A Tale of Two Peripheries: The Euro Accession in Bulgaria and Romania

This chapter discusses varieties in Euro accession in Romania and Bulgaria by pointing to the centrality of historical path-dependencies in the policy regime and of exports in the growth regimes of the two countries. Thus, while both countries were ravaged by the terminal crisis of the early post-communist economy, Bulgaria adopted a currency board regime that locked society and politics into an orthodox policy regime that in turn constrained the domestic consumption channel and primed Bulgaria for the fulfilment of nominal convergence criteria. The resulting path-dependency in the policy sphere chimed well with the (related) growth regime, and Bulgaria morphed into a small, open economy relying on external demand (via exports) as its main engine of growth. In contrast, Romania did not adopt a currency board, and this allowed its political elites to craft a more balanced albeit fragile growth regime, with one strand based on exports and another on consumption. Bulgaria’s policy and growth regimes delivered the stability that a society traumatized by hyperinflation needed but this came at the cost of poor real convergence and especially lower growth. In contrast, Romania delivered both better export performance and higher consumption growth, locking in a political dynamic that disincentivized political investment in the growth, employment and consumption moderation required for both nominal and real convergence.