Romania is a relative newcomer to the European Union. A member of the EU since 2007, Romania is still often thought of as a country that is poor, corrupt, with dysfunctional public institutions and inefficient industry, a country that has yet to emerge from the shadows of its past. In reality, Romania is gradually conquering its longstanding internal issues to emerge as a financially sound country, one that is coming into a new era and in doing so is demonstrating the value of a gradual, cautious, approach to EU integration. Romania has yet to adopt the Euro, which has shown to be a better plan than adopting the Euro before an economy and its institutions are ready. In many ways, Romania is a European integration success story, even if it is one that is still in process.
When Romania joined the European Union in 2007, the country agreed to embrace EU values and to be under the supervision of EU institutions, to manage its own internal political and economic processes to meet the requirements of the EU’s “convergence criteria” as defined by the 1992 Maastricht Treaty and subsequent related EU agreements. The EU progressive integration process requires that, upon meeting the Maastricht convergence criteria, it would then follow that Romania would adopt the Euro and join the Eurozone, something it has yet to do.
Currently, Romania does not have a target date to adopt the Euro.
In April, the Romanian government officially revoked its target date for Euro adoption, once set for 2019, stating that the new Romanian government, following parliamentary elections in November of this year, would determine the adoption date. In May, the European Central Bank stated that Romania does not meet the Maastricht convergence criteria. Interestingly, the financial markets did not react to either the Romanian government’s statement to revoke the date, nor the ECB’s statement that Romania doesn’t yet qualify, meaning that investors were neither surprised nor disappointed about the news that Romania has no set plans to adopt the Euro currency.
Does this mean that the EU and Romania have failed to improve the Romanian economy and institutions since 2007? Quite the contrary – after having suffered through the global financial crisis, Romania has recovered from the crisis and enjoys economic growth above its peers. Romania is now one example that a EU country can improve its economy and institutions without adopting the Euro. In fact, by delaying Euro adoption, and avoiding the policy constraints that joining the Eurozone imposes on member states, Romania has benefitted by allowing the underlying real economy time to become more competitive in a gradual way, through trade with the EU, receiving foreign direct investment, and financial market reform. Romania still has a long way to go to improve competitiveness in infrastructure, education, and healthcare.
Today, by most financial market measures, Romania looks sound. Romania has a stable currency, low interest rates, bond yields and other market-related measures that reflect a strengthening sovereign credit. Romania is favored by most of the credit rating agencies that measure credit-worthiness. Foreign investors are interested, too. The economy looks better than ever, growing at full tilt by aggregate growth measures.
Admittedly, Romania’s relatively high growth rates are coming from a low starting point, as Romania is one of the poorest of the EU member states, a fact that underscores that Romania needs time to catch up with its EU trading partners, particularly Germany, Italy and France, but also Russia. Romania also has to its advantage a banking sector that was internationalized under the management of the National Bank of Romania in the late 1990s which brought the benefits of expertise, technology, and capitalization, all of which contribute to the strength of Romania’s banking sector today.
Does this mean that the Romania doesn’t require the EU support? No, Romania has relied on, and will continue to rely on, EU support to revitalize its institutional, regulatory, and legislative framework, as well as bring a new culture of administrative management and innovation to its public institutions, including the judiciary. When Romania joined the EU with Bulgaria in 2007, both countries were subjected to a special anti-corruption program. Romania is now expected to graduate from the program. Institutional transparency and accountability are improving, and prosecutions are up.
2016 is an election year. Expect the trends of further EU integration to continue after November elections, whoever is elected, as EU-supervised programs will resume momentum in privatization, institutional renewal, and infrastructure spending. An apparent risk for Romania and EU convergence is the “new” Fiscal Code to cut taxes and increase government expenditure. The Fiscal Code is “populist” by design, election year fiscal loosening to stimulate domestic demand. In reversing the trend of fiscal consolidation, the Fiscal Code could generate hard to correct budget excesses as well as generate social and economic costs over time.
Romania is coming into a new era at its own pace, gradually, both economically and politically despite the concurrent EU crises (the Eurozone crisis, Brexit, the migrant crisis, and the conflict in the Ukraine). Romania will hold the rotating presidency of the Council of the EU in 2019. Will the Romanian government be ready to lead the EU? Probably. Will Romania have adopted the Euro by 2019? Certainly not. Even so, Romania exemplifies that the direction of integration policy is important, that gradualism in improving competiveness contributes to sustainability of economic and political convergence and supports the EU goal of progressive integration. Alternatively, meeting Maastricht convergence criteria and adopting the Euro before a country’s underlying economy is sustainably competitive and has the institutions to support it, only contributes to further the “dis-integration” of the EU and the fragmentation of the Eurozone, as well as the political will that supports it.