Monetary regimes, economic stability, and EU accession: Comparing Bulgaria and Romania

This paper traces the origins of the different monetary regimes adopted in Bulgaria and Romania in 1996–97 and examines their performance during the EU accession. The findings indicate that the constraints of the currency board in Bulgaria shifted economic activity towards the private sector, while the discretionary policies in Romania turned public finances into both a contributor and a response mechanism to economic imbalances. While the prospects of EU accession initially enhanced the performance of the monetary anchors, the implicit insurance of EU membership increased moral hazard and led to a rapid rise in private and public debt. The paper also explores the historical parallels between the monetary regimes of Bulgaria and Romania in 1996–97 and 1925–1940.