Possible Risks of a too Early Adoption of Euro in Romania

Abstract

The aim of this article is to identify a possible risks generated by the Euro adoption for the Romanian economy, starting from the costs identified by the Optimal Currency Area theory. In this respect, we analyse the degree of convergence of Romanian economy related to the Euro Area. We use for this comparison of the Structural Convergence Index and the Index of Occupational Convergence, the Commercial Integration Degree using the trade intensity, and the Synchronization Degree of Business Cycles of Romania with the Euro Area through the analysis of correlation coefficients for business activity indicators i.e. GDP and Industrial Production Index. The background of the economic crisis was a test for the perspectives of Euro adoption by Romania; where, the negative external shock was transmitted through the trade channels with foreign partners. The monetary policy of the country proved to be inefficient in neutralizing the corresponding negative effects. The solution envisaged by the authorities was the use of an external adjustment mechanism rather than an internal one. However, in this case, the negative effects of the crisis will persist in the economy and will increase the adoption costs under the circumstances of a structural divergence between the Romanian economy and the Euro Area.

Keywords

• economic convergence
• trade integration
• business cycle synchronization