Mugur Isărescu: Convergence towards euro enlargement
Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the
European League for Economic Cooperation's (ELEC) Monetary Conference, National Bank of
Romania, Bucharest, 4 June 2019.
* * *
As prepared for delivery
Your Excellency Baron Snoy,
Dear members of ELEC,
Ladies and gentlemen,
It is a pleasure for me to open this ELEC Conference, which is the 9th taking place in Romania
and hosted by the National Bank. It all started in 2011 with "Renewable energy and transport
infrastructure in the Black Sea Region". One year later we talked about "Eastern Europe and the
EMU: finding the optimal path for introducing the euro". In 2013, there was the 3rd edition of the
Danube Financing Dialogue. The following year the dialogue focused on "Agriculture and
environmental protection in Central and Eastern Europe and their contribution to growth and
employment". In 2016, we discussed "How the EU can generate a virtuous circle in the Black
Sea Region - the case of food and energy security" and in 2017 we debated on "the challenges
for Eastern Europe in the present turmoil in the EU and EMU - persevering in the reforms and
investing for the future". The topic of the last year, "Convergence towards euro enlargement", is
approached again today, which is more than welcome, given the importance attached to this
issue.
The debate on convergence and euro adoption is broad-based and complex. The topic has been
addressed in yesterday's dinner speech by Academician Daniel Daianu. You will discuss it
extensively today in two panels, moderated by Wim Boonstra and Servaas Deroose. I am looking
forward to listening to your views on the matter. However, I would briefly refer to three ideas.
First of all, the NBR's approach to euro adoption is a balanced one. On the one hand, we are fully
aware that a higher degree of real convergence is needed - at least 70-75 percent of the
Eurozone average in terms of GDP per capita at PPP. Otherwise, we would be insufficiently
developed and, therefore, vulnerable to asymmetric shocks and unable to synchronise our
business cycle with that of other euro area economies. On the other hand, however, a high
enough level does not mean that we are so ambitious as to aim for a convergence level of 90%
of the Eurozone average or a level equal to that of Germany (as is the case with certain
approaches in Hungary or Poland).
And, equally important, regardless of how high one sets its targets, it is essential to preserve the
pace of this process: once steps forward have been made, we may not stop or go back. In order
to successfully adopt the euro, one should be a marathoner rather than a sprinter. I would like to
say that the Latin saying festina lente is perfectly suitable in the case of the NBR's approach:
hurrying in a slow manner on the convergence path means achieving a sustainable pace in the
medium and long run. Moreover, we should be aware that convergence is a continuous process,
which will last even after the accession to the Eurozone; this is a lesson we should learn from
the failed experience of other countries which considered that joining the euro is the end of the
line.
Second, while the nominal convergence criteria are deeply rooted in the minds of policymakers,
the Maastricht Treaty explicitly stipulates that "a high degree of sustainable convergence" is
needed. Yet, this requirement seems to have been overlooked sometimes. In this context, I want
to highlight that there are four types of convergence that must be taken into account: nominal,
real, institutional and structural.
Nominal convergence is easily quantifiable, as the specific criteria are clearly defined in the
Maastricht Treaty. But we also have to ensure the compatibility of our institutions with those in
the euro area and this is the essence of institutional convergence, a process where the central
bank and its independence are particularly important. While structural convergence focuses on
adapting the structure of our economy to that of the euro area, real convergence, measured by
GDP per capita (at PPS) as a percentage of euro area/EU average, is the best proxy for the
development level of a nation. So, when talking about convergence towards euro area
enlargement, it is important to keep in mind all these valences of convergence.
Third, we are very interested in learning the experience of our Bulgarian colleagues, and I am
looking forward to their presentations. These two countries have much in common, yet some
things (and not only the Danube!) still separate us. As I have already mentioned on previous
occasions, to a certain extent, the speed of convergence was, in the case of Romania, fuelled by
the flexibility of our exchange rate regime. By contrast, adopting a currency board more than two
decades ago, during a crisis, Bulgaria shifted to a fixed exchange rate regime, out of which the
only exit strategy is joining the euro area.
What we need in order to move forward on the convergence path towards euro adoption is, first
of all, to understand there is no substitute for a coherent economic policy mix, which should
remain so even in election years. We need economic convergence, but the process should be a
balanced one, so as to preserve macroeconomic equilibria and safeguard competitiveness.
It is important that Europe remains united. Therefore, I want to pay homage to Baron Snoy, who
has been instrumental in promoting Romania's and Bulgaria's further integration into the
Economic and Monetary Union. I have known him since the first event we hosted in June 2011,
and have always found in him not only a wise man, dedicated to the European Project, but also a
friend of Romania, with a vast knowledge of our history and culture.
He has also played an important role in bringing together Europhile experts that are trying to find
solutions to the daunting issues facing Europe nowadays. Allow me to also extend a word of
gratitude to Radu Deac, the Chairman of ELEC Romania since its establishment, for his steady
contribution to promote Romania in Europe and Europe in Romania.
It is not that the Eurozone does not have its own problems, yet the strengthening of its
governance framework is what one may call "work in progress". It is our duty, I think, to keep
believing in the European project, as the only valid one for securing peace and prosperity on our
continent. As I have previously stated, whenever obstacles emerge, I cannot help recalling the
words of Jean Monnet, one of the EU founding fathers: "Europe will be forged in crises and will be
the sum of the solutions adopted for those crises".
I trust that this Conference, which has a lot of outstanding panellists, will address those problems
as well. Among the speakers, I am particularly pleased to see Jeffrey Franks, another old friend
of Romania, with whom we had a fruitful co-operation in the past. On this note, allow me to finish
and wish every success to the works of this conference.
Thank you.