Romania and the monetary union: An example for emerging countries

Abstract

The European and world economy have taken a serious downturn in recent years. The European Union and the Euro-area have been challenged by the enlargement process, by diversity as a central feature of the group, and also by the economic and financial crisis. Romania, the EU 7th largest member state, under the effects of the “no opt-out” clause, will be facing, rather soon, the Euro adoption as a new challenge along with all its implications. This has become an even greater challenge due to recent evolutions in Greece, Ireland, Portugal or Italy. Beyond the simple member status, or the enlargement of the Euro-Area, foreseeing the future of the European single currency – the Euro raises serious questions around the real convergence process and its interaction with the actual crises. The optimal currency area (OCA) convergence frequently emerges as the missing puzzle piece in a functional monetary union system. This paper wishes to accomplish a brief evaluation of Romania’s real convergence in respect to the Euro-zone. But this is not the only issue raised here. Apart from that, in accurately quantifying real convergence we must focus on the most enhancing, relevant and suitable set of indicators for the real convergence, as the literature has not yet imposed a single set as universal or at least as generally agreed upon. In assessing real convergence as a clear aim for Romania on a medium term perspective, this paper envisages applying the optimal currency area theory. Convergent evolution may be influenced by several factors showing the evolution of the main disparities in the compared economies. Taking this into account, we shall also compute the variation coefficient of the GDP per capita or the σ-convergence as an expression of the dispersion of this indicator. Key words: Real-convergence, Euro, optimal currency area, Romania.