Romania is well equipped to weather a British exit from the European Union, even if Brussels plays hardball, but the UK’s invoking of Article 50 will hurt Europe, the country’s finance minister Anca Dragu has told GlobalMarkets.
Central and eastern Europe has been at the centre of intense scrutiny following the UK’s decision to leave the EU on account of rising populism, the economic impact of a weaker Europe and uncertainty around the UK’s access to the single market.
Challenges to the EU are significant, said Dragu, but she condemned the short term interests of some of her neighbours who she said were missing the larger picture for populist tendencies in the political cycle.
“We appreciate the principles of the economic union,” she said. “Any measure or action to hurt these principles would hurt the Union.”
But she did acknowledge that the EU’s reactionary stance risked alienating some of its members. “The EU has to focus on more positive messages and be more proactive in communication,” she said. “A lot of people feel that the EU has not listened to them.” She suggested that the focus of the EU should be reoriented to growth.
But Commerzbank warns that Romania stands to lose a lot from any EU disruption, not least because around 1.5% of its GDP comes in the form of net remittances out of the EU. Romania is the second largest net EU fund recipient on a nominal basis and 75% of Romania’s exports go to Europe.
CLEANING UP
Once blighted by corruption, Romania’s National Anticorruption Directorate (DNA) has gone a long way to improve the problem. But there is still work to be done to improve the overall governance of its state owned enterprises (SOEs).
“We’re pre-occupied by improving the overall governance and financial results of the SOE’s,” said Dragu. “Their profitability is lower than the private sector at the moment.”
In the run up to its December elections, Romania is pushing towards greater transparency in business in order to help plug its fiscal deficit. Higher government spending is expected to push up Romania’s twin fiscal and external deficits as further cuts and excise duties come into effect in 2017.
Dragu is still focussed on greater transparency, reforming taxation, and providing fiscal predictability and stimulus to improve the business climate for foreign companies.
Foreign direct investment into Romania increased over 20% year on year in the first half of the year, according to Dragu. “It has returned to a level we saw prior to the crisis,” she said.
The government is also pushing on with its privatisation programme with Aro Electric Coil, Bucharest Airport as well as a freight company all lined up.