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Romania: Bucharest Gets Mixed Grades In Progress Toward EU Entry

The European Commission in its annual report yesterday gave a mixed assessment of Romania's progress toward its goal of becoming an EU member by 2007. While the report fell short of granting Romania full-functioning market-economy status, the commission said Bucharest can attain the much-coveted status once the progress already made "has continued decisively," as the report put it. But the document said Romania still has much to do to complete the economic, administration, and judicial reform and stifle endemic corruption.

Prague, 6 November 2003 (RFE/RL) -- The European Union has confirmed that Bulgaria and Romania are on track to gain membership in the bloc, but warned that both countries still face serious challenges if they want to join the EU by 2007.

Both countries were also given serious warnings on corruption and for their weak institutions. And in its annual country reports on progress toward accession, the European Commission also poured cold water on Romania's hopes of gaining the much-coveted full-functioning market-economy status.

In a carefully worded statement, the commission yesterday said that "Romania can be considered as a functioning market economy once the good progress made has continued decisively."

While the statement came as somewhat of a disappointment to Romania's former communist, social-democratic government, Enlargement Commissioner Guenter Verheugen described the assessment as "a very important upgrade."

"The formula is a little bit complicated and that has to do with the methodology which is used by economic experts," Verheugen said. "In simple words, the formula means that, analyzing the structure and the performance of Romania's economy of today -- Romania is a functioning market economy. But we can testify that Romania is a fully functioning market economy only when the present phase of reform is continued in certain areas, so the final 'certificate' will come next year."

Verheugen said the sensitive areas where Romania must speed up structural reform include privatization, the fight against inflation, fiscal discipline, and "other macroeconomic indicators." Romanian Prime Minister Adrian Nastase put on a brave face, saying the report shows Romania is perceived as a "credible partner."

"In today's report on Romania, the European Commission [EC] considers that the target of Romania's accession to the EU in 2007 is realistic. Romania is seen as a serious and credible partner. I want to say in a strong way that Romania will continue to prepare itself with the same seriousness and with the same conscientiousness as before. We intend to set up a program which will include the EC recommendations," Nastase said.

Some analysts say that by withholding full market-economy status, the EU is actually helping Bucharest, by pushing the government to speed up privatization and institutional reforms in 2004, which is an election year in Romania.

Charles Robertson, an emerging-markets economist at ING Barings Bank in London, told RFE/RL: "I think it's very helpful, because it keeps the pressure -- on the government particularly -- in Romania to maintain the economic reforms in 2004, even though there's local, parliamentary, and possibly presidential elections, all during the same year next year. The risk would be and is, in any country undergoing the reform process, [that] the reforms slow down in an election year and this EU Commission report should help make sure that Romania keeps the progress up."

Other analysts also point to the fact that the EU had to adopt a carrot-and-stick-type strategy in Romania's case. Enlargement expert Heather Grabbe of the London-based Center for European Reform said it is important for the EU to maintain its pressure on Romania, but that it is also crucial that the Romanian government be awarded for the progress already made.

"What they've been trying to do by the carefully worded statement is to reassure the government that yes, they will get market-economy status if they continue the current reforms, and that these reforms are on the right track. But at the same time, they also were warning Romania and the investment community that things are still not good enough. Also, the EU has its own credibility to think about. If the EU said Romania is a market economy and there's still considerable problems, then that EU seal of approval will mean less," Grabbe said.

The report notes such problems as widespread corruption, insufficient reform in the government administration and judiciary, debt, and the need to restructure the energy sector.

According to official figures, state companies have budget debts of some $3.8 billion, while losses in the energy sector are thought to be as high as 2 percent of gross domestic product.

Robertson of ING Barings said that behind the diplomatic language of the report, there are clear steps which Bucharest must take next year. "The wording will always be elusive -- that's the European Union -- but it's fairly clear the sort of reforms that are required, I mean I think it's very concrete things that we need to see," he said. "First, we want to see 25 percent of the biggest bank, BCR, sold to the IFC [the International Finance Corporation, the private-sector arm of the World Bank] and the EBRD [European Bank for Reconstruction and Development], we want to see that contract signed and happened. And, we want to see [the national oil company] Petrom privatized within the next six months. So we need to do basic concrete things which have been laid out as fundamental to Romania's restructuring."

Prime Minister Nastase's government has recently come under constant fire in a series of high-profile corruption cases, which led to the resignation of three cabinet members, including European Integration Minister Hildegard Puwak, who was accused of embezzling EU funds.

A referendum last month to bring Romania's constitution in line with EU requirements was marred by accusations of government fraud and large-scale absenteeism, interpreted as a form of protest against widespread poverty and corruption.

Grabbe of the Center for European Reform said the key question now is what impact the lukewarm report will have on Romania's domestic politics in light of next year's general elections. "For the EU, it doesn't actually make too much difference, in the sense that Romania will almost certainly get the market-economy status next year if it continues to implement the policies which are now in place," she said. "The question is whether or not this puts more pressure on the Nastase government and requires either some kind of a reshuffle of the government or, at least, some kind of reinforced mandate for it."

The report on Romania was also cause for gloom in neighboring Bulgaria, despite confirmations that Sofia is on track for membership in 2007. Officials in Sofia, including government spokesman Dimitar Tsonev, told reporters that Bulgaria had sought to "decouple" its path toward EU entry from that of Romania, which is progressing at a slower pace. But the EU yesterday made clear the two countries should join together.

Bulgarian Foreign Minister Solomon Pasi today sought to play down Sofia's initial disappointment. "This type of coupling of the two countries is not as dramatic as it is described now, because each of the two countries will be assessed according to its own progress," he said. "I would even say that we were coupled together with Romania at a time when our Romanian neighbors were well ahead of us."

Heather Grabbe said Bulgaria too has a lot of work to do before it is ready to join. "It's not the case that Romania not being able to meet market-economy status will hold Bulgaria back, because Bulgaria is also not considered by the EU as ready to join yet," she said. "Bulgaria also has problems with administration, particularly with the state of the judiciary, and Bulgaria still has problems with corruption, too. And the EU has made it clear that it's worried about those [problems]. So I think Bulgaria shouldn't be too panicked about this development."

Grabbe concluded that Bucharest and Sofia are "inevitably linked," since the EU is unlikely to take in just one country at a time. They may even become part of a second-wave troika, if Croatia meets its goal of becoming an official EU candidate next year.