Romania Sets Out Plans To Join The Euro

Less than one month after joining the European Union, Romania announced plans Wednesday to join the euro by 2014. Analysts believe that Romania's ambitions to sign up to the eurozone in the next 7 years could be realistic with robust economic growth helping to underpin Bucharest's efforts at adhering to tough budget discipline.

But they are concerned that political differences in Romania over economic reform could slow the nation's drive to reform.

Indeed, nations seeking to join the euro have to meet a series of strict fiscal targets, including a maximum budget deficit of three per cent of gross domestic product and an even tougher inflation goal.

Slovenia became the first of the new EU states, which joined the EU in May 2004 to adopt the euro when it signed up Europe's common currency on January 1 and consequently expanded the eurozone's membership to 13.

At the same time, however, economists have been rolling back their timetable for when other new EU member nations might be ready to join the eurozone.

Many nations that joined the EU in 2004 have preferred to try to catch up to economies in western Europe by following an economic growth path rather than attempting to squeeze their countries' state finances into the strict fiscal rules for euro member states.

Romania's budget for this year is based on a budget deficit of 2.8 per cent with the nation's annual inflation rate falling to 4.7 per cent in November, the lowest in almost 17 years.

What is more, Romania is expected to post a growth rate of about 6 per cent this year, powered by double-digit export growth and buoyant consumer demand.

A solid inflow of foreign investment and EU funds is also helping to keep the nation's current account deficit from reaching worrisome levels.

In setting out its timetable for euro membership, Romania said it planned to join by 2012 the European Exchange Rate Mechanism, which represents a key step along the tough road to euro.

However, a new key test of the process for joining the euro is likely over the next 12 months with Slovakia having set 2009 as the deadline for joining the euro.

This means that 2007 will be a crucial year for Slovakia to knock its state finances into shape before the European Commission rules on its candidacy in early 2008.

Should Slovakia succeed in meeting the 2009 deadline for euro membership it is likely to become the first of the leading new EU states - Poland, the Czech Republic and Hungary - to adopt the euro.

Slovakia has already become the first of the four key EU newcomers to sign up to the European Exchange Rate Mechanism.