The euro to replace Romania's leu in 2014 at 3.25 lei/euro exchange rate, Forecast Commission says

The single European currency will take place of the leu in 2014 at 3.25 lei per euro, the National Forecast Commission (CNP) gauges in its long term prognosis while the average inflation rate is estimated to stand below 3 percent starting 2012.

The prognosis maintains the 3.55 lei per euro average exchange rate estimates for this year despite the significant decrease of the leu over the first months of the year.

The average exchange rate stood above 3.67 lei per euro in the first five months of the year, calculated according to the reference quotations posted by the central bank (BNR).

CNP anticipates 3.45 lei per euro exchange rate for 2009 and the leu should continue hiking to 3.38 lei per euro average exchange rate in 2010, 3.33 lei per euro in 2011 and 3.30 lei per euro in 2012.

In 2013, when the leu should be in the waiting room of the Eurozone (ERM2 – Exchange Rate Mechanism), the euro will stand at 3.25 lei. Starting 2014 all macroeconomic projections of CNP will consider the 3.25 lei per euro parity.

CNP estimates inflation will gradually temper to the levels seen in the Eurozone. After the 7.5 percent peak this year, the average annual rate of inflation should lower to 4.5 percent in 2009 and 3.6 percent in 2010.

Three years before entering the Eurozone, in 2011, the average annual inflation should temper to 3.2 percent so that in the first year inside ERM2 (2012) the prices would hike only 2.8 percent on the average, according to CNP's estimates.

For 2013 CNP foresees an "European" level of the average annual inflation, of 2.5 percent and 2.3 percent for 2014.

Starting 2015, CNP's projections show a stabilization of the average annual inflation in Romania to 2 percent, close to the European Central Bank's target which stands right below 2 percent.

Adopting the euro in 2014 entails political will

Romania targets to adopt the euro in 2014 which implies entering the ERM2 in 2012. In this respect, Romania must fulfill certain criteria of nominal convergence which consist of narrowing the budget gap to 3 percent of the gross domestic product (GDP) and keeping the public debt below 60 percent of the GDP.

A crucial criterion is that the average annual inflation – which reached 6.3 percent in April – must not exceed by more than 1.5 percentage points the average inflation of the top three economies in the European Union.

Romanian politicians should start taking responsibility over the country's target to join the Eurozone in 2014 in order to meet the deadline and take into consideration that a nominal convergence is not sustainable without a real one, central bank governor, Mugur Isarescu said on May 26.

Isarescu explained that assuming the target to adopt the sole European currency does not imply a written pledge, instead the government should establish some adequate objectives and policies.

President Traian Basescu had previously said that Romania must assume explicitly the target to adopt euro in 2014. However, the target is realist only in the event authorities manage in a responsible manner the public spendings and introduce coherent planning and budget mechanisms, Basescu warned.

The nominal convergence to the Eurozone regards strictly the criteria established at Maastricht and Romania must comply with them. The criteria are about the inflation level, long term interest rates, variation of the exchange rate, the percentage of budget deficit and government debt in the gross domestic product (GDP).

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