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No Euro in the next three years, says Central Bank Governor

Central Bank Governor Mugur Isarescu recently told The New York Times that Romania's target of joining the Euro zone in 2015 is now "out of the question." Nevertheless, he argued that trying to meet the criteria to join – including keeping the budget deficit below three per cent of GDP – was good discipline.

November 2012 - From the Print Edition

Isarescu added that maintaining its own currency had given Romania the flexibility to set interest rates, control liquidity and allow the currency to depreciate to help rein in the deficit. In the absence of control over monetary policy, he noted, Euro zone countries like Greece are forced to rely primarily on fiscal policy: taxing and spending. "Of course there is a backlash and disappointment because EU accession was seen as a panacea," he said. "The dreams were too big."
In Romania's case, maintaining its currency, the lei, has made its exports – two thirds of which go to the Euro zone – more competitive and given it a lower cost of living that has made the country a sudden draw for highly qualified workers from struggling Euro zone countries.
The news comes one month before general elections in Romania, at a time when previously assumed economic and financial moves in the EU context might be subject to change once a new Government is in place.
The New York Times analyzes the current economic situation, calling Romania "hardly immune from crisis. Successive governments have grappled with a backlash against austerity. And the political turmoil that ensued when the Government of Victor Ponta pressed, and failed, to impeach President Basescu this summer shook investor confidence."
Prime Minister Ponta agreed with Governor Isarescu, and was quoted by Mediafax as saying: "I believe it is important to continue our efforts to meet the convergence criteria, namely those regarding the budget deficit and inflation. However, we have to think very carefully about the ‘real' criteria, those referring to the purchasing power of Romanians versus Euro zone countries." Ponta said that in his opinion Romania should adopt Poland's approach to the issue. "Romania should follow Poland's path, namely being a supporter of a united Europe and wanting to enter the Euro zone, but no longer with 2015 as a fixed target."
Before entering the Euro zone, a country has to meet the economic criteria included in the Treaty of Maastricht (a budget deficit of under three per cent of GDP, a public debt of maximum 60 per cent of GDP and an inflation rate that should not go over 1.5 per cent of the average of the best performing countries in the Euro zone).
Economists said Romania had avoided the profligacy that has unhinged the Greek economy, thanks in part to tough austerity measures beginning three years ago. The country slashed public sector wages by 25 per cent and raised its value-added tax to 24 per cent from 19 per cent, helping stave off budgetary shortfalls.
Romania's budget deficit amounted to about two billion USD, or 1.2 per cent of gross domestic product, in the first nine months of the year, compared with 17 billion USD, or five per cent of GDP, in Greece. The New York Times says growth this year in Romania is expected to be about one per cent, according to the Government, compared with an expected contraction of more than 6.5 per cent in Greece.



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