Romania – a favourite, though unruly child of the EU

Bukarest (CC BY SA Mihai Petre)

Romania attracts little interest now on the international scene, although it is still undergoing a turbulent transition. I do not really know how to deal with this country. The recent resumption of growth does not necessarily mean the end of its problems.

“A sad country, full of humour”- Adam Burakowski and Marius Stan wrote in the title of their book about Romania. Recently we have heard of it either because of political events, for example, the upcoming presidential election (in November the incumbent President Traian Basescu will leave his post) or because of strategic ones – unlike Budapest and the majority of the Visegrád countries, but the same as Warsaw, Bucharest has taken an unequivocally pro-Western (and NATO-oriented) position in the context of the crisis and the war in Ukraine. Only at times do Romanian issues appear in the world’s headlines, and then usually in a hostile context. For example,  the issue of Romanian (Roma) immigrants in Italy, France and Spain has recently hit the headlines. We know much less about what this country looks like from the inside.

They leave rather than build

Romania has never been a rich country. With its income in terms of purchasing power of the order of approx. USD 290bn estimated in late 2013, it ranks 45th in terms of the size of its economy (the 13th economy in the EU). Accordingly, its potential is roughly half that of Poland, while its territory is a little less than that of Poland (239 sq. km.).

The level of urbanization (53 %) – one of the lowest in the European Union – is a specific feature of  this country (which joined the EU on 1 January 2007). In other words, nearly half of the population continues to live in rural areas and on agriculture. The latter is inefficient, because the agricultural sector contributes only 6.5-7% of GDP, while employing up to 30% of the workforce.

No wonder that in the picturesque, mountainous Transylvania there can still be found sprawling and active villages – unless they are Hungarian (and there are quite a few such villages), because they are dying out. The youth migrate from them, while benefitting from the generous offer of the Hungarian prime minister, Viktor Orbán, who proposed the local Hungarians dual citizenship. They seized the opportunity en masse, but they admit that they are more interested in the Schengen visa than in some outbreak of patriotism. The Hungarian highlanders, known as Szeklers (a minority estimated at 700 thousand), living in the middle of the country, north of Brasov, resist this trend, as they have done throughout history. It is their villages that are the most well-kept and alive.

Although the regime of Nicolae Ceausescu in the 1970s and 1980s effectively got rid of (read: sold for Deutsche marks) one of the traditional local ethnic groups – the Saxons, a hallmark of Romania continues to be its multi-ethnicity. Hungarians and Szeklers remained (6.5-7% of the population of 20 million), as did Ukrainians, Tatars, Moldovans and Csangos (a Hungarian-speaking minority from the east of the country). The biggest challenge, however, is the issue of the Roma, leading, among others, to high levels of unemployment (officially 7.5%, and nearly 27% among the young), as well as social tensions, although – fortunately – not inter-ethnic.

Return of the tiger?

Romania experienced a crisis after 2008 like everyone else in the EU. It lost its position of fast-growing economic tiger. The recession lasted 3 years, and the process ended with the signing of the agreement with the IMF, the European Central Bank and the European Bank for Reconstruction and Development (in that order as regards allocated funds) for a stabilization  and assistance packet of USD 26bn. Additionally, there are two further agreements and stand-by loans of 2011 and 2013 (respectively, USD 6.6bn and 5.4bn) to promote – as outlined in the official statements – fiscal discipline,  support structural reforms and strengthen financial sector stability. However, the country still faces a budget deficit of approx. 2.5 % of GDP. On the other hand, its public debt, estimated at approx. 39 % of GDP, is one of the lowest in the EU. However, the foreign debt – USD 131.6bn in late 2013 – is high and persists on an upward trend, which may also raise concerns.

It has been emphasized that thanks to these loans, the country resumed a path of growth (3.5 % in 2013, whilst in 2014 it is expected to reach more than 2%). Trade is picking up dynamically, particularly with major partners, i.e. successively (exports and imports) with Germany, Italy, France, Hungary and Turkey.

Poland is also an important, noticeable supplier of goods with a prominent place on the market (food, light industry, cosmetics and household chemicals). With a 4.4% share in 2013, Poland ranked as high as fifth in Romanian imports.

Romania differs from its neighbours in the sense that, as a state with its own energy resources, it is not dependent on Russia and the East (although the Chinese have already  established their presence and are pushing hard to enter the local market).

The EU presence and membership in the EU can be seen almost everywhere. First of all, it takes the form of new roads, bridges and infrastructure, including the A1 motorway – currently under construction – from Bucharest to the west, in the direction of Arad and the Hungarian border (via Nadlac). A 202 km section of the A2 motorway from the capital to the seaside town of Constanta has already been completed, and the A3 motorway is under construction (there was a total of 639 km of motorways in December 2013). Anyone who knows the poor Romanian roads of years ago, which is also a personal experience of the author of this text, will often be pleasantly surprised.

Small rural businesses

The second dimension of the EU presence involves grants and subsidies under the Common Agricultural Policy, which recently can reach even 166 euros per 1 ha. It is all about supporting small business in the country – from the cooperative banks to small and medium-sized enterprises working for agriculture or family guest houses in traditional cottages. On the other hand, the deregulation implemented in early 2014, whereby foreign investors may enter the Romanian village, has not met with opposition among the people (it is estimated that already about 10 % of Romanian land is in foreign hands, and this does not mean the non-Romanian populations living locally).

Not surprisingly, the level of social acceptance for EU membership is high. Brussels looks at the fast recovering economy as at its favourite, though perhaps slightly unruly child. At the turn of 2013 and 2014, Romania was even the fastest growing economy in the EU (the index on the Bucharest stock exchange rose by more than 20% over the preceding year!). The EU praises the openness of the Romanian economy, e.g. the fact that linear CIT and PIT remain at 16%. The fact that in 2013 the EU won as much as  69.6 % of Romanian exports and 75.7% of imports also earned positive comments.

Politics interferes with the economy

The basic challenge facing Romania is the quality of its administration and economic governance (which, unfortunately, in many cases involves the same people). The degree of corruption is very high. According to the research of Transparency International and the CPI (Corruption Perception Index) – probably the most reliable indicators – in 2013 Romania was in 69th place, just above Bulgaria (77th), and below other countries of the region (Slovakia – 61st, the Czech Republic and Croatia – 57th, Hungary – 47th and Poland – 38th).

The list of corruption scandals in the country is extremely rich and includes, to name just the people finally convicted, a long list of prominent figures – from the former Prime Minister Adrian Nastase, to the ministers (e.g. of defence, agriculture, and communications) and the Chief of the General Staff of the army, not to mention MPs, senators or town Mayors. In total, the list includes nearly 50 people, which clearly demonstrates the scale of the phenomenon. In 2014, the country was rocked by another scandal, this time with the participation of the incumbent President’s brother.

It is the transparency of public life and the need to separate private interests from the public and private sector that is indicated in all the studies and analyses of Romania as a sine qua non condition for a resumption of rapid growth and further development as well as the necessary modernization. In order not to be lame, the tiger must clean itself.

Both the quality of governance and adherence to the rule of law leave much to be desired, while the excessive influence of the shadow economy on public life has long been the concern of many authors, including Constantin Ciupagei, Simona Ilie and Rainer Nef, in their penetrating study of the local transformation as late as at the end of 1990s.

There are many indications that since then the country has not come to grips with its fundamental ills, which date back to the onset of the turbulent transformation. As a result, even the European Commission in its recent reports compares the politico-economic and socio-economic phenomena and processes taking place in Romania to those in the Balkans, and not to Central and Eastern Europe. In these reports, the drawbacks of living in the country are coupled with populism, rapidly growing stratification, the low level of public confidence in the elites expressed, among others, by low voter turnout, the excess of politics in the economy and vice versa, and the “impotence of the state” (e.g. it has been calculated that the central budget receives only 52% of VAT receipts).

So we have a “sad country full of humour”; there are reasons for satisfaction, but just as many reasons for concern. Carina Murafa from the Aspen Institute in Bucharest is right, when she writes in the study of February 2014: “further political manipulation does not lead us closer to the true economic transformation”. Excessive links between politics and the economy are a curse, and only by breaking the existing Gordian knot would there be a chance for the recently noted resumption of growth to be followed by a real modernization and renaissance of this interesting, if somewhat forgotten, country.

 

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