Tuesday, April 15, 2008

FT: Cash or crash time in Romania

As a trained economist and former prime minister of Romania, Nicolae Vacaroiu is understandably concerned about his country’s inflation rate, budget deficit and vast current account deficit, all of which are getting Romania into hot water with its new masters at the European Commission. But what really bugs him is Romania’s inability to make effective use of all the economic aid that is on tap from the European Union.

On the 27th floor of a Brussels hotel the other night, Vacaroiu told me that Romania had made such “poor progress” in absorbing EU funds last year that it had ended up a net contributor to the EU budget. “Maybe, unfortunately, the same will be true in 2008,” he said.

The EU does in fact have compensation schemes for new member-states such as Romania and Bulgaria, so that they won’t find themselves in the strange position of subsidising their richer western European friends. But as Vacaroiu points out, the real problem lies at home, and above all in the agricultural sector, which employs about 40 per cent of Romania’s population.

“Our payment agencies aren’t working, especially in agriculture and rural development… There’s a certain degree of red tape involved - it’s rather high in Romania, though you find bureaucracy in the EU institutions, too… Another element is that we’re unable to make a so-called ‘leap’ in decentralised decision-making from the centre to local levels.”

All new member-states find it hard to absorb EU funds in their first years after accession, so one shouldn’t necessarily make a big deal about Romania’s problems. But Romania qualifies for about €30bn in EU aid between now and 2013. That is serious money - more, I would imagine, than Romania can ever have been offered in its entire history.

It would be unforgivable if the chance was wasted.

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