Romania and the Euro Zone

Only available on StudyMode
  • Download(s) : 21
  • Published : February 16, 2013
Open Document
Text Preview
Should Romania join the Euro zone?

I. Introduction
Normally, according to the commitments and timetable agreed with the European Union and the European Central Bank, Romania has scheduled to join the single European currency (Euro) in 2010-2013. As can be clearly seen the term it is not available anymore, due to the global and national economic developments. Therefore the Romanian Government and the National Bank of Romania (NBR) has set a new deadline to adopt Euro as national currency in 2015. Romanian Government showed no sign of freezing plans to join the euro area. However, given the instability of European economic situation, neighbors to the south, Bulgarians, announced plans to freeze membership. Romania maintains its target of joining the euro zone in 2015. Two years in ERM II - exchange rate mechanism, called Euro zone waiting area - will help officials to ascertain whether Romania has the ability to effectively convert to the euro and could withstand the impact of such change. NBR officials found 2015 to be a realistic time frame although some advised voices fairly warned that Romania again will not be able to achieve the minimums requirements that the European Central Bank impose to a country for the euro adoption. But NBR continued to march on the 2015 term, citing (actually right seen from a point of view) that keeping a relatively close period of time will lead to the mobilization of all factors involved in achieving this goal and finally achieving this objective of national interest.

II. The importance of Euro adoption for Romania
Euro Currency in Romania: Why is a unique currency necessary? Using a single currency has the following results:
* Cutting out conversion charges from a national currency to another * Dropping out the exchange risk on commercial trades with other euro zone members * Increasing the efficiency of financial and monetary markets * Transparency of prices of goods and services within the euro area, which causes an increased market competition * A better distribution system of resources and a better economic integration between European partners Adoption of Euro currency brings a series of advantages that can be grouped as direct and indirect benefits. Reduction of costs for euro transactions will be obvious for companies and people. Also, the companies will reduce the administrative costs for managing foreign exchange transactions. The elimination of exchange risk rate against euro and substantial reduction of currency risk against other currencies is perhaps the most important advantage, with benefic effects on foreign trade. Euro adoption will allow comparability and transparency of local prices with those in other euro zone countries. Also, the euro brings a lower cost of capital by lower interest rates, with positive effects on the investment process and the long term economic growth. Disadvantages and costs related to the euro adoption are related first of all with losing the independence of monetary policy and euro conversion costs. If euro conversion costs are only short term costs, the loss of monetary policy independence is the most important long term disadvantage. The monetary policy allows the economic policy to answer the shocks (both internal and external) occurring in the economy. Dropping off the national currency assumes a unique monetary policy and currency exchange policy. If such a country is in recession and needs an incentive monetary policy, but at the same time the remaining euro area countries are in the ascending phase of the economic cycle, requiring a restrictive monetary policy, there is a dilemma related to this lack of synchronization of business cycles. Before entering the euro area and abandon its own monetary policy, a country must ensure that the business cycle is synchronized with the euro area and it will remain synchronized in the future.

III. Conditions for Euro adoption in Romania
A. Maastricht...
tracking img