Monica Raileanu Szeles, Ph.D., Faculty of Economic Sciences, Transilvania University of Brasov, B-dul Eroilor no. 29, Brasov, 500036, Romania and Ileana Tache, Ph.D., Faculty of Economic Sciences, "Transilvania" University of Brasov, B-dul Eroilor no. 29, Brasov, 500036, Romania.
This paper aims at realizing a comprehensive analysis of the costs and benefits of Romania’s participation in the European Monetary Union (EMU).
After answering to what extent does Romania meet the nominal and real convergence criteria, the paper discusses the appropriateness of joining a larger currency area and some issues related to the optimal currency areas (OCA): labour mobility, fiscal stabilizers, the openness of the economy, and the incidence of asymmetric shocks. New theories of the OCA (the “asymmetric-shocks-on-its-head” and the “lender-of-last-resort”) are applied to Romania’s adoption of the Euro.
The convergence of the main macroeconomic variables and the ability of Romania to react to shocks coming from the EU are studied using two main approaches: (i) The method of unconditional β convergence (the variables of the poorer countries advance faster than the variables of the richer countries and catch up with them, i.e. β<0), which allows to analyze the degree of nominal, real and financial convergence and (ii) The VAR model (impulse response), which is applied for examining Romania’ reaction to the shocks and the mechanisms of balancing and absorption of these shocks.
The conclusion is that the Romanian economy has to cope with a great number of challenges in regard to nominal and real convergence. Nonetheless, the benefits of joining the eurozone (such as convergence to the European industrial structure and stimulation of trade flows) are larger than the maintenance of discretionary national monetary policy.