EU Report Tells Romania To Tighten Policies

The inflation rise, the consumption boom of import goods on borrowed money led Romania's economy to the danger of overheating, the European Commission said in a recent report

The inflation rise, the consumption boom of import goods on borrowed money led Romania's economy to the danger of overheating, the European Commission said in a recent report. The EU asked the new member state to conduct structural reforms and bring down deficits, to avoid such an outcome.

EU Commissioner for Economic and Monetary Affairs Joaquin Almunia said “it was an urgent need for a credible planning of the medium term expenses and a multi annual budget. Structural reforms and budget consolidation will both work towards solving the difficulties arisen from the overheating of the economy and will promote a more balanced convergence of the Romanian economy towards those of the other EU member states.”

The EU report stresses that the current account deficit shows an expansive fiscal policy, in spite of recent budgetary constraints and the lack of a credible and predictable panning on medium term. The authorities in Brussels worry for that borrowing on the international market climbed from 10.4% of GDP in 2006 to 13.4% of GDP in 2007, that the inflation is on the rise fueled by the hike in salaries, that there is a work force deficit on the market, and that the retail borrowing is on the rise too.

The authorities in Brussels asked Bucharest to set more ambitious goals for the budget, to reduce the external deficits and speed up the structural reforms. All these should lead to a higher productivity, an education system tailored to the job market needs and the transformation of the agriculture of subsistence into a valid source of income for those working in this field.

The EU report also shows that the demand will stay high for this year, but slow down in 2009, as will the investments, as a result of the higher price of borrowing money domestically and the hike in the prices of raw materials. Therefore, the report concludes that the fiscal policy is key to temper the domestic demand while improving the public finances.