ECONOMY

Romania likely to adopt euro no earlier than 2012

BUCHAREST (Reuters) – Romania’s central bank governor, Mugur Isarescu, reaffirmed the country’s goals to adopt the exchange rate mechanism (ERM) in 2010-2012 and join the eurozone sometime between 2012-2014. Euro adoption timetables have slipped across Central Europe, owing to the difficulty of meeting the tough inflation criterion and because of political ambivalence toward early adoption, coupled with the challenge of painful fiscal retrenchment. Romania’s biggest difficulty in terms of meeting the criteria for eurozone membership is its stubborn inflation, driven by rampant domestic consumption, high energy prices and ongoing rises in administrative prices. «It is unrealistic to knock at the door of the ERM-2 earlier than 2010. This ERM-2 test is extremely important. If you rush to enter there you may start trembling,» Isarescu told a banking seminar. «Our vision is to have a consolidation period of three to four years, from 2007 to 2010, in which outstanding structural reforms will need to be done… for instance, pension reform,» he added. He said the period prior to joining the ERM-2 should be used to consolidate lower inflation figures, form a domestic market of long-term capital and ensure convergence of interest rates and the relative stability of the exchange rate. Isarescu said the central bank has already asked the government’s views on a plan outlining euro membership plans, which the bank’s chief economist Valentin Lazea has said would be submitted to Brussels in January, after Romania joins the EU. Asked whether he sees Romania adopting the single currency before its western neighbor Hungary, which joined the wealthy bloc in 2004, Isarescu said: «I do not rule it out but probability to materialize is not so big. We’ve seen Slovakia from its posture of a negative example… and it jumped ahead of the Czech Republic, so many things may happen. But the race is not important.» A Reuters poll of 34 emerging-market strategists indicated last week that for Bulgaria and Romania, which clinched the green light to join the EU in January, euro adoption is likely to come in 2012 and 2013 respectively. In both countries, wide current account deficits remain their biggest hurdles. Both countries are running government budget surpluses but future spending plans on infrastructure could boost deficits.