Romania: Europe's peasant state is experiencing a stumbling block boom

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es runs well between Danube and Prut. Economically, Romania has been catching up enormously since joining the EU in 2007. Especially in big cities and in the West, the standard of living increased rapidly. Gross domestic product per capita jumped to the EU average: from 34 percent to 64 percent, reports Eurostat. In the capital, Bucharest, the population has over 140 percent of the EU average income.

Overall, the country is growing considerably. After a record of seven percent in 2017, the economy has now jumped four percent and, according to the World Bank, will level out at three percent a year.

Above all, three factors stimulate: EU aid, direct investment and a consumer fiscal policy. Agricultural exports and the IT industry are also developing very dynamically. Due to its own gas resources, the post-communist state relies only marginally on imports from Russia.

The flip side: Romania is half a peasant state. Although the share of agriculture in value added has fallen since 2005 from ten to just over four percent. However, a quarter of Romanians still work in the field, most of them self-sufficient.

More than three million Romanians work

Nearly four million farms, one in three EU farms, are located in Romania. Only in Slovakia do 46 percent live in the same amount of people in the countryside. The fact that Romania is the EU's largest exporter of grain is due to the fact that it has a handful of low-income, low-yielding, fellow-farmers.

Source: Infographic WORLD

The self-catering are often not registered jobseeker. This is another reason why the unemployment rate is too narrow at four percent. Skilled workers are already missing, mainly due to emigration. Since 2005, the population has fallen by a tenth to less than 20 million inhabitants. More than three million Romanians work, the pension funds are increasingly emptying.

Two-thirds of immigrant workers send money to those left behind from Italy, Spain and Germany, of whom 16 per cent still live without access to sanitary facilities and 36 per cent without Internet access. Romania is the red lantern in Europe in the United Nations Human Development Index (HDI). The average wage bag was rather half empty in 2018 with 640 euros net per month – Bulgaria and Croatia are poorer.

EU profiteer with trading mortgage

And yet, no country has benefited so much from the EU in the past decade. Since joining in 2007, Bucharest received less than 30 billion euros from EU pots minus its own contributions. Most recently, Romania received almost 2% of GDP from Brussels. Another two percent comes from the remittances of guest workers, the sum of which has doubled since the free movement of border and capital.

Source: Infographic WORLD

The most important, also EU-stimulated driver is foreign trade. Membership tripled the volume of trade with the EU states: it now accounts for three quarters of foreign trade. Germany is by far the most important trading partner, accounting for 23 percent of exports and 20 percent of imports.

Describing the foreign trade balance as a downer would be an understatement: at 18 percent, the minus is three times higher than in 2005. Recently, the increased state salaries and pensions increased consumption and thus also imports. According to the International Monetary Fund (IMF), foreign trade will not recover for the time being. The IMF expects a mortgage of about five percent of GDP annually.

Corruption continues to hamper

For all EU euphoria: since the spring threatened adversity from Brussels. Similar to the Hungarian and Polish governments, the last ruling Post-Communists (PSD) had launched a controversial judicial reform: The PSD planned to flush the corruption criminal law by shorter limitation periods, impunity in self-disclosure and milder penalties and set up a special department that investigates judges and prosecutors. The European Commission intervened.

Unlike Poland and Hungary, for which the Commission has already opened the rule of law, Romania withdrew the proposed judicial reform.

The head of the Konrad Adenauer Foundation (KAS) in Bucharest, Martin Sieg, assures WELT: "The controversy over the rule of law has been completed." The gain in political security should reassure entrepreneurs.

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Nevertheless, much remains to be done: in particular, corruption deters investors. In the World Bank's "Ease of doing business" index, Romania slipped seven places to 52nd place within a year and is in the rear third of Europe. The 146th place in the corruption-prone component "Building Permits" worries a lot.

Corruption has remained high for years, Transparency International believes. The fight is indeed publicity. Criminal deterrence, however, does not eliminate the root causes: legal confusion, bureaucratism, clientelism, clammy finances of the authorities and their employees. Numerous governments wanted to protect corrupt politicians by laws and urgent regulations to the last from prosecution.

New government encourages entrepreneurs

Thus, the ruling PSD managed to wear out three prime ministers in the past three years – in corruption scandals and no-confidence votes. With the recent change of government, not only the head, but also the ruling party has been replaced: the new prime minister is Orban, Ludovic Orban. The leader of the National Liberal Party (PNL) replaces Viorica Dancila from the Socialist PSD.

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PNL man Orban will probably lead the government until the election in December 2020. Its center-right party, which belongs to the Christian Democratic Group in the European Parliament, occupies 69 out of 329 parliamentary seats. With the help of renegade Social Democrats and five small parties Orban drew a close vote of confidence for a minority government. Many may have supported Orban for fear of new elections and loss of immunity.

Businesses in Germany and abroad can look forward to it: with the departure of the PSD uncertainties disappear. She had often changed the tax system and social security contributions by emergency order overnight. That's not what Martin Sieg says under Orban.

He plans economic policy by his own admission a "macroeconomic balance". He wants to improve the investment climate, invest in "key infrastructure", guide exiled people to the homeland, purify the state apparatus and professionalize the institutions.

President supports Orban's course

KAS expert Sieg believes that this "pro-business policy" is believable, although he does not expect "radical steps". Orban wants to gain investor confidence and address structural issues such as the "underdeveloped" road and rail network by making greater use of EU funds. It will soon be awarded for the years 2021-2027. According to Sieg, the civil service is indeed inefficient, overstaffed and underpaid. Hundreds of thousands of employees would not be needed.

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Two things will complicate Orban's coming year: first, to make the state budget in Parliament strict enough to stabilize the budget, secondly, to shake off the PSD's announced election gifts – lavish state salaries and pensions.

With President Klaus Iohannis, himself a former PNL chairman, Orban has a fellow campaigner. The 56-year-old is considered progressive, took part in anti-corruption demonstrations, thus openly oppose the PSD, prevented pardons corrupt politicians and protected as the supreme constitutional guardian justice and LGBT rights.

This Sunday, he appears as a big favorite in the fragmented candidate field for the presidential election. Polls prophesy him 45 percent. That's not enough for the absolute majority. But in 14 days, with a possible runoff election, the German -born Iohannis will prevail in all probability.

"Stable, normal politics without barriers"

With Orban, who comes from the Hungarian minority, Iohannis is in line. Together they have already fought election campaigns. Both have not been noticed by corruption. Both want to establish Romania "as a constructive partner of the EU," says KAS man Sieg. They stand for a "stable, normal policy without any barriers".

However, the minority relationships do not allow a government that is particularly capable of acting. In some cases, the head of government has to negotiate majorities. In addition, Orban is subject to the constraints of the upcoming election campaign. The weak institutions and corruption are also hampering.

Nevertheless, the re-election of Iohannis would pave the way to Europe. The Romanians had already sent pro-European smoke signals in the European elections. The integration continues, entry into the euro zone until 2026 was already initiated in February.

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