Romania's macroeconomic achievementsfor joining the unique european curency

• Author: Silvia Popescu
• Position: Associated Professor, Ph.D., Economics Faculty, ?Titu Maiorescu' University, Bucharest
• Pages: 243-251

Silvia Popescu

243

LESIJ NO. XVIII, VOL. 1/2011

ROMANIA'S MACROECONOMIC ACHIEVEMENTSFOR JOINING

THE UNIQUE EUROPEAN CURENCY

Silvia POPESCU*

Abstract

The Romanian government has announced plans to join the eurozone by 2015. Currently,

the leu is not yet part of ERM II but plans to join in 2010-2012. The economic advantages of the

monetary union grow with expansion of the Euro zone. There is also a high level of skepticism; the

main fear about the Euro is the inflation –that is considerable promoted by the Euro currency’s

exchange rate in comparison with 2002; another restraint is due to member states inability to

establish their own interest rates. The IMF arose the option of joining the Euro zone criteria

relaxing. A one-sided Euro’s joining was suggested by International Monetary Fund on

March-April 2009, in a confidential report mentioned by The Financial Times as the emergent

states in Central and Eastern Europe to be able to pass to the unique currency, but not being

represented in the Central European Bank Board. By its side, CEB considers that emergent states

of the European Union must not pass to the unique currency unilaterally, because such a fact

could under-mine the trust in Euro currency worldwide. This option would hardly deepen the

macroeconomic controversies inside the Euro zone and would contradict the previous conditions

already imposed. An acceptable solution could be the fastening of emergent countries joining the

Exchange Rate Mechanism 2, after they are aware of risks arisen by such a step. The European

Commission endorses in the Convergence Report on 2010 that Romania doesn’t meet any criteria

needed by passing to the unique European currency, respectively: prices stability; budget position

of the government; stability of exchange rate; interest convergence on long run and there are also

law impediments. Our paper discusses arguments for a faster passing to the Euro currency versus

arguments for a late joining the Euro currency in Romania.

Keywords: Euro currency, the economic depression, stability of exchange rate, monetary

policy, the financial depression.

Introduction

Theoretical foundation of optimum currency area (OCA) was pioneered by Mundell (1961)

and further developed by McKinnon (1963), Kenen (1969), Tavlas (1993), Bayoumi and

Eichengreen (1996) and others. Frankel and Rose (1996), found a strong positive relationship

between business cycles correlation and trade integration as the participation to a currency union

increases the integration of collateral trade which lead to greater business cycles synchronization;

Beside the nominal convergence criteria, the states who want to join a monetary union have to take

into consideration also the real convergence criteria: business cycle synchronization, demand and





* Associated Professor, Ph.D., Economics Faculty, „Titu Maiorescu” University, Bucharest (e-mail:

silvipopescu@gmail.com). This work was supported by the strategic grant POSDRU/89/1.5/S/62259, Project

”Applied social, human and political sciences. Postdoctoral training and postdoctoral felowship in social, human,

and political sciences” cofinanced by the European Social Fund within the Sectorial OperaYional Program Human

Resources Development 2007-2013.