Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

THE PERSPECTIVE OF ROMANIA'S CONVERGENCE IN THE

EUROPEAN UNION

DUŢĂ ALEXANDRU

PHD. CANDIDATE, WEST UNIVERSITY OF TIMISOARA, FACULTY OF ECONOMICS AND

BUSINESS ADMINISTRATION,

e-mail: alexandruduta@alexandruduta.com

Abstract

In the paper we intend to analyze how Romania fulfills the Maastricht criteria. As a basis of assessment, we

have used the convergence reports from 2014 and 2016. Our conclusion is that while most of the convergence criteria

are met by Romania, the target of 2019 is inoperable and the setting of another target must take into account, in

addition to the convergence criteria and financial stability, also the structural competitiveness of the Romanian

economy.

Keywords: convergence criteria, financial stability, HICP inflation, budget deficit, public debt,

Classification JEL: F010

1. Introduction

According to Article 140 of the Treaty on the Functioning of the EU (Maastricht Treaty),

the ECB publishes the "Convergence Report" at least every two years or at the request of an EU

Member State that has been granted a derogation.

In economic theory, a distinction is made between nominal convergence (defined by treaty)

and real convergence.

The nominal convergence indicators are:

budget deficit - maximum 3% of GDP;

public debt - up to 60% of GDP;

inflation - a maximum of 1.5 points higher than the average of the top three countries with the

best rate;

Long-term interest - 2 points higher than the average of the three better-positioned countries;

exchange rate stability - +/- 15%.

Real convergence indicators aim at assessing standards (in the sense of closeness) to

economic and social performance. Specialist literature proposes various indicators for determining

the degree of real convergence. Cristian Paun, for example, is considering: GDP / place; work

productivity; high tech patents at 1000 place; export / place .; gross added value / place; gross

capital formation / place. (Păun, 2011). In its analysis, for Romania, Bulgaria, Hungary and Poland,

it calculates the Euclidean distances of these countries to the Eurozone.

The conclusion reached is the following: Romania should have 287 years to achieve Euro

Zone performance.

0,0084 2,409Y Timpul

We consider that the assumptions used by Cristian Paun are questionable and demobilizing.

In this sense, we believe that the convergence typology presented by Hanusch and Balzat

would be more appropriate for analysis: monetary convergence (inflation rate, interest rate,

exchange rate, budget deficit, external debt); fiscal convergence (budget deficit, public debt,

external debt); real convergence (GDP / place., share of agriculture in GDP, unemployment rate,

share of international trade); institutional convergence (legal framework, banking system, trade

liberalization, openness to the external market) (Hanusch & Balzat, 2004). This typology has the

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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

advantage of differentiating by domains, identifying the practical directions of action to achieve

convergence.

2. The perspective of Romania's convergence in the European Union

Our analysis starts from convergence reports that are a synoptic picture of the state of

European integration (ECB 2014, ECB 2016). A summary of the economic convergence indicators

is presented in table no. 1:

Table no. 1: Synoptic Table on Economic Convergence Indicators (ECB, 2014, 2016 and

2017)

Ţara

Stabilitatea

preţurilor Finanţele publice Cursul de schimb Rata

dobânzii

pe termen

lung (6) Rata inflaţiei

IAPC (1)

Ţară cu

deficit

excesiv (2)

Excedentul

deficitului

bugetar (3)

Datoria

publică

brută (4)

Moneda

participă la

MCS II

Cursul de

schimb faţă

de euro (5)

Bulgaria

2012

2013

2014

2015

2016

2,4

0,4

-0,8

-1,1

-1

Da

Nu

Nu

Nu

Nu

-0,8

-1,5

-1,9

-2,1

-2

18,4

18,9

23,1

26,7

28,1

Nu

Nu

Nu

Nu

Nu

0

0

0

0

0

4,5

3,5

3,5

2,5

2,5

Republica Cehă

2012

2013

2014

2015

2016

3,4

2,3

1,1

0,3

0,4

Da

Da

Da

Nu

Nu

-4,2

-1,5

-1,9

-0,4

-0,7

46,2

46

44,4

41,1

41,3

Nu

Nu

Nu

Nu

Nu

-2,3

-3,3

-5,6

0,9

0,9

2,8

2,1

-2,2

0,6

0,8

Croaţia

2012

2013

2014

2015

2016

3,4

2,3

1,1

-0,3

-0,4

-

-

Da

Da

Da

-5

-4,9

-3,8

-3,2

-2,7

55,9

67,1

69

86,7

87,6

Nu

Nu

Nu

Nu

Nu

-1,1

-0,8

-0,8

0,3

0,5

6,1

4,7

4,8

3,8

3,7

Lituania

2012

2013

2014

2015

2016

3,2

1,2

0,6

-

-

Da

Da

Nu

-

-

-3,2

-2,1

-2,1

-

-

40,5

39,4

41,8

-

-

Da

Da

Da

-

-

0

0

0

-

-

4,8

3,8

3,6

-

-

Ungaria

2012

2013

2014

2015

2016

5,7

1,7

1

0,1

0,4

Da

Da

Nu

Nu

Nu

-2,1

-2,2

-2,9

-2

-2

79,8

79,2

80,3

75,3

74,2

Nu

Nu

Nu

Nu

Nu

-3,5

-2,6

-3,6

-0,4

-0,7

7,9

5,9

5,8

3,4

3,4

Polonia

2012

2013

2014

2015

2016

3,7

0,8

0,6

-0,7

-0,5

Da

Da

Da

Nu

Nu

-3,9

-4,3

5,7

-2,6

-2,6

55,6

57

49,2

51,3

52

Nu

Nu

Nu

Nu

Nu

-1,6

-0,3

0,3

0

-4,2

5

4

4,2

2,7

2,9

România

2012

2013

2014

2015

2016

3,4

3,2

2,1

-0,4

-1,2

Da

Da

Nu

Nu

Nu

-3

-2,3

-2,2

-0,7

-2,8

38

38,4

39,9

38,4

38,7

Nu

Nu

Nu

Nu

Nu

-5,2

0,9

-1,5

0

-1

6,7

5,4

5,3

3,5

3,6

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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

Suedia

2012

2013

2014

2015

2016

0,9

0,4

0,3

0,7

0,9

Nu

Nu

Nu

Nu

Nu

-0,6

-1,1

-1,8

0

-0,4

38,3

40,6

41,6

43,4

41,3

Nu

Nu

Nu

Nu

Nu

3,6

0,6

-3

-2,8

0,6

1,6

2,1

-2,2

0,7

0,8

Valoarea de

referinţă 2014-

2016

0,7% - -3% 60% - - 4%

Valoarea de

referinţă 2012-

2014

1,7% - -3% 60% - - 6,2%

(1) variaţia procentuală medie anuală. Datele pentru 2014 se referă la perioada mai 2013 – aprilie 2014.

Datele pentru 2016 se referă la perioada mai 2015 – aprilie 2016;

(2) ţară cu decisiv excesiv conform deciziei Consiliului UE cel puţin pentru o parte a anului;

(3) informaţiile pentru anul 2014 se referă la perioada anterioară termenului limită – 15 mai 2014 iar pentru

2016 la 18 mai 2016;

(4) procente în PIB;

(5) variaţii procentuale anuale medii;

(6) rate ale dobânzii anuale medii. Datele pentru 2014 se referă la intervalul mai 2013 – aprilie 2014 iar cele

pentru 2016, mai 2015 – aprilie 2016.

The conclusions are as follows:

in relation to the 2014 convergence report, the 2016 report shows an improvement in

HICP inflation;

Bulgaria, Croatia, Poland and Romania had oscillating inflation rates, Romania being

the only country which compared to the reference value (0.7%) had a higher rate in the

2014 convergence ratio, reaching 2016 at -1, 3%. The graphical representation of HICP

inflation in the convergence report 2014 and the 2016 convergence ratio is shown in the

following graph:

Fig. 1. HICP inflation (annual average percentage variations) (ECB, 2016)

the surplus, the general government deficit shows that only Croatia is the exception with

an excessive deficit. If in the 2014 report the deficit was also in the Czech Republic and

Poland, the situation in 2016 improves. In 2015 and 2016 Romania fits into the budget

deficit (ECB, 2016).

189

Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

Fig. 2. Consolidated general government surplus / deficit (ECB, 2016)

in terms of public debt, Croatia and Hungary were the only countries with a public debt

in GDP ratio above the 60% reference value in 2015. Romania had a public debt of

38,4% in 2015 and of 38,7% in 2016;

Fig. 3. Gross government debt (ECB, 2016)

the currencies of the countries under consideration do not participate in the MCS and

therefore the exchange rate criterion is unfulfilled. We have a volatility in the exchange

rate;

long-term interest rates are lower than the reference level;

in terms of nominal convergence, Romania largely fulfills the Maastricht criteria

(Isarescu, 2015).

Table nr. 2. Criteria from Maastricht: 2015 vs. 2008 (Isarescu, 2015)

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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

According to the methodology for monitoring imbalances, only PIIN exceeds the alert level

(Isărescu, 2015).

Table nr. 3. Dashboard - Macroeconomic imbalances (Isărescu, 2015)

Romania remains committed to adopting the euro, the question arises when and if setting a

target is appropriate. Initially, it was set as target date 2019 through the 2014 convergence program.

This would have assumed entry into ERM II on 1 January 2016. This has not happened. Therefore,

the strategy that Romania must adopt must take into account the following aspects:

• the experience of the 2008 crisis has shown that fulfilling the Maastricht criteria was not

enough to avoid it;

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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

• to adhere to the euro, you need to have a sustainable economy based on competitiveness and

financial stability, otherwise there is a risk of a global downturn in the economy as in

Greece.

surprisingly, the slowdown in growth rates in Central and Eastern European countries was

moderate, although they had a floating rate regime.

3. Conclusions

Our conclusion is that countries with financial stability and economic competitiveness

problems will have more problems in the euro area than outside. It is more reasonable to set a

more distant target, in order to restructure the economy and, of course, the intermediate steps

being pursued taking into account the economic realities:

Improving institutional quality. On a scale of 1 (the country with the best results in the

EU) to 28 (the country Improving institutional quality with the weakest results in the

EU), Romania is below the European average (Figures 4 and 5);

Fig. 4. Institutional quality - a (WGI, 2015)

Fig. 5. Institutional quality - b (WGI, 2015)

Improving the infrastructure. Romania does not have a medium to long-term feasible

program of public investment and attracting European infrastructure funds;

Regional homogenisation. There are large disparities in the development of the regions.

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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue, volume I /2017

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

Within European countries, Romania has the highest regional heterogeneity.

Competitiveness of the structure of the economy. Agriculture has the largest share of

Gross Value Added in the EU, as labor productivity in agriculture in Romania is very

low. Taking into account that over a quarter of the population is working in agriculture,

the gaps to recover are still high. Within the structure of the economy, industry has a

large share (something specific to the eastern bloc). The fact that industry has a large

share of GDP is not necessarily an unfavorable situation, because Germany also has a

strong industry (23.7%). Unfavorable is that labor productivity is low.

Improving social services. Romania has a very low level of social services, among other

things because of the austerity measures taken during the crisis.

Highest productivity is recorded in the financial and banking sector that stimulates

imports and debt accumulation, not exports and accumulation of resources.

The services sector has lower labor productivity than the industrial sector, contrary to

European experience.

The pessimistic conclusion is that we still have to recover in the area of

competitiveness. The optimistic conclusion is that if the targets proposed by the „Europe 2020

Strategy” are to be achieved, favorable prospects are created for the "burning" of the gaps.

4.Bibliography

1 European Comission, Objectives for „Europe Strategy 2020”,

(http://ec.europe2020/pdf/targets_ro.pdf)

2 Hanusch H. & Balzat M. (2004), A new era in the dynamics of European integration ?,

Beitrag, nr. 261, May 2004.

3 Isărescu M. (2015), Nominal Convergence versus Real Convergence, "Romania's Path to

Euro" Conference, BNR, Bucharest, April 20, 2015.

4 Păun, C. (2011), Real Convergence to the Eurozone,

(http://cristianpaun.finantare.ro/2011/06/25/convergenta-reala-z-zona-euro/).

5 Worldwide Governance Indicators 2015, The global competitiveness report 2015-2016

(European Economic Forum), Corruption perceptions index 2015 (Transparency

International) and Doing business 2016 (World Bank).

6 European Central Bank (2014) Convergence Report June 2014.

7 European Central Bank (2016), Convergence Report June 2016.

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