Trade and the Euro: Will they Make or Break Bulgaria and Romania? A Country-Risk Assessment
27 Pages Posted: 4 Mar 2007
Date Written: February 28, 2007
After severe economic crises in the mid-nineties Bulgaria and Romania managed to improve their economic performance in the last decade. Consequently, the two new EU members became attractive investment targets for foreign direct investment. However, these transition economies struggle with a high external debt stock and current account deficit that raise concern about the probability of a currency crisis. We examine weather the country risk of Bulgaria and Romania is strongly affected by an appreciating Euro. As the trade deficits are soaring and Bulgaria pegged its currency to the Euro more research in this field is appropriate. Therefore we apply the Fink (1993b, 1995) scoring model analyzing the country risk of Bulgaria and Romania over the 1990-2005 period and compare outcomes to the country risk of Hungary and the Euro Area. Taking into account the debt, trade and currency movements we conclude an increasing country risk for Bulgaria and Romania, as well as for the Euro zone for 2007-2009.
Keywords: country risk, currency crisis, sustainable growth
JEL Classification: O11, F3, F4
Suggested Citation: Suggested Citation