The European Central Bank’s (ECB) 2024 Convergence Report delivers a mixed assessment of EU member states outside the Eurozone, pinpointing economic obstacles hindering their path to euro adoption. While the report reviews Bulgaria, Czech Republic, Hungary, Poland, Romania, and Sweden, a significant focus is placed on the persistent challenges faced by Romania Euro aspirations, primarily concerning inflation and fiscal stability.
The biennial report, released on June 26, 2024, indicates a general slowdown in economic convergence across these nations since 2022. This deceleration is largely attributed to external shocks, most notably the repercussions of Russia’s invasion of Ukraine. The conflict has triggered energy price surges and economic instability, disproportionately impacting countries with strong ties to Russia. Although economic activity is projected to rebound in 2024, the shadow of geopolitical uncertainty continues to loom over economic forecasts.
Inflation Remains a Key Hurdle for Romania
A critical criterion for euro adoption is price stability, and here, Romania, alongside the majority of the reviewed countries, falls short. The report reveals that Romania’s average inflation rate significantly exceeds the reference value of 3.3%. This benchmark is calculated from the inflation performance of the three best-performing EU members, plus an additional 1.5 percentage points. As visualized in Chart 1, Romania’s inflation figures are a considerable distance from meeting this requirement.
Chart 1
HICP inflation
(average annual percentage changes)
Source: Eurostat. This chart illustrates the high inflation rates experienced by Romania and other reviewed countries compared to the Eurozone benchmark, posing a significant challenge for euro adoption.
Fiscal Deficit and Excessive Deficit Procedure
Romania also faces scrutiny regarding its fiscal discipline. While many countries saw improvements in their fiscal deficits post-pandemic, Romania, along with the Czech Republic, Hungary, and Poland, surpassed the deficit reference value of 3% of GDP in 2023, as depicted in Chart 2. Furthermore, projections for 2024 and 2025 suggest that Romania, alongside Hungary and Poland, will continue to breach this budgetary limit.
Adding to the fiscal concerns, Romania is currently subject to an excessive deficit procedure, initiated in 2020. The European Commission recently concluded that Romania has not taken adequate measures to rectify this excessive deficit. This ongoing procedure underscores the severity of Romania’s fiscal challenges in the context of euro convergence.
Chart 2
General government surplus (+) or deficit (-)
(percentages of GDP)
Source: Eurostat. This chart highlights Romania’s fiscal deficit exceeding the EU reference value, indicating a need for fiscal consolidation to meet euro adoption criteria.
Other Convergence Criteria and Romania
Regarding other convergence benchmarks, the report indicates that Romania, alongside Poland and Hungary, exceeded the reference value for long-term interest rates. The report also generally notes that the strength of public and economic institutions in the reviewed countries, excluding Sweden, is weaker compared to other parts of the EU, although it doesn’t specifically single out Romania in this aspect. On the legal front, the report mentions that five out of six countries have legislation not fully compatible with euro adoption requirements, but Romania is not explicitly named among those with legal incompatibilities in this summary.
Conclusion: Romania’s Euro Path Forward
The 2024 ECB Convergence Report paints a picture of significant hurdles for Romania euro adoption in the near term. Persistently high inflation and an ongoing excessive deficit procedure represent substantial economic obstacles. While the report acknowledges anticipated economic strengthening, it also emphasizes the prevailing geopolitical uncertainties that could further complicate Romania’s path to Eurozone membership. For Romania to progress towards euro adoption, addressing inflation decisively and implementing robust fiscal consolidation measures will be paramount.
Note: This article is based on the ECB’s 2024 Convergence Report. For detailed information, please refer to the full report available at 2024 Convergence Report of the European Central Bank (ECB) and The European Commission’s Convergence Report.
