European Commission: Romania does not fulfill euro zone criteria

Romania does not fulfill the criteria necessary to adopt the euro, even though it made serious progress during its EU integration process, a convergence report adopted yesterday by the European Commission reads. The document analyzez Romania's economic evolution and concludes that there are not sufficient progress to adopt the euro.

In its 2010 convergence report, the Commission said Romania, Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland and Sweden don't meet the criteria to adopt the euro. Estonia, on the other hand, was given green light to join the eurozone, pending final decision from the EU finance ministers in July.

Romania plans to join the eurozone in 2015

According to the Commission, the Romanian legal framework, particularly the one regarding the central bank BNR, is not entirely compatible to articles 130 and 131 of the Treaty on the Functioning of the European Union (TFEU) and the ESCB/ECB Statute (the statute of the European System of Central Banks and of the European Central bank).The list of incompatibilities includes the integration of Romanian central bank to the European central banks' system, the bank's independence, as well as the prohibition on monetary financing, excepting for "emergency assistance."

As to the convergence criteria, the Commission notes the 12-month average inflation rate for Romania has been above the reference value since EU accession in 2007. In March 2010, Romanian inflation rate was 5%, i.e. 4 percentage points above the EU reference value of 1% (calculated as the average of the 12-month average inflation rates in Portugal, Estonia and Belgium plus 1.5 percentage points).

"The 12-month average inflation for Romania is likely to stay well above the reference value in the months ahead," the Commission said.

It said the eastern European country doesn't meet the criterion pertaining to the government budgetary position either. Romania is currently subject to excessive deficit procedures launched by the Commission in 2008 and it needs to lower its deficit to below 3% of the gross domestic product by 2012.

Romania's budget gap widened to 8.3% of GDP in 2009 from a deficit of 5.4% of GDP a year earlier. The Commission estimates the country's deficit will reach 8% of GDP in 2010 and will narrow slightly to 7.4% of GDP in 2011.

The debt-to-GDP ratio is expected to reach 35.8% in 2011, from 30.5% envisaged for this year.

Exchange rate stability in Romania, as well as the level of long-term interests rates are still above the European values, the Commission noted.

It said additional factors analyzed in view of Romania's potential accession to the eurozone, including the balance of payments and product and financial market integration, also lag behind compared with the 16 states that use the euro.