The Enlargement of Eurozone. the Case of Romania

The enlargement of Eurozone. The case of Romania

1. Introduction

The twelve new countries that entered European Union (EU27) in 2004, respectively 2007, are obliged to adopt Euro as their national currency and they do not benefit from the derogation status that Great Britain and Denmark do. The moment when each country will be able to enter the Euro zone depends on the fulfillment of the nominal and real convergence criteria. Four of the last countries that joined EU, Malta, Cyprus, Slovenia and Slovakia has already made the euro their currency. The rest of ten, including Romania, can be followed in different stages of convergence and they have partially achieved the convergence criteria.

The member states that have not adopted the Euro yet (10 new members plus 3 old countries- Great Britain, Denmark, Sweden) do not have a properly established timetable for joining Euro zone. Their attitude towards this has changed as a result of the international financial and economic crisis, some of the countries (Poland, Czech Republic, Denmark, Slovakia, even Island after adhering to EU) showing now their interest in urging the adoption of the unique currency.

The international financial crisis emphasized the advantages of being part of an economic union (with a common currency). This issue can be observed in the strong fluctuations that national currencies have suffered in this period (Graph 1), a relevant fact for countries with a high level of euroization and of financial instability. The states with a great number of other currencies loans have particularly a strong interest in fastening the euro adoption to reduce the exchange rate risk for companies and households (Graph 2).

However, ongoing financial crisis has worsened economic conditions in the EU's countries targeting the euro adoption and made all previous plans uncertain. Challenges associated with the euro adoption in EU's new members will be incomparable with those of their predecessors. Some of the EU's countries are now in the situation that they did not fulfill convergence criteria even during the quiet times and due to the changes of the economic environment (large swings of inflation rates, predictions of GDP growth are bleak and additional public expenditures dealing with the crisis are to expect) they will not fulfill them in the near future either (Žïárek, 2009).

Graph 1: The exchange rate for Euro (2007=100)

Source: European Central Bank

In addition, the EC and ECB officials have confirmed that they will insist on the relevant conditions and their amendment cannot be expected.

1.1 Romania-a new member of the European