Behind schedule to catch the EU train

Nãstase: Romanian premier must speed up political and economic reform or face EU exclusion

That's the stark message coming from the European Commission and the European Parliament, which over the past few months have regularly berated the country's politicians for failing to reform the judiciary, respect press freedoms, fight corruption, curb illegal adoptions and restructure and privatize state-owned companies.

Most tellingly of all perhaps, the EC concluded that Romania is the only EU accession candidate that does not yet possess a fully functioning market economy – shorthand for saying the country is still incapable of competing in the EU's single market.

The challenge facing the government of premier Adrian Nãstase is to speed up political and economic change or see Romania face an uncertain period of exile from Europe's exclusive club of nations. Perhaps most galling of all for Romania is that its bid for EU membership in 2007 could be decoupled from that of neighbouring Bulgaria, which the EU considers to have made far greater political and economic progress than Romania.

Among the banking community in Bucharest there's a sanguine attitude to the recent criticisms from the EU, with a widespread consensus that they amount to a warning that Romania will have to improve its performance if it is not to miss out on highly prized EU membership.

"The criticisms from the EU are welcome in that they show that the EU cares about Romania and the criticisms should help push Romania to solve the problems concerning EU entry," says Nicolae Danila, president of Banca Comerciala Romana (BCR), the country's largest bank. He adds that while EU membership in 2007 remains a cherished goal, the overriding priority for the government should be to push on with reforms that will improve the lot of the general population. "Irrespective of our desire to join the EU it's in the country's own best interest that changes are made to ensure that there is economic growth which will lead to improved living standards for everyone in Romania," he says.

There's a similar message from Steven van Groningen, president of Austrian banking group RZB's Bucharest-based subsidiary, Raiffeisen Bank Romania. "EU entry for Romania is not simply a question of ticking off a series of boxes," he says. "It's about a process of constant improvements and reforms which are necessary if Romania is to be able to compete effectively internationally."

He adds that that while missing out on EU entry in 2007 would undoubtedly be a blow to the country's political self-esteem, it would not alter the bank's fundamental view about its presence in Romania. "We take a long-term view of our investment here and Romania is such a large market that it demands the attention of investors."

Helmut Bernkopf, vice-chairman of HVB Romania, says that the rigorous and impartial enforcement of new and existing laws is a prerequisite if Romania is to be prepared for EU entry. "It's very important for the country to get used to working along EU lines," he says, adding: "There needs to be a level playing field for all companies to ensure fair competition."

Selcuk Saldirak, chief executive officer of UniCredit Romania, part of Italian banking group UniCredito Italiano, remains confident that despite the recent criticisms from the EU, the present administration has sufficient political will to ensure that Romania is able to join the EU in 2007. "Even if they look to be behind the programme for 2007, the government is making the necessary efforts to solve the problems," he says.

Hildegard Gacek, the resident director for the European Bank for Reconstruction and Development in Bucharest, takes a similar view: "Is Romania ready to join the EU now? No. Can it be ready to join in 2007? Yes."

Although the political will in Romania to join the EU in 2007 is not in doubt, the country's track record suggests that translating will into action has often proved to be a difficult task, with several governments failing to push through much-needed reforms during the course of the 1990s. Following the fall of dictator Nicolae Ceausescu in December 1989, the first attempt to introduce wide-ranging economic reforms by the National Salvation administration of premier Petre Roman ended in chaos after violent demonstrations by the country's powerful mining unions led to the occupation of government buildings in Bucharest.

Although the National Salvation Front remained the largest party after the 1992 elections, the minority government of prime minister Nicolae Vacaroiu had to rely on the support of ultra-nationalist and communist deputies. This stymied the pace of economic reforms and in the run-up to the 1996 elections lax economic policies led to rising inflation, devaluation and the introduction of price and currency controls that ultimately led to the demise of the National Salvation Front coalition.

The winners in 1996, an umbrella organization of centre-right parties called the Democratic Convention, formed a government under Victor Ciorbea, with the support of the UMDR ethnic Hungarian party and a small social democratic party led by former premier Petre Roman.

Although Ciorbea announced radical, market-oriented reforms including the removal of price controls, tighter fiscal and monetary policies and the liberalization of the foreign exchange regime, he failed to carry through the restructuring of obsolete industries. Romania's failure to be invited to join Nato in 1997 proved a major setback for the Democratic Convention and Ciorbea was dropped in 1998. His successor, Radu Vasile, failed to reverse the government's growing unpopularity and he in turn was replaced by Mugur Isarescu, governor of the National Bank of Romania.

At the November 2000 general election, the Social Democratic Party of Adrian Nãstase emerged as the largest party and with support from the UMDR has enjoyed a high degree of political stability. Since taking office in December 2000, the Nãstase administration has embarked on a comprehensive programme of economic reforms aimed at combining market reforms with improved social conditions.