HUFFINGTON POST

The Euro Is In Trouble. But Romania Still Wants In.

The crisis in Greece hasn't killed off Romania's interest in the currency union.

The extraordinary political and economic turbulence of the Greek debt crisis has prompted widespread speculation that other European countries will now think twice before joining the 19-nation eurozone.

To assess these claims, The WorldPost took a closer look at reactions in Romania, the only European Union member nation that's announced a target year for joining the currency area.

Greece’s experience has heightened concerns in Romania about joining the eurozone prematurely, experts told The WorldPost-- but it hasn't extinguished Romania’s interest altogether. Romania does not have the disdain for Greece common in the Baltic states and Slovakia, and in fact shares some of the Greek public’s wariness of austerity policies. But Romania’s emergence from communism and rapid transition to capitalism since the 1990s, and its more recent economic interdependence with German industry, have made eurozone membership a goal for the country’s political class.

After Greece, Romania plans to delay euro entry

European Union member nations are officially required to join the eurozone once they have met the criteria for integration, including stable inflation, low budget deficits and sustainable debt. Denmark and the United Kingdom have permission to remain outside the currency union. Sweden, which has been a member of the EU since the inception of the euro, has yet to meet the fiscal and monetary criteria for joining.

Romania declared at one point that it intended to join the eurozone in 2019. But even before the latest stage of the Greek crisis had come to a head, Romania’s central bank chief, Mugur Isarescu, was trying to manage expectations that the country would meet the 2019 deadline. As the Greek bailout deal was being negotiated earlier this month, Isarescu doubled down, suggesting that Romania actually might not be ready to enter the eurozone until a decade later than that.

It's not hard to see why. Romania may be close to eurozone eligibility on purely fiscal criteria, but its economy remains relatively small -- about half the size of the current EU average. After Bulgaria, Romania is the second poorest country in the European Union.

Alina Bargaoanu, dean of the faculty of communications at Romania's National School of Political Studies and Public Administration, which has educated many of the country’s politicians and civil servants, said that Romanian leaders are interpreting the Greek crisis as a warning that the country should not enter the eurozone until it is more economically developed.

“The monetary union is good for countries which are very, very competitive,” Bargaoanu said. “One of the root causes of the crisis is the disparity in competitiveness. It is good for Germany and a straitjacket for Greece and the whole South of Europe. We are not that competitive and ready to join this elite club.”

Spanish Prime Minister Mariano Rajoy, right, shakes hands with Romanian President Klaus Iohannis prior to a meeting at La Mon
Spanish Prime Minister Mariano Rajoy, right, shakes hands with Romanian President Klaus Iohannis prior to a meeting at La Moncloa palace in Madrid on July 13, 2015. Romanians make up the largest group of foreigners in Spain, which has led some to be wary of the eurozone's austerity policies.

Cornel Ban, an international finance expert at Boston University who was born and raised in Romania, said that Romania often follows the lead of Poland, a larger and wealthier country. He said Poland’s recent public skepticism about joining the eurozone after the Greek ordeal makes it less likely that Romania will be joining soon.

“It is going to be very hard to explain to people after the Greek crisis what the cost of joining the eurozone would be,” Ban said. “I think in 2009 we would have gone in without the debate... A lot of people are looking at Greece, saying this is a situation we would be in too.”

Some observers believe that common currencies can be a handicap no matter how big a country's economy is, because they take away the option of devaluing a country’s currency when its economy slows down. Nobel laureate Paul Krugman, for example, has pointed out that since 2008, Finland, one of the eurozone’s wealthiest nations and a hard-line negotiator with Greece, has had a harder time recovering than its non-eurozone neighbor Sweden, which otherwise has a similar economy.

For now, though, Bargaoanu believes that this kind of outright euro-skepticism is rare among Romanian decision-makers, even if it may be on the rise among ordinary Romanians.

Nicolae Ceaușescu, Romania's longtime Communist dictator, is seen addressing Parliament in 1989. He was executed later that y
Nicolae Ceaușescu, Romania's longtime Communist dictator, is seen addressing Parliament in 1989. He was executed later that year. Some historians believe the massive austerity Ceaușescu enacted during the 1980s contributed to the political mobilization against him.

How does Romania’s own history of austerity shape what its citizens think?

When it comes to issues like the eurozone and the Greek crisis, public opinion in Romania is to some extent colored by the country's own long, tortured experience of austerity.

On the one hand, Romania survived austerity under communism, making it less sympathetic, Ban says, to the modern-day austerity undergone by Greeks. In the 1980s, the Communist dictator Nicolae Ceaușescu forced state industries to ramp up exports to pay off foreign debts. These policies led to massive domestic shortages in food and consumer goods, and Romanian standards of living plummeted. Ban’s research highlights the ways in which anger over years of austerity contributed to the political mobilization that deposed Ceaușescu in 1989. Ceaușescu was ultimately the only Communist bloc leader to be executed by his own citizens during the fall of the Warsaw Pact countries in the late '80s and early '90s.

Following the austerity of the '80s, Romania suffered an even greater economic shock with the collapse of its centralized economy and the Warsaw Pact trading bloc. “We have this memory of, ‘Holy cow, the Greeks are complaining about what?!’” Ban said, referring to the public outcry over Greece's austerity measures. “We had the biggest recession in history soon after the fall of Romanian communism in 1989 -- more than during World War II. That is part of this Eastern European mentality: history.”

On the other hand, Romania’s experience with austerity since the 2008 financial crisis may make it more sympathetic to Greece, Ban and Bargaoanu argue. Despite its frugal fiscal policies, Romania needed an international bailout package that imposed major budget austerity in 2010. 

The most dramatic of these measures was a 25 percent across-the-board pay cut for Romanian government workers. The measures prompted thousands of Romanians to take to the streets in protest, and ultimately forced then-Prime Minister Emil Boc to resign in February 2012.

Still, if Romania’s dramatic austerity experience has made it more sympathetic to Greece, Bargaoanu said it's unlikely to have actually turned Romanians against the eurozone. Romania's main creditor was the International Monetary Fund, so it's the IMF that received much of the blame for the accompanying austerity.

Christine Lagarde is managing director of the International Monetary Fund, which led a bailout of Romania in 2009.
Christine Lagarde is managing director of the International Monetary Fund, which led a bailout of Romania in 2009.

What about Romanians living in austerity-stricken Spain and Italy?

The greatest contributor to Romanian euro-skepticism may not be the effects of austerity in Greece, or even in Romania itself. Rather, Ban says, it's the effects of austerity on Spain and Italy that have given many Romanians pause. As of January 2014, Romanians were the largest group of foreigners living in both Spain and Italy, where they numbered more than 728,000 and 1 million, respectively. And Spain in particular has suffered greatly under eurozone austerity policies. Spain’s unemployment rate is now 22.4 percent -- the lowest it's been since 2011, but still high enough to give the new left-populist, anti-austerity party Podemos a fighting chance in the upcoming national elections. 

Romanian families are often large and sprawling, and Ban believes that Romanians living in the home country have heard a great deal about austerity from their relatives in Spain and Italy -- none of it good.

Ban’s own family is a case in point. His brother Mihai worked for years as a truck driver in Spain before leaving in 2013 because of the bad economy. Now back in Romania, Mihai does not like the idea of Romania suffering Spain’s fate, let alone that of Greece. “When Spain changed money to the euro, it was a big mistake,” he said.

Spanish activists distribute free school supplies to families squatting in a building in Sevilla, Spain, in 2013.
Spanish activists distribute free school supplies to families squatting in a building in Sevilla, Spain, in 2013.

What about Germany’s trade surplus? Doesn’t that scare Romania?

When people like Bargaoanu argue that Romania just needs to become more economically competitive to avoid the risks of eurozone monetary rigidity, there's some evidence to support that. Romania is already a major trading partner with Germany, integrated into the wealthier country's industrial supply chain. As a result, Romania may not have the same concerns about German exports crowding out its domestic industries as some other European countries. Germany is both Romania’s largest export destination and its largest source of imports, according to data compiled by the Massachusetts Institute of Technology.

One testament to Romania’s interdependence with Germany is its growing participation in the German automobile industry. Cars and car parts are now Romania’s largest export. Germany’s Daimler AG, for example, which makes Mercedes-Benz vehicles, announced in April that it was expanding its transmission plant in Sebes, Romania, bringing the number of plant employees up to 1,700. Smaller firms in the German Mittelstand, the sector of medium-sized car part and machinery tool manufacturers, have also set up shop in Romania in recent years. 

And since most of the materials used in Romanian manufacturing are imported from eurozone countries, the multinational companies investing in Romania don't have as much of an interest in cheaper currency. Ban and others suggest that if Romania converted to the euro, it would shield the companies investing in Romania from fluctuations in exchange rates.

Bargaoanu said that foreign investment in Romanian industry has been growing since the 2008 financial crisis, and has contributed to Romania’s robust economic recovery. Since bottoming out in 2010, Romania’s economy has rebounded to reach $199 billion in the first quarter of 2015, nearing its 2008 peak of $204 billion.

“It is better than being a service economy like Greece’s, which is hard to tax,” Ban said.

“The stabilization of the currency is a positive in the long run from a business perspective,” said Jay McCrensky, executive director of the Romanian-American Chamber of Commerce. “You can’t finance a major infrastructure policy in Romania unless it’s tied to the euro. From an individual consumer perspective in Romania and from a government perspective, that’s a whole other question.”

McCrensky notes that concerns about inflexibility in the eurozone’s structure are rooted in disagreements with the German government’s treatment of Greece, rather than issues with the structure of the eurozone overall. By the time Romania would join the eurozone, McCrensky said, Merkel and her austerity-minded government would no longer be in power.

Fears about the influence of Russian President Vladimir Putin have made European integration an issue of greater urgency
Fears about the influence of Russian President Vladimir Putin have made European integration an issue of greater urgency for many Romanians.

A German-oriented president looks west

Romania’s official politics are also promoting greater integration with Europe, which will move it closer to eurozone membership. Romanian President Klaus Iohannis, of the center-right National Liberal Party, has made joining the European Union’s Schengen Area a top priority for his government. The Schengen Area, which currently includes 26 European countries, allows people to move freely within the zone for purposes of travel, work or residence.

Iohannis is Romania’s first ethnic German president, and he has close personal and professional ties to the country. Iohannis has appealed to Germany for support in his bid to enter the Schengen Area.

Despite her concerns, Bargaoanu applauds these efforts and hopes they eventually lead to membership in the eurozone. She believes that it is still the only true path to equal status in Europe. With eurozone leaders turning inward after the Greek crisis to work on developing greater fiscal and political unity within the eurozone, she worries that EU member nations outside the currency area will receive less attention and investment -- leading to what she calls a “two-speed Europe.” 

“I do not see it just as a monetary union,” Bargaoanu said. “The currency was a great achievement -- it created some sense of belonging. It was one of the bigger steps toward political integration as such.” 

And although Romania, a former Soviet satellite, does not share the same militancy toward Russia as the Baltic states or Poland, its fear of Russian intimidation is part of what's motivating its pivot to Europe. 

“There is some sensitivity in Eastern Europe that the process [of European integration] could be reversible,” said Bargaoanu, referring to the expansion of the Russian sphere of influence. “Becoming part of the eurozone could mitigate these concerns.”

CORRECTION: A previous version of the story stated incorrectly that Romania's biggest recession happened under communism. It actually happened in the early '90s after the collapse of communism. 

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