Loading page...

Romanian Business News - ACTMedia :: Services|About us|Contact|RSS RSS


Romania does not fulfill Eurozone convergence criteria regarding inflation, exchange rate, fulfills rest


Romania has not fulfilled two of the five nominal convergence criteria for adopting euro, namely those regarding inflation and exchange rate, but it fulfilled those regarding budget deficit, public debt and long-term interest rates, the Convergence Report published on Wednesday by the European Commission shows.

Romania does not fulfill criterion regarding the stability of prices. The median inflation rate in the past twelve months, until April 2014, was 2.1 percent, over the reference value of 1.7 percent, calculated as the median over the last twelve months in Lithuania, Portugal and Ireland (e.n. - the best performing countries in the EU) plus 1.5 percent. Furthermore, the EC estimates indicate that inflation will remain over the reference value in the coming months, the EC report shows.

However, the inflation rate will remain low in 2014, sustained by the reduced costs of foodstuffs, but will rise in 2015 as a consequence of the return of internal demand. 'The EC's spring projections show an average monthly inflation rate of 2.5 percent in 2014 and 3.3 percent in 2015', the report mentions.

On the other hand, the relatively low prices of Romania (54 percent of the Eurozone average in 2012) show a significant potential of convergence on a long term.

In what regards the exchange rate, the EC report shows that our country does not fulfill this criterion.

The Romanian leu did not participate in ERM II, but traded under a flexible exchange rate regime involving a managed floating of the currency that allows interventions of the central bank on the market value, the report shows.

After the international financial crisis at the end of 2008, beginning of 2009, the leu has stabilized and was traded usually in the price range of 4.1 - 4.3 lei/euro up until the end of 2011. In the past two years, the leu's exchange rate has dropped 1.9 percent against the euro, according to the quoted document.

On the other hand, Romania is fulfilling the criterion regarding public finances.

Romania is not currently subject to an EU Council decision on the existence of an excessive deficit. The budget deficit has dropped from 5.5 percent of the GDP in 2011 to 3 percent in 2012, especially due to cutting expenses, but also due to increasing income. In 2013, the budget deficit was of 3.4 percent of the GDP and, according to the EC's spring predictions, it will be reduced to 2.2 percent of the GDP this year and to 1.9 percent in 2015. Public debt will grow, however, from 38.4 percent of the GDP in 2013, to 40.1 percent in 2015, according to the EC report.

Our country also fulfills the criterion regarding long-term interest rates. Romania's interest rates were over the reference value in 2012, but have gone down in April 2014 to 5.3 percent, under the reference value of 6.2 percent. As such, the spread between the long-term interest rates of Romania and German benchmark-type bonds have gone down from over 500 base points at the end of 2012 to approximately 380 in April 2014, the report also shows.

Beside the five nominal convergence criteria, as set by the Maastricht Treaty, the European Commission has analyzed other factors such as the balance of payments, whose deficit has adjusted, the business environment, where Romania has not performed as well as the other Eurozone states, and banking legislation, which is not totally compatible with the introduction of the European unique currency.