Tuesday, June 7, 2011

FT: Romania sticks to 2015 euro target

Traian Basescu, the Romanian president, said Romania was sticking to its target date of 2015 for joining the euro, despite signs that some other central European countries might seek to delay their own entries into the single currency.

Mr Basescu also said he was hopeful that Romania and Bulgaria would win approval to join the Schengen border-free zone by the end of this year, in spite of objections from France and Germany that more preparation work is needed.

Romania suffered one of the longest recessions in the European Union before returning to growth in the first quarter of this year.

It also imposed some of the toughest austerity measures in the 27-nation bloc, after letting public spending mushroom before the global financial crisis. It received a €20bn bail-out from the International Monetary Fund and European Union.

In a Financial Times interview during a visit to the UK, the Romanian president said sticking with a 2015 target entry date for the euro was important in order to maintain the country’s hard-won fiscal discipline. Mr Basescu, the centre-right government coalition and the central bank debated earlier this year whether to push the target back.

He said “2012 is an election year, when politicians can get extremely generous” with public funds, “but the people will have to pay for that generosity after the election”.

“Maintaining the objective of 2015 for the euro generates the necessary discipline,” he added.

The problems in the eurozone periphery, plus the positive experience during the crisis of countries such as Poland that were able to devalue to preserve competitiveness, have led some central European states to push back their entry horizons.

Viktor Orban, prime minister of neighbouring Hungary, said in February that current circumstances suggested the country’s eurozone accession was “not conceivable before 2020”. Jacek Rostowski, Polish finance minister, said last month Poland might not adopt the euro until 2019.

Mr Basescu said Romania would consider very carefully whether it was appropriate to join in 2015, even if it had met the Maastricht convergence criteria.

“It is relatively easy to reach the budget deficit and inflation objectives,” he said. But at that moment you have to look at how competitive your economy is.” One lesson of the crisis was that it was a mistake to join the single currency zone without having a fundamentally competitive economy.

Mr Basescu defended the tough austerity measures taken in the past two years, including a 25 per cent cut in public-sector pay last year – partially reversed in January – and 5 percentage-point increase in value added tax. The measures have hit hard the popularity of the president and government – which has survived five no-confidence votes – but markets have praised Romania’s determination to rein in its finances.

“Sometimes politicians have to pay the price when people don’t like measures,” said the Romanian president. “If growth will start to be consistent, probably the ruling party will be saved” at next year’s polls, he added. “Otherwise, not.”

Mr Basescu said he was optimistic on the chances of joining the border-free Schengen zone this year after a positive recent report on entry preparations by Bulgaria. The two countries joined the EU together in 2007, with a prospective date of 2011 for Schengen entry.

“We will see [by] the end of the year if our agreement, our accession treaty, is respected by everybody or not,” he said. “We hope no additional conditions will [be set].”

EU diplomats in Brussels, however, warn that several large member states are tying Schengen membership to wider judicial reforms, rather than simply border management. Several countries complained after Romania and Bulgaria’s EU entry that the two states had not done enough on reforming their legal systems and tackling corruption.

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