CNP: Romania should join Exchange Rate Mechanism II to switch over to the euro in 2017-2020

Romania should join the Exchange Rate Mechanism II in order to be able to switch over to the European single currency some time in 2017-2020, according to findings in a study called 'The balance exchange rate and its factors - Case study Romania,' released on Thursday by the National Economic Projections Board (CNP)

'Romania will be able to halve the pace of growth in the current-account deficit in 2018-2020. In terms of purchasing power parity, services are only one third in line with the prices in the Eurozone, while in 2020 they are projected to reach 50 percent,' reads the study coordinated by Chairman of the Bucharest Stock Exchange (BVB) Lucian Anghel.

Anghel argues that although Romania benefited from flexible exchange rates to cushion the impact of shocks such as the one related to global recession, the factors that relate to non-price competitiveness in the medium and long term will determine export performance.

CNP is holding today a news conference to release its 'The balance exchange rate and its factors - Case study Romania,' study, coordinated by Lucian Anghel, and another study on 'Increased contribution of foreign trade to achieving real convergence,' coordinated by Lucian Liviu Albu.

In its capacity as beneficiary, CNP is implementing a project called 'Improving CNP's institutional capacity of macroeconomic policy evaluation and formulation in the area of economic convergence with the European Union.'

The project is co-funded under the European Social Fund, via the Operational Programme Administrative Capacity 2007 - 2013, priority axis 1 for the major intervention area 1.1: Improving the decision making process at political and administrative levels.

Under this project, support studies are conducted to allow the drawing up of medium and long-term projection scenarios as well as scenarios related to economic measures/policies to improve CNP's contribution to the formulation of public administration policies in Romania. 'The balance exchange rate and its factors - Case study Romania,' study analyses determinant medium-term factors of the local currency's exchange rates in view of Romania's joining the Exchange Rate Mechanism II and switching over to the European single currency.

'The study presents how central parity is computed as well as the ERM II experiences of some EU member states that joined the Eurozone after 2000. For all these states, both the developments in the exchange rates of their currencies while in the ERM II and the developments in competitiveness and nominal as well as real convergence after joining ERM II were analysed. Starting from these concrete examples, the study explains the pros and cons of fixing central parity at/over/below the exchange rate recorded when accession to ERM II happens and problems are exposed that can arise when a central parity is chosen that is not compatible with the balance exchange rate,' CNP explains in a press release.

The study also analyses the competitiveness of Romania's economy, with emphasis on price competitiveness, because joining the Eurozone will entail giving up on the independence provided by the exchange rate policies, with impact on such competitiveness.