Romania to decide on euro adoption calendar in April 2017

Romania to decide on euro adoption calendar in April 2017
By bne IntelliNews December 9, 2016

A new government committee has been created to set Romania’s euro adoption calendar, which has remained in limbo after the initial 2015 deadline was moved to 2019 and eventually dropped. 

While there is visible political will for euro adoption among both major political parties in terms of rhetoric, this has not yet offset the real convergence argument. The country needs nine to 13 years to reach acceptable real convergence (measured in per capita GDP at purchasing power parity) depending on the scenario assumed, one of the many papers on this topic revealed recently.

The government has set up the inter-ministry committee under the supervision of the prime minister, with responsibility for setting the euro adoption timeline and including it in the next issue of the National Convergence Programme scheduled for April 2017, Ziarul Financiar daily reported. It is not clear whether a committee set up by a government just a few days before the end of its term (elections will take place on December 11) will provide more impetus in Romania’s euro adoption process.

The document endorsed by the Romanian government on December 8 establishes the representation in the inter-ministry committee of the public institutions involved in preparing the country’s euro adoption and carrying out the the structural reforms needed for real convergence. In the latest version of the National Convergence Programme endorsed on April 27, the government confirmed the country’s commitment to adopting the single currency, but no specific calendar was drafted.

Eventually, however, this is a political decision. The governor of the central bank in Bulgaria for instance, a country that is in no better economic shape than Romania, said on December 8 that “it is the right time for the country to access the ERM II Mechanism.” Governor Dimitar Radev argued in favour of such a move demonstrating country’s commitment for integration. 

Meanwhile, Romanian central bank governor Mugur Isarescu has constantly expressed caution on euro adoption. While Bulgaria runs a currency board, Romania’s central bank operates a more flexible managed floating regime – which might explain the diverging views of the two governors.

Comments by ministers and central bank officials show the gradual evolution of thinking on the timescale for adoption of the single currency. In spring 2014, Romania's then Budget Minister Liviu Voinea, now vice-governor of the central bank, announced that the government was targeting 2019 for euro adoption. At the time, the central bank did not challenge the feasibility of the target, but nor did it embrace the target.

However, 18 months later Isarescu said that 2019 had become an unrealistic target. While admitted that technically this was still possible, Isarescu questioned the benefits of potential last-minute efforts by the Romanian authorities.

Also in September 2015, the central bank's vice-governor Bogdan Olteanu deemed the 2019 target to be infeasible, indicating 2022-2023 as being more realistic. Olteanu cited the need for more progress in terms of real convergence, which should lead to a GDP per capita of above 60% of the euro area average, according to previous comments from the central bank.

Finance Minister Anca Dragu said in April that while Romania had abandoned its 2019 euro adoption target under the 2016-2019 Convergence Programme, a calendar for euro adoption would be drafted under the subsequent programme by next April.