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European-American Topics - Business - Romania and Bulgaria

Two former Soviet-bloc countries greet the New Year with EU membership

By Kai Sandvig, business editor
Published February 4, 2007

On the birth of 2007, Romania and Bulgaria ascended into the European Union, bringing the total number of EU member countries to 27 and nearly 500 million denizens. 

Both nations face strenuous transition hurdles, particularly in adapting their economies to the pace and versatility of their EU member colleagues, but both Romania and Bulgaria have already risen to their obligations in obtaining EU membership and both economies should follow in suit.  

Transylvania Fixation 

In a land sprinkled with fairy-tale castles and the lore of Dracula, medieval cities and Black Sea resorts, Romania’s renaissance grew out of the need to change economically. The end of an era, a Soviet grip over the region for nearly a half-century, started a process that reached its pinnacle at the dawn of 2007. 

“You know that Romania made a fundamental choice in December 1989. That choice was the only choice and it was the only sound choice as to have a democracy and a market economy based on economic freedom in a country that was devastated by 50 years of communism,” Romania Consul General in Los Angeles, Catalin Ghenea, wrote in an email response to European Weekly Online. 

“This year, Romania has fulfilled one of its strategic objectives, through its full-fledged membership to the European Union,” Ghenea finished.  

Romania signed the EU Constitution in 2004, but has yet to ratify it. According to Ghenea, the Romanian government does not see any problems looming with the ratification, only the concessions the government must make in the process.   

“Despite inevitable compromises, the European Constitution is far more than a meeting at the lowest common denominator. It achieves a fair balance of interests between large and small, old and new member states,” Ghenea wrote.  

Concessions to EU policy may include economic and security adjustments, one of which means falling in line with economic performance gauges.  

Romania plans on adopting the EU currency a few years from now when the economy meets the Maastricht convergence criteria, a set of budgetary principles that guide EU member state finances, after the country’s economic probation period.   

“It is foreseen that Romania will enter the Euro zone around 2012 or 2013, depending on its economic performances,” Ghenea wrote. 

Economic transition concerns still plague former Soviet-bloc states that try to keep pace with their Western Europe counterparts. According to the CIA-Factbook, Romania holds a 7.7 percent unemployment rate as of 2005. According to Ghenea, the national unemployment rate in 2005 was 5.9 percent. The numbers most likely differ in calculation methods, but the contrast represents how external analysts view the economic viability of Romania compared to internal analysis.  

Under EU auspices, Ghenea believes a steady downward trend in unemployment will continue.  

For the past six years, Romania has maintained a growth rate double the EU average. Between 2007 and 2009, Romania will receive about $14.3 billion (11 billion Euros) in funds from the EU budget for agriculture, structural actions and community programs.  

“It illustrates a win-win situation, it reflects the achievement of a long road in which Romania and the EU have worked together to make sure that the enlarged Europe is a stronger, more democratic one,” Ghenea wrote.  

Bulgarian Bonanza

Bulgaria, the other country to obtain EU membership status in 2007, signed the EU Accession Treaty in 2005. Bulgaria’s dilemma stems from a quickening of economic development with the lack of experience, similar to Russia’s post-communist economic expansion.   

“EU membership will increase investors and trade partners’ confidence, thus increase the inflow of capital, hence economic growth,” Bulgarian Foreign Investment and Commercial Advisor, Pavel Stamboliyski, wrote in an email response to European Weekly Online.  

“Bulgaria will also receive funding from the EU, part of which will be used to improve infrastructure (in particular, road infrastructure) which will further boost investments and economic growth,” Stamboliyski wrote.  

Bulgaria holds a low corporate tax rate compared to other Balkan states, yet inflation grew at 6.2 percent in 2004 and 5 percent in 2005. Gross Domestic Product, a gauge that reflects a country’s total economic output, grew at nearly identical rates that GDP did in the same years, according to InvestBulgaria Agency statistics. 

 This may lead to more investors outsourcing to other destinations.  

“Some investors are afraid that EU membership will inflate prices and labor costs,” Stamboliyski wrote. Yet, he remains confident EU membership will convince other EU members that Bulgaria is the right country to invest in.  

“We believe that EU membership will further spur investment and economic growth and thus reduce even further unemployment,” he wrote. 

The unemployment rate in Bulgaria currently hovers around 9 percent, a percentage point above the EU’s unemployment rate.  

In 2006, Bulgaria acquired more than $4.5 billion in foreign investment, a tepid quantity compared to most other EU member states, but far out-pacing other Balkan region economies, according to InvestBulgaria Agency statistics.  

However, Bulgaria will feel pressure to remain competitive with its larger, more economically diverse EU colleagues.  

“The immediate pressure will be on local companies to achieve competitiveness and productivity at a level similar to their EU counterparts,” Stamboliyski wrote. 

“In general yes – we don’t want to be trailing EU countries in terms of wealth,” he wrote.  

 

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