Romania's Euro Area accession : the question is under what terms!

Abstract

Euro area (EA) accession should mainly depend on the achievement of a critical mass of real and structural convergence, which should diminish the risks to operate in an incomplete monetary union. Accession would also be enhanced by reforms in the functioning of euro area institutions and policies which should deal with asymmetric shocks. We argue that the true stake of euro adoption in Romania should be neither “if’’ nor “when”, but “under what terms” and “how it will be done”. The essential prerequisite for real convergence is raising competitiveness. Our analysis shows common problems regarding competitiveness in new member states in terms of infrastructure, institutional development, business sophistication, innovation; it points out the scale of risks attached to a premature euro area accession. This accession does not require the achievement of the euro area average level of GDP/capita (in PPP terms). As we argue, one can imagine Romania’s accession after having achieved a minimum of 75% of euro area GDP/capita average and the fulfilment of a series of structural conditions against the backdrop of euro area reforms.