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IMF chief recommended Romania to delay joining the euro zone

de Dan Popa, transl/adapt. C.B.
Marţi, 30 martie 2010, 15:36 English | Politics

Dominique Strauss Kahn
Dominique Strauss Kahn is straightforward in recommending Romania to delay its intention to join the euro zone. "If you adopted the euro one or even two years later, it would be for the better. The objective reality is to have good economic figures to respect the requirements of joining the euro zone and then to realise that what has been done has been done in haste", IMF chief told The economists interviewed by on the issue agree: instead of joining the euro zone like the Greeks did, it's better to solve the economy's problems first and only later to think about it.

"It is not me who needs to decide. The Government needs to do it, but adopting the euro is not an independent target, it is a target because Romania chose to have a convergence programme for the euro zone. And adopting the euro should not be just for one year, but sustainable", Dominique Strauss Kahn explained.

Macroanalitica Managing partner macro-economist Laurian Lungu told that the risks of a premature adoption of the euro risks a Greek crisis.

"A forced shift to euro - with an economy which is not ready from a structural point of view - inevitably creates the premises of a crisis similar to the Greek, Portuguese or Spanish crisis. Judging by the way the economic conjuncture looks like, I'd say that Romania needs at least three to four years to have a macroeconomic stability, necessary for adopting the euro."

"Even if 2014 needs to remain the target for joining the euro zone, the adoption of the euro needs to happen only when the economic performance is sustainable. From this perspective, a delay of one or two years would be totally justified", Laurian Lungu believes.

Applied Economics Group economist Liviu Voinea told that "we can still catch 2015, but I, too, believe, and I have repeatedly said this, the adoption of the euro needs to be a consequence of a macroeconomic stability and of the structural reforms, not an independent target. Anyhow, the situation of Greece, but also Spain and Portugal show that the euro zone has not automatically been the umbrella that some expected."

"I think we should take advantage of the foreign currency and monetary policy independence as much as we can for the next two years", Liviu Voina claims.

Raiffeisen chief-economist Ionut Dumitru opinionated that "we will probably be never 100% ready to join the euro. And it is not only about us, but there have been others as well, even euro zone nucleus states, but I think we should analyse the advantages and disadvantages of this club's membership. And from this point of view, 2015 is still feasible and seems the best decision", Dumitru claims.

To his mind, everything is down to how we will join this project and how we will manage to fulfil the convergence criteria. "It is mainly about the criteria addressing public finance and inflation, but especially the preparation of the real economy through structural reforms, so that it copes successfully with the unique currency zone membership.

Aside from that, if we don't have recovered the public finance quickly on healthy grounds (especially the social side funded by the budget), the target for joining the euro zone will be pushed further away", Dumitru believes. According to him, an extremely important factor is the future appetite of the euro zone to welcome new members, after all discussions these days on the economic and financial situation of some member states.  

What does Romania need to join the euro zone?

Theoretically, in order to adopt the euro, Romania needs several "aesthetic surgeries". The economy should be flexible to shocks, to strong fiscal policies which should allow the stabilisers' automatic functioning and a low inflation to minimise the dissimilarities with the European Central Bank's monetary policy.

For example, European Central Bank's researchers that in the case the exchange rate is associated either with a rather high rate or with a lower economic growth, losing the monetary policy independence is not going to result in advantages, but costs, The counter-argument is valid as well.

Usually, in the period ahead of joining the euro zone, there are speculations on the exchange rate, but this is not the main issue. The serious part seems to be making the economy ready in the run for joining the euro. And the major aspects are: the fiscal position, the work force labour market conditions, the financial markets' resistance and strength and the accession conditions imposed by the EU (the Maastricht criteria).

Romanian Central Bank sources told that the IMF's chief message actually means that Romania needs to make the reforms to join ERM II in 2012.

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