Sunday

19th Nov 2017

Political battles 'taking a toll' on Romanian economy

  • Graffiti in Bucharest: Politicians are portrayed as corrupt, greedy and incompetent. (Photo: Valentina Pop)

Political infighting risks wrecking urgently needed reform of the Romanian economy, according to a progress report released on Tuesday (14 August) by the European Commission, the International Monetary Fund (IMF) and the World Bank.

While maintaining that the country's economic reforms were "broadly on track," the trio expressed concerns about the impact of the drawn-out political crisis on the Romanian economy.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

"The recent political turmoil is taking a toll on the economy and has dented confidence," it said.

It added that "a prolonged political crisis could hamper effective economic policy making, increase risk premiums and financing costs, further depreciate the exchange rate, and depress investment."

The document is the latest report warning the Romanian government about the wider impact of battles between the governing Social-Liberal union and the opposition Democratic Liberal party, which culminated in a July referendum on whether to impeach the country’s President Traian Basescu.

Last Friday (10 August), commission President Jose Manuel Barroso called on Prime Minister Victor Ponta to respect the independence of Romania's Constitutional court, which is expected to rule on the validity of the referendum on 21 August.

In mid-July, the commission publicly questioned whether the Romanian government has the "understanding of the meaning of the rule of law in a pluralist democratic system."

Romania is three years into a reform program, including sizeable spending cuts, required under the terms of a €20 billion rescue package agreed with the IMF, the EU and the World Bank in May 2009.

In 2011 the support package was expanded to include a Stand-By Arrangement from the IMF of an additional €3.5 billion, alongside Balance of Payment Support from the EU of €1.4 billion and loans from the World Bank.

The Balkan country, which joined the EU in 2007 but is not part of the eurozone, emerged from two years of recession in 2011, posting annual growth of 2.5 percent.

However, in the past few months the IMF revised its growth estimate for 2012 down to 0.9 percent from 1.5 percent. The country also saw its budget deficit rise to 5.2 percent in 2011 and is expected to make further spending cuts to bring its budget in line with the 3 percent deficit limit.

The report emphasised the need for Romania to improve its absorption of EU structural funds, saying "a much higher use of these free resources is critical to boost infrastructure investment and economic growth, and would also help to strengthen international reserves."

Romania currently has - at just 7.4 percent - the lowest rate of absorption of EU funds in the 27-nation bloc.

The commission withheld payments to the country in February after a series of irregularities regarding funds worth €3.5 billion were uncovered in the management of its human resources programme.

The country has been wrecked by partisan battles throughout 2012, with the ruling Social-Liberal union attempting to force President Basescu out of office over allegations of abuse of power.

The referendum saw a large majority voting to impeach Basescu but only on a 46 percent turn-out, below the required 50 percent threshold.

Fresh parliamentary elections are expected to take place in November.

Analysis

Something is rotten in the state of Romania

The view of ruling politicians that public institutions - be they cultural institutes, media, or, more worryingly, the judiciary - need to obey the ruling party has never been completely eradicated since Communism fell.

EU commission still 'very worried' about Romanian democracy

EU justice commissioner Viviane Reding on Wednesday said she remains "very much worried" about the state of democracy in Romania. Meanwhile, there is intense political infighting in Romania ahead of Sunday's impeachment referendum.

MEPs ponder how to fight tax havens

After the Paradise Papers brought new revelations about tax dodging across the globe, including in the EU, the European Parliament wonders how to step up the fight.

MEPs ponder how to fight tax havens

After the Paradise Papers brought new revelations about tax dodging across the globe, including in the EU, the European Parliament wonders how to step up the fight.

News in Brief

  1. Bonn climate talks extend into Friday evening
  2. UK needs to move on Brexit by early December, Tusk says
  3. Puigdemont extradition decision postponed to December
  4. Ireland wants written UK guarantees to avoid hard border
  5. US did not obstruct climate talks, says German minister
  6. EU signs social declaration
  7. Puigdemont to be heard by Belgian judges
  8. Steep fall in migrants reaching EU

Stakeholders' Highlights

  1. European Jewish CongressAntisemitism in Europe Today: Is It Still a Threat to Free and Open Society?
  2. Counter BalanceNew Report: Juncker Plan Backs Billions in Fossil Fuels and Carbon-Heavy Infrastructure
  3. Nordic Council of MinistersNordic countries prioritise fossil fuel subsidy reform
  4. Mission of China to the EUNew era for China brings new opportunities to all
  5. ACCASmall and Medium Sized Practices Must 'Offer the Whole Package'
  6. UNICEFAhead of the African Union - EU Summit, Survey Highlights Impact of Conflict on Education
  7. Nordic Council of MinistersNordic Council Calls for Closer Co-Operation on Foreign Policy
  8. Swedish EnterprisesTrilogue Negotiations - Striking the Balance Between Transparency and Efficiency
  9. Access EuropeProspects for US-EU Relations Under the Trump Administration - 28 November 2017
  10. World Vision20 November: Exchange of Views at the EP on Children Affected by the Syria Crisis
  11. Nordic Council of MinistersSustainable Growth the Nordic Way: Climate Solutions for a Sustainable Future
  12. EU2017EEHow Data Fuels Estonia's Economy

Latest News

  1. EU keeps former Soviet states at arm's length
  2. EU leaders make pledge on social issues after populist backlash
  3. EU agencies and eastern neighbours This WEEK
  4. Germany slams Dutch call for more ambitious EU climate goal
  5. Mind the gap: inequality in our cities
  6. Climate activists 'disappointed' with EU at climate talks
  7. Davis outlines UK vision on Brexit in Berlin
  8. German coalition talks in near collapse