Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 THE PERSPECTIVE OF ROMANIA'S CONVERGENCE IN THE EUROPEAN UNION DUŢĂ ALEXANDRU PHD. CANDIDATE, WEST UNIVERSITY OF TIMISOARA, FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION, email: 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 214 and 216. Our conclusion is that while most of the convergence criteria are met by Romania, the target of 219 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: F1 1. Introduction According to Article 14 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 6% of GDP; inflation a maximum of 1.5 points higher than the average of the top three countries with the best rate; Longterm interest 2 points higher than the average of the three betterpositioned 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 1 place; export / place.; gross added value / place; gross capital formation / place. (Păun, 211). 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. Y, 84Timpul 2, 49 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, 24). This typology has the ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 187
Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 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 214, ECB 216). A summary of the economic convergence indicators is presented in table no. 1: Ţara Bulgaria 212 213 214 215 216 Republica Cehă 212 213 214 215 216 Croaţia 212 213 214 215 216 Lituania 212 213 214 215 216 Ungaria 212 213 214 215 216 Polonia 212 213 214 215 216 România 212 213 214 215 216 Table no. 1: Synoptic Table on Economic Convergence Indicators (ECB, 214, 216 and 217) Stabilitatea preţurilor Rata inflaţiei IAPC (1) 2,4,4,8 1,1 1 2,3 1,1,3,4 2,3 1,1,3,4 3,2 1,2,6 5,7 1,7 1,1,4 3,7,8,6,7,5 3,2 2,1,4 1,2 Ţară cu deficit excesiv (2) Finanţele publice Cursul de schimb Rata Excedentul deficitului bugetar (3),8 1,5 1,9 2,1 2 4,2 1,5 1,9,4,7 5 4,9 3,8 3,2 2,7 3,2 2,1 2,1 2,1 2,2 2,9 2 2 3,9 4,3 5,7 2,6 2,6 3 2,3 2,2,7 2,8 toria publică brută (4) 18,4 18,9 23,1 26,7 28,1 46,2 46 44,4 41,1 41,3 55,9 67,1 69 86,7 87,6 4,5 39,4 41,8 79,8 79,2 8,3 75,3 74,2 55,6 57 49,2 51,3 52 38 38,4 39,9 38,4 38,7 Moneda participă la MCS II Cursul de schimb faţă de euro (5) 2,3 3,3 5,6,9,9 1,1,8,8,3,5 3,5 2,6 3,6,4,7 1,6,3,3 4,2 5,2,9 1,5 1 dobânzii pe termen lung (6) 4,5 3,5 3,5 2,5 2,5 2,8 2,1 2,2,6,8 6,1 4,7 4,8 3,8 3,7 4,8 3,8 3,6 7,9 5,9 5,8 5 4 4,2 2,7 2,9 6,7 5,4 5,3 3,5 3,6 ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 188
Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 Suedia 212 213 214 215 216 Valoarea de referinţă 214 216 Valoarea de referinţă 212 214,9,4,3,7,9,6 1,1 1,8,4 38,3 4,6 41,6 4 41,3 3,6,6 3 2,8,6,7% 3% 6% 4% 1,6 2,1 2,2,7,8 1,7% 3% 6% 6,2% (1) variaţia procentuală medie anuală. tele pentru 214 se referă la perioada mai 213 aprilie 214. tele pentru 216 se referă la perioada mai 215 aprilie 216; (2) ţară cu decisiv excesiv conform deciziei Consiliului UE cel puţin pentru o parte a anului; (3) informaţiile pentru anul 214 se referă la perioada anterioară termenului limită 15 mai 214 iar pentru 216 la 18 mai 216; (4) procente în PIB; (5) variaţii procentuale anuale medii; (6) rate ale dobânzii anuale medii. tele pentru 214 se referă la intervalul mai 213 aprilie 214 iar cele pentru 216, mai 215 aprilie 216. The conclusions are as follows: in relation to the 214 convergence report, the 216 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 (.7%) had a higher rate in the 214 convergence ratio, reaching 216 at 1, 3%. The graphical representation of HICP inflation in the convergence report 214 and the 216 convergence ratio is shown in the following graph: Fig. 1. HICP inflation (annual average percentage variations) (ECB, 216) the surplus, the general government deficit shows that only Croatia is the exception with an excessive deficit. If in the 214 report the deficit was also in the Czech Republic and Poland, the situation in 216 improves. In 215 and 216 Romania fits into the budget deficit (ECB, 216). ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 189
Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 Fig. 2. Consolidated general government surplus / deficit (ECB, 216) in terms of public debt, Croatia and Hungary were the only countries with a public debt in GDP ratio above the 6% reference value in 215. Romania had a public debt of 38,4% in 215 and of 38,7% in 216; Fig. 3. Gross government debt (ECB, 216) 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; longterm interest rates are lower than the reference level; in terms of nominal convergence, Romania largely fulfills the Maastricht criteria (Isarescu, 215). Table nr. 2. Criteria from Maastricht: 215 vs. 28 (Isarescu, 215) ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 19
Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 According to the methodology for monitoring imbalances, only PIIN exceeds the alert level (Isărescu, 215). Table nr. 3. shboard Macroeconomic imbalances (Isărescu, 215) 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 219 through the 214 convergence program. This would have assumed entry into ERM II on 1 January 216. This has not happened. Therefore, the strategy that Romania must adopt must take into account the following aspects: the experience of the 28 crisis has shown that fulfilling the Maastricht criteria was not enough to avoid it; ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 191
Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 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, 215) Fig. 5. Institutional quality b (WGI, 215) Improving the infrastructure. Romania does not have a medium to longterm feasible program of public investment and attracting European infrastructure funds; Regional homogenisation. There are large disparities in the development of the regions. ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 192
Annals of the Constantin Brâncuşi University of Târgu Jiu, Economy Series, Special Issue, volume I /217 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 22 Strategy are to be achieved, favorable prospects are created for the "burning" of the gaps. 4.Bibliography 1 European Comission, Objectives for Europe Strategy 22, (http://ec.europe22/pdf/targets_ro.pdf) 2 Hanusch H. & Balzat M. (24), A new era in the dynamics of European integration?, Beitrag, nr. 261, May 24. 3 Isărescu M. (215), Nominal Convergence versus Real Convergence, "Romania's Path to Euro" Conference, BNR, Bucharest, April 2, 215. 4 Păun, C. (211), Real Convergence to the Eurozone, (http://cristianpaun.finantare.ro/211/6/25/convergentarealazzonaeuro/). 5 Worldwide Governance Indicators 215, The global competitiveness report 215216 (European Economic Forum), Corruption perceptions index 215 (Transparency International) and Doing business 216 (World Bank). 6 European Central Bank (214) Convergence Report June 214. 7 European Central Bank (216), Convergence Report June 216. ACADEMICA BRÂNCUŞI PUBLISHER, ISSN 2344 3685/ISSNL 1844 77 193