CORRELATION OF MONETARY AND FISCAL POLICIES AHEAD OF EURO ADOPTION

Along with the benefit of fostering trade, investment and ultimately economic growth, euro adoption by Romania will entail the constraint arising from the relinquishment of a key tool for macroeconomic adjustment, i.e. monetary policy. Entry into ERM II implies the narrowing of the monetary policy's room for manoeuvre given the goal to maintain the exchange rate within the limits set forth in the Maastricht Treaty and consequently the fact that fiscal policy must take on increased responsibilities in terms Of macroeconomic stabilisation. This article shows the need for fiscal policy to play the role of economic stabiliser ahead of euro adoption and underscores the issues to be contemplated in formulating the appropriate monetary and fiscal policy mixes during this period.