The authorities in Bucharest should move the target date sometime after 2021, Erste said in its report “Romania’s euro membership: a moving target?”
“During the past years, Romania’s euro membership has become a moving target. The latest set deadline is 2019. We see this new timeline as very ambitious and believe that a more realistic time span should go beyond 2021,” the Austrian bank said.
It said that Romania is currently likely to meet three of the five nominal criteria to join the euro area. Though the last two criteria could be met within the next couple of years, achieving the real convergence indicators might take significantly longer.
“The recent financial crisis has shown that the nominal convergence criteria fail to properly reflect the potential problems that a country might face after premature accession to the euro area, ignoring the competiveness and convergence gap of the real economy,” the report noted.
Labor productivity, the risk of poverty and social exclusion, alongside the value of the gross domestic product per capita at purchasing power parity (or GDP per capita at PPP), are some of the key real convergence indicators that require substantial improvement before Romania could join the euro area.
For example, in terms of labor productivity, Romania stands 50% below the EU average and well below the most recent euro members, namely Slovenia, Slovakia, Estonia and Latvia, Erste said.
“Assuming a 3% annual increase, which is a rather moderate figure, Romania would need about eight years to match the level of Latvia when it joined the euro area.”
Another relevant indicator showing that Romania is still far from the euro area in terms of development and real convergence is the risk of poverty and social exclusion.
“Assuming that the current convergence trend continues, Romania would need another 7-8 years to reach the level posted by Latvia when it joined,” the report noted.
As to the value of the GDP/capita at PPP, the report shows that Romania’s GDP per capita is rising, but it has barely reached 50% of the EU average.
“The development gap between Romania and the rest of the EU is too large to be ignored, although all of the nominal convergence criteria are likely to be achieved soon,” Erste concluded.