Monetary policies and European integration: the case of two Balkan countries

This paper employs comparative analysis of the economic policies adopted in Romania and Bulgaria over the period from the last years of the Communist regime until recently to examine the divergence between the two neighboring Balkan countries. In particular, the analysis focuses on the evolution of their monetary policies. The results indicate that at first the prospect of joining the European Union improved the performance of monetary anchors in Bulgaria and inflation targeting in Romania. However, once the accession became certain, these monetary policies increased moral hazard and led to a surge in private debt in Bulgaria and public debt in Romania.