estonian economy conditions that
have been favourable factors for Euro
adoption. Section 2 conducts an analysis
on the correlation of Estonia’s economy
with those of the euro area. Section 3
details the main lessons that Romania
could learn for the Euro changeover.
Section 4 concludes and addresses the
potential benefits or risks for Romania.
2. Literature review
Since the Euro developed as a currency
and as the European Union continued to
flourish, Europe has become one of the
main beneficiaries of the opening up of
China, Eastern Europe, and the New
World. Moreover, about 50 percent of
Euro Area exports of goods go to emerging
markets, roughly the same share as for the
United States. In 2008, extra euro exports
of goods fluctuated around 16 percent of
GDP, while the United States was less
export oriented at 9 percent (Global
Exposure Guide, 2007). The previous
comparison has abetted various economists
toward explaining the role of the European
common currency and its macroeconomic
or global impact in order to highlight the
importance of the integration and the
globalisation process.
Europe has increased in competitiveness
afterward the European Union
construction. From an undiscovered gem,
Europe has become a better alternative,
considering the large block of economic
advantages offered by the European Union.
The euro area certainly qualifies as large in
economic size, as measured by GDP, in
population size (passing 500 millions), and
in political configuration, as it
encompasses many nation states. In this
term, the recent globalization process is
offering new opportunities through greater
international cooperation but also creating
a more competitive environment (Radu I.,
2010, p.77).
Coming up to the real opportunities of
the European Union, some of them are
result of the removing of market
inefficiencies and the development
asymmetry between the European
countries which have been catalyzed
toward the convergence and integration

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