Vivid Politics October 2004

Regulars
POLITICS
Much ado about (almost) nothing

by Andrei Postelnicu
October 2004

By the time this issue of Vivid lands in your hands, the Victoria Palace elites will have stopped having seizures about the much-awaited verdict from the Brussels Eurocrats: that Romania has, finally, a functioning market economy.

A year ago, the European Commission came up with indescribable tortures of the English language to avoid saying that Romania does not, in fact, have a market economy, much less a functioning one. It is highly likely that this year the same propellerheads will cook up an equally contorted manner to say as unenthusiastically as possible that Romania's economy has somehow become both functioning, and a market-based one at that.

The problem remains, as was the case a year ago, that even if it does come, this verdict will change bugger all in the chaotic landscape of the Romanian economy. Its economy will still be one where some companies owe tens of millions to the state for years on end and those debts are restructured and/or forgiven way too many times, way too easily; where its government will continue to want to set the prices for everything down to the eggs farmers sell at the market; and a business environment strangled by too many emergency edicts and too few laws applied consistently. But a better measure of the discrepancy between what the Romanian economy should be according to the EU stamp of approval and what it is in reality is perhaps the lack of an economic ecosystem based on real competition. In its stead, Romania has a handful of sharks loitering in a polluted sea, economically speaking.

A predictable effect of a positive verdict from Brussels is the likely use of it in the upcoming election campaign by a government finding itself in a credibility crisis. By giving Romania the functioning market economy moniker, the European Commission has in effect allowed the PSD to claim it is the party that made from the ugly duckling Romania was in 2000 a fetching bride with a nice dowry four years later. Add that to the fact that the PSD is the party that got Romania into Nato, since no one will admit that that is owed more to Osama bin Laden and the post-9/11 geopolitical world, rather than the credentials of the Romanian army or the 'fine' shape of Romanian democracy.

On the other hand though, the current conjecture in the EU makes an abominable insult to economic theory out of the functioning market economy status. We are presented with a hollow verdict given by a body that is not in a position to speak on such matters. When the European Commission talks about functioning market economies, it is as if a group of nuns and monks were giving out awards for strip dances and sexual prowess.

Given that the EU's largest economies are flaunting the cornerstone of the Union's economic infrastructure - the Stability Pact - and are doing so unpunished, and given that some governments have no qualms about subsidising Alitalia or Alstom, any economic judgement coming out of Brussels is likely to ring hollow. If Germany's labour market needs a radical reform and France's agriculture can't survive without subsidies, what can one expect from Romania's economy?

Current political-economic context in the EU allows the Nastase government to ask for clemency from Brussels towards the gaping holes in the Romanian economy in terms of reform. Given that many Romanians see the European Commission and Eurocracy in general as the only force capable of keeping Bucharest's wayward rulers in line, Brussels should think twice about rubberstamping Romania as a functioning market economy.

At best, obtaining the functioning market economy status might earn Romania an upgrade of its credit rating. That will be done by one of the three agencies caught with their pants down by crises such as Argentina and Enron, and whose accountability has been called into question many times recently. At least one analyst I know can't explain why Romania's rating is where it is now and why it is dependent on the EU verdict. So in essence, the link between the rating and the EU status could be a way for the agencies not to do an actual assessment of Romania's finances relative to other countries.

Unfortunately, the stark reality is that the EU expansion process is one that takes place too soon economically and institutionally while taking place too late politically. In Western Europe there is talk about 'expansion fatigue' and Old Europeans show limited tolerance towards the Union's new members. The current EU executive has been ordered by governments to close negotiations with Romania and Bulgaria before handing over to Jose Manuel Barroso's new team, lest the window of political opportunity be slammed closed in the near future. Romania's economic ineptitude is too small a detail in the EU's political picture to prevent Romania's being shoved into a structure that is as unprepared for Romania as Romania is unprepared for it.

Consequently, all the hoopla around Romania's functioning economy status is much ado about very little. Even sadder is the fact that in the middle of it all the only constituency who should benefit and won't - the Romanian people - is watching a game rigged to suit the players and the referees.

Andrei Postelnicu writes about global markets for the Financial Times in New York, and writes for Vivid in a personal capacity.