mugur isarescu : hard landing unlikely for romania interview with dr mugur isarescu, governor of the national bank of romania, by mediafax news agency, bucharest, 8 september 2008. * * * mr. governor, foreign analysts have placed romania along with four other states – lithuania, latvia, estonia and bulgaria – in a group of countries heading to a hard landing. in fact the economies of estonia and latvia have contracted sharply, with growth plunging from levels of around 10 percent into negative territory ; inflation has reached two - digit levels and the external deficit exceeded 15 percent of gross domestic product. is it possible for romania to witness similar negative growth dynamics? is it fair to include romania in that group? reading what those foreign analysts said, i have hardly found a solid rationale that would justify romania's being placed within the hard - landing risk zone. on the contrary. turning now to comments, i will underline that there are some similarities among the countries in this group : gdp per capita is below the eu average, they all have registered high growth rates in the catching - up process. however, there are also fundamental differences, among which the most important in my view is the monetary policy mechanism. three of the four countries mentioned in the group have currency boards in place, and the fourth, i. e. latvia, has a mechanism close to a currency board. of course, currency board has its clear benefits. let us remember that, for example, in bulgaria the inflation rate had topped 1, 000 percent and the economy was in shambles. the introduction of the currency board was the solution which, at unavoidable social costs, brought the bulgarian economy afloat, with inflation falling steeply and staying close to eu levels for a good couple of years. but the currency board has its limits and constraints. the bnr has constantly opposed the adoption of such a system by romania given these limits and constraints. actually, a country adopting the currency board is deprived of monetary policy and thus the central bank becomes a sort of an institute for statistics. instead of a two - pedal vehicle – monetary and fiscal policies – the economy of currency board countries has only one pedal left, namely the fiscal policy. assuming the risk of an extended comment, let us look at what happened in the four countries and what happened in romania in the past few years in a rather unusual international context, with the euro appreciating simultaneously with the increases in farming products and energy prices.

2012 period and the preconditions for sustainable growth are now in place. indeed, the result of these adjustments may already be seen in the 2013 economic performance, which hopefully marks a turnaround in romania ’ s economic development : rapid economic growth ( judged by the current eu standards ), sizeable adjustment in the current account deficit, historically low inflation, while keeping the fiscal deficit well below 3 %. as a result, romania is now fulfilling three out of the four maastricht criteria, namely the sustainability of the fiscal position, convergence of long - term interest rates and exchange rate stability ( although we are not technically in erm ii ). meeting the price stability criterion is probably just a matter of months, until the recent low inflation numbers feed into the 12 - month average rate used as a reference. this is especially relevant now in the context of the recent political consensus that romania should aim at adopting the euro by 2019. however, the recent economic european developments have taught us that only the fulfilment of nominal convergence criteria is not enough. the key is to pull this off consistently. setting a target date for euro adoption should act as a catalyst for sound bis central bankers ’ speeches economic policies. romania has a five year period in which to check whether the abovementioned achievements are here to stay and to demonstrate significant progress in real convergence area, where we still have a lot of catching - up to do. another lesson of the recent crisis is that a monetary union cannot function properly in the absence of a fiscal counterpart. in today ’ s europe, it is hardly imaginable that a consensus on the latter is rapidly achievable. the closest substitute – which is supposed to break the vicious circle between sovereigns and banks – is the banking union. romania is a supporter of this initiative as adhering to the banking union will strengthen financial stability and further increase confidence in the national banking sector through the harmonisation of supervisory practices and deposit guarantee schemes and avoiding regulatory arbitrage. in the long run, banking union will foster sustainable lending and economic growth ( by reducing the fragmentation of the european financial markets ). in the particular case of romania, it makes even more sense to support the project given the share of foreign capital in our banking system. furthermore, it is always preferable to have a voice in the setup of a mechanism the existence of which will affect all eu member states, especially since – irrespective of their current choice – all will eventually end up as