Saturday, February 6, 2010

Romania Mare?

A couple of months ago it was a basket case. A presidential election between two less-than-impressive candidates left a smell of vote rigging heavy in the air. The country had no prime minister and no budget, the IMF having thrown up their hands in horror and walked off. Economic activity was in strong decline and unemployment was marching steadliy upwards.

Two months on and one or two of the issues above have been partially resolved. Traian Basescu has been accepted as President by all major parties, a PM has been sworn in and a budget is in place.

But it gets better - Romania is in the curious position of watching from the sidelines as supposedly advanced euro-zone economies such as Greece, Portugal and Spain go down the gurgler due to uncontrolled government spending, debt build-ups and inflexible labour markets.

Thanks to Ceausescu, Romania's government debt levels are moderate. Thanks to Constantinescu and Tariceanu, its labour markets are fairly flexible by continental European standards. Thanks to the IMF, the budget isn't too far out of whack.

And so, we have the news this week that Fitch has upgraded its credit outlook from 'negative' to 'stable' and sees Romanian government debt being upgraded to investment grade during the next two years. After being marked down heavily at the height of the financial crisis, the Romanian leu is now recovering ground against the Euro.

Fitch's upgrade pales, however, against the news that the United States plans to base its missile shield in the country, having earlier pulled out of a similar venture in Poland and the Czech Republic. Taken together with the existing American bases in the country, Romania becomes a very important military ally to the US, probably on equal footing with Turkey and the UK. If the US is the world's policeman, then Romania has just become (to use a term coined by former Australian PM John Howard) a 'deputy sheriff'.

Taken all together, Romania appears to be transitioning from a post-communist failed state to being a mid-ranking European power with an important voice. Notwithstanding the linguistic, cultural and familial ties, Moldova's bid to rapidly improve relations with its neighbour to the south-west makes a lot of sense.

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