Fifteen years after Romania threw off its communist yoke, it was welcomed into the EU's antechamber on April 25 when President Traian Basescu signed the accession treaty in Luxembourg's Neumuenster Abbey. Romania is now in the home straight and expects to join the 25-country strong club on January 1, 2007.
"EU membership will represent the fulfilment of our dream, more than half a century old, that of... becoming part of the European community of values, prosperity and security," President Basescu told the assembled EU foreign ministers at the ceremony.
But Romania's accession is not a sure thing. In
the 860-page treaty is a get-out clause that allows Brussels to delay Romania's membership by a year if it fails to make satisfactory progress in tackling endemic corruption.
EU politicians are nervous, especially as Romania had the worst score in Transparency International's Corruption Perception Index among EU accession countries. But Basescu, a former boat captain and popular Bucharest mayor, who was elected in a surprise result in December, has come out with all guns blazing.
"I can assure you that we will spare no effort in fulfilling our commitments," Basescu told his EU colleagues. "We will continue with our preparations, with energy and determination. We have no intention of missing" the 2007 entry date. Eliminating corruption will be the make-or-break for Romania's EU bid, and Basescu is off to a good start. Apparatchiks of the old regime have been swept aside and replaced by a cabinet of young, like-minded ministers.
human rights
The most notable appointment was Monica Macovei, a former human rights campaigner, who crossed the tracks to become the new justice minister. And the president quickly followed up in March with a package of laws to bring Romania's legislative base in line with EU norms as well as tackling graft.
It will be an uphill battle as the old regime is deeply entrenched. Macovei is already at loggerheads with head prosecutor Ilie Botos, over the case of Alexandru Tiriac, who was arrested last year and is the son of influential businessman Ion Tiriac. Macovei claims many laws were broken during the investigation, while Botos says the justice ministry should not be pressuring the independent judiciary.
Uncertainty still surrounds the outcome of the anti-corruption campaign, but the economic prospects are rosy. Romania put in another year of strong growth in 2004 after the economy increased by 8%, bolstered by a vibrant banking sector and the introduction of a flat tax of 16% on both personal income and corporate profits.
Inflation is one of the few main macroeconomic concerns. It has fallen steadily in the past few years and was down to a new low of 8.7% in March year-on-year. The governor of the National Bank of Romania (NBR) Mugur Isarescu said in April that he is confident inflation will be held to the government's target of 7% this year. But economists worry that a series of planned energy tariff hikes – 35% for natural gas, 5% for electricity and 20% for heating – could see it revive later this year. Booming consumer spending on the back of rising wages and the advent of consumer credit pushed the trade deficit up by 42% in February to E340 million. And while exports are growing, the rate of growth still lags that of imports.
However, these imbalances can be corrected if structural reforms continue.
With an external debt-to-GDP ratio of only 25%, the government has plenty of borrowing power. In addition, Romania will have access to E11 billion of EU structural reform credits to help the accession process along.
vicious circle
Growth and consumer spending have started a virtuous circle of spending and investment. Romania's large population of 22 million has already proved enticing
to strategic foreign investors, who ploughed E3.4 billion into the country last year, although a few headline privatizations, such as the sale of oil concern Petrom, made up a big chunk of this.
The central bank hopes to attract more investment after it removed capital controls in April, allowing foreigners to open accounts in the local currency for the first time. The move legitimizes about E2 billion that has already flowed into the country through various grey schemes. Hard currency reserves swelled in March to reach a record of E13 billion or a comfortable five-and-a-half months of import cover.
And a string of major privatizations later this year will bring the government more revenues as well as open the economy to yet more competition. The most significant state concern to go under the gavel will be CEC, the Communist-era savings bank and one of only two banks still publicly owned.
CEC is the second biggest bank in the country, with its 1,400 branches and large deposit base. This makes it extremely attractive, and a dozen leading foreign banks have already said they will bid in the auction.