Why EU Regional Policy Has Been Inefficient in Romania

A Regional Comparative Study of the Counties of Cluj, Iaşi and Dolj for the Budgetary Period 2007-2013

MA Thesis in European Studies Graduate School for Humanities Universiteit van Amsterdam

Author: Rick Lof Student number: 6056040 Main Supervisor: Prof. Dr. László Marácz Second Supervisor: Dr. M. Lok

June, 2016

Content List of Abbreviations ...... 3

List of Figures ...... 4

Introduction ...... 5

Chapter 1. EU Regional Policy in Romania in Practice...... 10

EU Regional Policy: The Budgetary Period 2007-2013, Its Objectives and Instruments ...... 10

Preparations and Implementation in Romania ...... 15

Cluj, Iaşi and Dolj ...... 20

Chapter 2. The Main Challenges of Dealing with EU Funds in Romania ...... 25

The Low Absorption Rate ...... 25

The Low Payment Ratio, Evidence for Mismanagement ...... 29

Corruption, Fraud and Mismanagement as the Main Obstacles ...... 32

Chapter 3. EU Regional Policy in the Counties of Cluj, Iaşi, and Dolj ...... 39

Absorption and Management of EU Funds in Cluj, Iaşi, and Dolj ...... 39

Socio-Economic Development in Cluj, Iaşi, and Dolj During the Budgetary Period 2007-2013 ...... 45

Chapter 4. Regional Development Trends and the Presence of the Structural Problematizing Factors of EU Regional Policy Prior to EU-Membership ...... 53

The Structural Challenging Factors in Post-Communist Romania ...... 54

The EU and the Pre-Accession Funds for Romania...... 59

Conclusion ...... 65

Bibliography ...... 69

List of Abbreviations

ANAF Romanian Agency for Fiscal Administration ANTICORPP Anticorruption Policies Revisited: Global Trends and European Responses to the Challenge of Corruption CEE Central and Eastern Europe CPI Corruption Perception Index DNA Direcția Națională Anticorupție (National Anticorruption Directorate) EC European Commission ERDF European Regional and Development Fund ESF European Social Fund EU European Union GDP Gross Domestic Product INS Institutul Național de Statistică (National Institute for Statistics) IPP Institutul pentru Politici Publice București (Institute for Public Politics Bucharest) NCRD National Council for Regional Development NRDF National Regional Development Fund NUTS Nomenclature of Territorial Units for Statistics OLAF European Anti-Fraud Office OP Operational Programme for EU Regional Policy PD Partidul Democrat (The Democratic Party) PDL Partidul Democrat Liberal (The Democratic-Liberal Party) PNL Partidul Naţional Liberal (The National Liberal Party) PSD Partidul Social Democrat (The Social Democratic Party) SAR Societatea Academică din România (Romanian Academic Society) SEAP Electronic Public Procurement System SME Small and Medium-Sized Enterprises

UDMR Uniunea Democrată Maghiară din România (The Democratic Union of Hungarians in Romania) USL Uniunea Social Liberală (The Social-Liberal Union)

List of Figures

Figure 1: Objectives and Financial Instruments for EU Regional Policy 2007-2013 ...... 11 Figure 2: Financial Allocations for Romania for the 2007-2013 Period...... 14 Figure 3: Romania - Development Regions (NUTS-2 level) ...... 18 Figure 4: Romania - Counties (NUTS-3 level) ...... 20 Figure 5: Main Causes of Romania`s Low Absorption Capacity ...... 27 Figure 6: Difference between Contracting and Payment Ratios 2007-2013 ...... 30 Figure 7: Corruption and Absorption Rates in CEE States ...... 34 Figure 8: Methods of Fraudulent Mismanagement of EU Funds...... 36 Figure 9: Absorption of EU Funds at County Level ...... 40 Figure 10: Absorption of EU Funds of all Romanian Counties at County Level ...... 41 Figure 11: Map of Corruption Rate per 10.000 Inhabitants ...... 43 Figure 12: Convictions of Corruption, Data for Cluj, Iaşi, and Dolj ...... 44 Figure 13: GDP Growth Rates 2007-2013 ...... 46 Figure 14: GDP Growth Underdeveloped Regions 2007-2013 ...... 47 Figure 15: Development of Total Length of Public Roads by Road Type 2007-2013 (in KM) ...... 47 Figure 16: Development of Average Net Monthly Salary 2007-2013 ...... 49 Figure 17: Development of Life Expectancy 2007-2013 ...... 50 Figure 18: Development of Population Connected to Public Water Supply 2008-2013 ...... 51

Introduction

Regional diversity is a well-known phenomenon in Romania. Contemporary Romania can be divided into multiple historical regions of which Transylvania, Moldova and Walachia are the largest. Although these regions are contiguous and part of the same state, their cultural-historical backgrounds differ significantly. It was only after the end of World War I that these regions finally came together under the Romanian flag. The varying cultural-historical backgrounds give Romania an interesting and unique character for many reasons. Besides this regional diversity in cultural-historical perspective, Romania is also characterized by a serious regional diversity in socio-economic disparities.1 The causes for these are of course widespread and are to be found among all aspects at the local, regional and national level of Romania. However, despite several initiatives to make Romania overcome these regional disparities, the present tells us that regional socio-economic inequality in Romania has only increased in the last decades and that several particular factors seem to prevent Romania from becoming a more homogenous state.

During the period of communism, the Romanian state had sought to solve the regional disparities mainly through a wave of industrialization. Following the Stalinist recipe, Romania underwent a transformation from a predominant agrarian state towards a more modern industrial one, with specific emphasis on heavy industry.2 This artificial industrialization process may indeed have realized more homogeneity, but after the fall of communism, when Romania officially started its transition towards a democratic state and a market economy, the regional disparities soon started to increase.3 An important cause for this is that a significant amount of activity at inefficient industrial plants came to an end in regions which had become completely dependent on these industries. As this is of course only one factor that can be held responsible for the rise of regional inequality in post-communist Romania, we must admit that although Romania ultimately started to make some economic progress after the fall of communism, the regional disparities within the country have only further increased.

In light of regional development and socio-economic equalization, Romania`s accession to the European Union (EU) in 2007 could have been seen as a great opportunity, since the EU has regional growth and development as one of its main priorities.4 Through its Regional Policy the EU aims to

1 David Turnock, ‘Regional Inequalities and Regional Development in Post-Communist Romania’, in: D. Light and D. Phinnemore eds., Post-Communist Romania Coming to Terms with Transition, Basingstoke: Palgrave Publishers Ltd. 2001, p. 150. 2 Wally Bacon, ‘Economic Reform’, in: H. F. Carey ed., Romania Since 1989 Politics, Economics and Society, New York: Lexington Books 2004, p. 374. 3 David Turnock, ‘Regional Inequalities and Regional Development in Post-Communist Romania’, p. 170. 4 Ana-Paula Laissy ed., Working for the Regions, EU Regional Policy 2007-2013, Luxembourg: Publications Office of the European Union 2008, p. 1.

5 homogenize the socio-economic situation of all the member states regions. EU Regional Policy has over time developed into a complicated system of different funds which all have their own specific objectives in the general effort of resolving regional disparities. In the budgetary period of 2007-2013, EU Regional Policy accounted for more than €348 billion, which was more than one third of the complete EU budget. As an EU member state, the budgetary period of 2007-2013 was Romania`s first experience with EU Regional Policy. Now in the position to receive funds, Romania is supposed to realize regional development and cohesion. For this budgetary period, Romania was allocated a total amount of €19.7 billion of EU Regional Policy funds. As the poorest member of the EU, and one with severe need for cohesion and development, Romania was given high priority in the allocation of funds.

In the course of the budgetary period between 2007 and 2013, it became evident that Romania was experiencing serious problems in using these funds efficiently and that there were no clear signs of regional equalization.5 The causes for this are widespread and vary among the different cases and sources. One objective challenge for Romania is the absorption of EU funds. Although €19.7 billion was allocated, this did not mean that the money was automatically available to spend. The EU has developed a procedure for gaining access to the allocated funds, to make sure that the money is being spent responsibly. Development initiatives and programs need to convince the EU that they are worth the already allocated funds. Especially in the first five years of the budgetary period, Romania had a low fund absorption rate (compared to the other Central and Eastern European (CEE) member states). This means that most of the allocated funds were never used for their intended purpose. Besides the reality of a low absorption rate and the resulting loss of a significant amount of funds, there was also a widespread availability of sources concerning the efficiency of development programs and EU funds in Romania. Administrative incapacity, mismanagement and corruption are important factors that seem to have influenced the effectiveness of EU structural funds in Romania. From another perspective, numerous scholars have criticized the role of the EU and the way it facilitates its EU Regional Policy in the CEE member states.

At the end of Romania`s first budgetary period of EU Regional Policy, it became clear that regional disparities had further increased.6 There also seemed to be important differences in the performances of the different development regions in Romania, regarding EU Regional Policy. The more developed regions became more developed and the poorest regions lagged further behind. Although Romania`s fund absorption rate has recently increased, there is still enough reason to seriously doubt the

5 Lavinia Stan and Rodica Zaharia, ‘Romania’, in: D. Ó Beacháin, V. Sheridan and S. Stan eds., Life in Post- Communist Eastern Europe After EU Membership, Happy ever After?, London: Routledge 2012, p. 195-196. 6 Eurostat, ‘Regional Gross Domestic Product by NUTS 2 Region – million EUR’, accessed February 12, 2016, http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tgs00003&plugin=1.

6 effectiveness and efficiency of EU Regional Policy in Romania. On the other hand, there is plenty of evidence to argue that the success of EU structural funds is seriously problematized by Romanian key players, who have the power and interests to prevent a successful implementation of EU policy and funds.

This thesis will explore which factors have prevented an efficient EU Regional Policy in the developing regions of Romania. Are these challenging factors merely to be found in Romania or elsewhere in the EU? For the reason that regional diversity in Romania is both a socio-economic and a cultural-historical phenomenon, this research will be a regional comparative study aiming to discover distinctive differences between three socio-economic as well as cultural-historical divided Romanian counties. For this comparative study I have selected one county from each of the three major historical regions: Cluj (Transylvania), Iaşi (Moldova), and Dolj (Walachia). The selection of these counties is further based on the following variables: population, size, territorial location, center-periphery divide, and economic factors, in which they are relatively comparable to each other. The counties will be further introduced and specified in chapter one.

The methodology of this research will be two-sided. The first is the above introduced regional comparative study of the counties Cluj, Iaşi, and Dolj regarding the efficiency of EU Regional Policy. The comparison will focus indeed on cultural-historical as well as the socio-economic features and variables of these counties but also on administrative features in relation to their performances with EU funds. In order to complement the regional comparative study and give evidence for the inefficiency of EU Regional Policy in Romania and these counties, the analysis of socio-economic data will be the second side of the methodology. Socio-economic data (including corruption, fraud and management data and variables) of Romania and the three mentioned counties, relevant to the efficiency and objectives of EU Regional Policy will be analyzed and compared to each other in order to develop an answer on the central question of this research. This will not be an economic statistical research focused merely on data, but rather a critical analysis of events, performances, and developments of Romania and three of its counties. The aim is to discover which factors have problematized the efficiency and effectiveness of EU Regional Policy in Romania, specifically in these three counties.

The research will focus on the budgetary period between 2007 and 2013. Because conclusions can be made from available statistical data and evaluations from this period, it also provides evidence of how a new EU member state copes with EU policy and regulations. As Romania is characterized by a significant cultural-historical as well as a socio-economic diversity, it is realistic to hypothesize that there might also be differences between their regional performances concerning EU Regional Policy. This

7 thesis will demonstrate that the problems and differences concerning the efficiency of EU Regional Policy that occurred in this period in Romania, are predominantly based on administrative and financial capacities as well as on the phenomenon of corruption and fraudulent mismanagement. As these are features that have been noted even before Romania`s accession to the EU it will be argued that also the EU has been ineffective in preparing Romania sufficiently for EU Regional Policy.

The aim of the first chapter is to find out what EU Regional Policy means for Romania in practice. I will analyze the EU-strategy for realizing its objective for regional equalization and cohesion, through EU Regional Policy, in Romania. What are the main goals and priorities of this policy and how is it in practice constructed and facilitated in Cluj, Iaşi and Dolj? Important attention will be given to the implementation and accessibility of the structural funds. Several scholars blame the EU for its lack of transparency and complexity in respect to its policies and accessibility of funds. From the other perspective, this chapter will further introduce the relevant characteristics of Cluj, Iaşi and Dolj. Accordingly, attention will be paid to the actions the central government and the regional governments practically, institutionally, administratively, and legally have undertaken in service of EU Regional Policy. It is argued by several scholars that especially on the national level of politics, the determination for implementing desirable reforms and for encouraging decentralization of power did not seem to have been sufficient in Romania.

Chapter two will discover the main challenges of EU Regional Policy in Romania for the budgetary period 2007-2013. In this chapter the foundation will be created for the comparative analysis of Cluj, Iaşi, and Dolj which will be conducted in chapter three. The focus will be both on the main challenges of the absorption of EU funds and on the management of the funds and the development projects. Important attention will be given to Romania`s low absorption rate of EU funds. The root causes of this phenomenon will be examined in order to study the main challenges which Romania has experienced with EU funds. Another point of attention will be analyzing several evidences of poor management of EU funds. There is numerous available information discussing the failures of development programs and serious impediments of efficient spending of EU funds in order to realize the aims of EU Regional Policy. Corruption, fraud and serious deficits in national and regional administrative and financial capacities will be argued to be the main factors and causes that have problematized an efficient EU Regional Policy in Romania.

The aim of chapter three is to answer the question whether the challenges for regional equalization through EU Regional Policy must be interpreted as a national or even a regional phenomenon in Romania. In this chapter the comparative study will be mainly conducted. I will dive deeper into the results of the previous chapter, attempting to find out how Cluj, Iaşi, and Dolj performed

8 compared to each other. Did all these counties experience the same challenges or were there significant differences among them? I assume this chapter to be important, since there seems to be significant regional variation concerning compliance with and commitment to EU policies as well as the administrative and financial capacities of the regions in Romania. For this comparative chapter I will analyze the achievements of Cluj, Iasi and Dolj in terms of developments of several relevant socio- economic variables in the period between 2007 and 2013. This analysis will provide concrete evidence for the inefficiency of EU Regional Policy, meaning that indeed the most underdeveloped areas (mostly rural), have performed worse in managing EU funds and benefited less from their availability than the more developed and urbanized areas. It will become clear that this phenomenon is evident on the national as well as on the regional, county and local level of Romania.

Chapter four will focus on the question whether the inefficient results of EU Regional Policy 2007-2013 in Romania could have been prevented. This chapter will examine the presence and notoriety of the structural factors that have challenged EU Regional Policy, prior to Romania`s EU accession. It will be clarified that most of the problematizing factors that have prevented EU Regional Policy from being efficient in Romania were not completely new, but rather structural factors that have been dominant and determinant for Romania`s development long before it became member of the EU. These factors are somehow expected to be the same that have dominated Romania`s post-communist transition (i.e. lack of political determination and commitment, purposeful mismanagement (corruption, fraud), and administrative/financial incapacity). This chapter will also focus on trends in regional development before 2007, in order to demonstrate that EU Regional Policy did not have the power to enforce a significant change in regional development trends in Romania through its funds. Accordingly, Romania`s period in dealing with EU pre-accession funds will be briefly analyzed, since it proves more concretely that the EU had sufficient knowledge to assume that Romania was not ready for managing EU funds efficiently. It will be argued in this final chapter that the inefficient results of EU Regional Policy during the 2007-2013 budgetary period were not unpreventable at all, but rather the result of a lack of powerful action and commitment devoted to structural internal factors in Romania, from both the EU and Romania itself during the pre-accession period.

Finally, the conclusion will provide a well-structured answer to my research question. All the findings of this research will be used in the formulation of this conclusion and the answer on the question why regional equalization through EU Regional Policy has been so challenging in Romania. I hypothesize that the answer will be educational for the EU as well as for all levels of government in Romania, since the answers of this research are expected to be found on the sides of all the key players of EU Regional Policy in Romania.

Chapter 1. EU Regional Policy in Romania in Practice

EU Regional Policy: The Budgetary Period 2007-2013, Its Objectives and Instruments

Romania`s official accession to the European Union on the first of January 2007 also meant the official beginning of the country`s participation in the EU`s Regional Development Policy, also called Cohesion Policy. From then on Romania became eligible for billions of EU funds, targeting socio-economic convergence and cohesion of the country with the other 26 member states of the EU. The first years of the relationship between Romania and EU Regional Policy are generally described as not very successful. It appeared that a fundamental mismatching of the two parties was evident, especially at the beginning of this new relationship. This chapter will analyze the content and objectives of EU Regional Policy and how it was practically implemented in Romania and more precisely in the counties of Cluj, Iaşi and Dolj. Accordingly, it will be examined what measures Romania has undertaken to accommodate and manage EU Regional Policy. It will be argued that on both sides the features of the undertaken actions in service of EU Regional Policy have not been ideal.

The main objective of EU Regional Policy is briefly described on the front sheet of a policy paper of the European Commission (EC): The European Union explained: Regional Policy. EU Regional Policy`s objective is explained as a strategic investment policy targeting all EU regions and cities in order to boost economic growth and improve quality of life. It also suggests that this policy is an expression of solidarity, focusing support on the less developed regions.7 In short, EU Regional Policy aims to tackle the socio-economic disparities within the European Union. With the enlargements of 2004 and 2007 this challenge of the EU has only further increased, since these new members, predominantly CEE countries, were in general much less developed than the already existing members leading to an increase of the disparities within the European Union. The enormous increase of the budget for EU Regional Policy shows that the EU acknowledged this and put high priority on the development of the new member states. Gabriele Tondl mentions in her contribution to The Economics of the European Union, that the creation of EU Regional Policy was primarily for a political reason to maintain peace within the EU. She refers to Article 2 of the EU Treaty which mentions one of the main objectives of the EU, namely: equal standards of living within the EU. The existence and increase of income disparities clearly conflicts with this

7 European Commission, The European Union Explained, Regional Policy, Luxembourg: Publications Office of the European Union 2014, p. 1.

10 objective and therefore was the assuring of equality one of the primary arguments for EU Regional Policy.8

EU Regional Policy`s power and instruments are largely divided over three funds which all contribute to the fulfillment of the policy`s objectives in their own way. The European Regional Development Fund (ERDF) is responsible for regional development, economic change, enhanced competitiveness and territorial cooperation within the EU. The Cohesion Fund focusses on transport and environment infrastructure, but also on energy efficiency and renewable energy. The European Social Fund (ESF) provides support to anticipate and manage economic and social change.9 These three funds all support programs and projects, developed in accordance with the objectives of EU Regional Policy in their own particular fields. The three funds and their corresponding objectives and priorities are clearly represented in Figure 1.

Figure 1: Objectives and Financial Instruments for EU Regional Policy 2007-2013

Source: Iulian Braşoveanu et al, ‘Structural and Cohesion Funds: Theoretical and Statistical Aspects in Romania and EU’, Transylvanian Review of Administrative Sciences, no. 33 (2011), p. 34.

It is important to note that funding of development programs and projects are based on a co- finance principle, encouraging public and/or private investors to invest in these programs and projects. The level of support and the co-financing rate is adapted to the level of economic development of the particular regions.10 EU regions are hereby divided into three groups: ‘Less developed regions’ or ‘convergence regions’, this group includes regions with a GDP lower than 75 % of the EU-average.

8 Gabriele Tondl, ‘Regional Policy’, in: M. Artis and F. Nixson eds., The Economics of the European Union, New York: Oxford University Press 2007, p. 173. 9 Ana-Paula Laissy ed., Working for the Regions, EU Regional Policy 2007-2013, p. 2. 10 European Commission, The European Union Explained, Regional Policy, p. 10.

‘Transition regions’, including regions with a GDP between 75-90 % of the EU-average. And ‘more developed regions’, regions with a GDP higher than 90 % of the EU-average. For the budgetary period of 2007-2013, Romania existed entirely of regions of the poorest classification. This means that they are given the highest level of support from EU Regional Policy and enjoy the lowest co-finance rate.

EU Regional Policy is carried out under the umbrella of budgetary periods. Each budgetary period covers seven years in which the total budget of the policy and the total amount of allocated fund for each of the member states are fixed. The EU argues that the reason for a budgetary period of 7 years, unlike annual national budgets, is for making it inherently reliable and a valuable resource for private investment to draw upon.11 Instead of the budgetary periods being developed only to calculate the policy`s budget, each budgetary period also has its period-specific objectives, which are sought to be accomplished during the seven years of the concerning budgetary period.

More growth and jobs for all regions and cities of the European Union was the main objective of budgetary period 2007-2013.12 The policy`s main objective was divided into three policy objectives which were supported by the three funds: ERDF, Cohesion Fund and the ESF. The three policy objectives ‘convergence’, ‘regional competitiveness and employment’, and ‘European territorial cooperation’, were designed to achieve the policy`s main objective in their own particular field, supported by a certain proportion of the three funds (Fig. 1). As the distribution and management of the funds works in the same way, I will not elaborate further on the specific characteristics of the different funds. Besides the policy`s objectives, the EU also argues that EU Regional Policy safeguards compliance with other EU policies in the member states and that this policy might improve and modernize public administrations to enhance transparency and foster good governance.13 The EU seems to promote its Regional Policy as the solution for all the inequalities and underdevelopment within its union. In practice we will see that EU Regional Policy`s effectiveness is much more doubted than becomes clear from the above discussed information.

In the article Cohesion Policy and the Evolution of Regional Policy published in 2013, Martin Ferry and Irene McMaster examine important deficiencies of EU Regional Policy, especially for the CEE member states. A valid argument is the blaming of the EU, concerning the vagueness, ambiguity and diffuseness of the content and implementation of its Regional Policy in Romania and in the CEE member states in general.14 Ferry and McMaster further argue that Romania as well as the other former socialist countries lacked a worth mentioning tradition of Regional Policy and the institutions and practices to

11 European Commission, The European Union Explained, Regional Policy, p. 10. 12 Ana-Paula Laissy ed., Working for the Regions, EU Regional Policy 2007-2013, p. 2. 13 Ibid., p. 1. 14 Martin Ferry and Irene McMaster, ‘Cohesion Policy and the Evolution of Regional Policy in Central and Eastern Europe’, Europe-Asia Studies, vol. 65, no. 8 (2013), p. 1503.

12 manage it.15 For this reason it is remarkable that Romania, particularly because it was already infamous for its problematic reforming attitude during its post-communist transition16, was not provided with an adjusted Regional Policy, but it was apparently expected to implement faultlessly the policy that was common for the entire EU. The EU seems to ignore the pluralism of its union here. Another deficiency that seriously may have prevented the policy`s effectiveness is that EU Regional Policy is non-regulatory. EU Regional Policy does not have legal authority to demand harmonization of regional policy systems of its member states, but rather to supplement and support them.17 This leaves space for unwilling governments to ignore EU`s objectives and limit the impact of the EU structural funds. Below it will be argued that these have been serious deficiencies in Romania`s performance on EU Regional Policy.

The factual accessibility of structural funds provides more evidence of EU Regional Policy`s diffuseness. The key players involved and the legal framework of procedures that are required prior to receiving allocated funds does not seem to be the most efficient combination. Andrej Horvat and Gunther Maier discuss the EU`s “golden rule” for the sake of fund absorption, which has become obvious in accordance with the EC`s recommendations and best practices of EU countries. This golden rule is as follows: the smaller the number of institutions involved at different levels of management and programs in new member states, the greater the possibility of higher rates of structural fund absorption is.18 The golden rule was certainly not met in the case of EU Regional Policy in Romania.

After the budget and the total amount of allocated funds for each of the member states for the budgetary period are jointly set by the European Parliament (EP) and the EU Council of Ministers, based on a proposal from the European Commission, EU Regional Policy is carried out in a decentralized way called “shared management”.19 Figure 2 shows the distribution of the EU funds among the different OP`s. It becomes clear that almost 98% of the total amount was reserved for the overarching convergence objective, where transportation and environment were given the highest priority. Investments in these two sectors were seen as the most important for Romania in order to realize the goals of this budgetary period. The instruments and programs of EU Regional Policy are managed by the EC and the national and regional governments of the member states. The member states and the regions needed to prepare a

15 Martin Ferry and Irene McMaster, ‘Cohesion Policy and the Evolution of Regional Policy in Central and Eastern Europe’, p. 1506. 16 Per Ronnås, ‘Romania: Transition to Underdevelopment?’, in: I. Jeffries, Problems of Economic and Political Transformation in the Balkans, New York: Pinter 1996, p. 29. 17 Martin Ferry and Irene McMaster, ‘Cohesion Policy and the Evolution of Regional Policy in Central and Eastern Europe’, p. 1505. 18 Andrej Horvat and Gunther Maier, ‘Regional Development, Absorption Problems and the EU Structural Funds’, 44th Congress of the European Regional Science Association: "Regions and Fiscal Federalism", 25th - 29th August 2004, Porto, Portugal, (2004), p. 15. 19 European Commission, The European Union Explained, Regional Policy, p. 9.

‘national strategic reference framework’ and national and regional ‘operational programmes’ (OP`s) within the framework of the overarching priorities of the EU Regional Policy`s objectives.

The EU ensures that each development program is developed in a collective process involving authorities at the EU, national, regional and local level, social partners as well as organizations from the civil society.20 The management of programs is largely done by administrations at the regional and local level. The Commission does not have a role in the selection or management of individual projects but only needs to approve the overall programs covering a range of potential projects. Supervision of projects is the responsibility of audit authorities which are designed for each OP. Finally, it is worth noting that although the EC makes the funds available, the individual payments to beneficiaries is done by EU- accredited national and regional paying agencies.

Figure 2: Financial Allocations for Romania for the 2007-2013 Period

Gábor Hunya argues in his article Problems of Romanian SME`s with tapping EU structural funds, how especially small- and medium-sized enterprises (SME`s) struggle with the diffusive and complex design of EU Regional Policy. A lack of experience and dedicated staff is cited as one of the main reasons why SME`s applications for structural funds are generally rejected.21 This argument is valid as well for Romanian local and regional authorities eligible for structural funds, since they also lack the experience with EU policies, legislation, procedures and responsibility in general. Since EU Regional Policy is presented as contributing to the regional development of Romania, we might expect that these funds would be legally and easily accessible, especially for the less developed and experienced eligible

20 Ana-Paula Laissy ed., Working for the Regions, EU Regional Policy 2007-2013, p. 6. 21 Gábor Hunya et al., ‘An Assessment of the Access by Romanian SMEs to Structural Funds’, The Vienna Institute for International Economic Studies Research Reports, no. 368 (2011), p. 138.

14 groups of a new member state. Later in this research it will be further examined how local and regional authorities in Romania have struggled with the system of shared management and EU Regional Policy.

A final point worth mentioning is the balance, or amount of accordance, between the development priorities of EU Regional Policy as set by the EU and those of the Romanian regions. There is sufficient evidence that strengthens the assumption that the development priorities of the EU Regional Policy do not seem to completely correlate with the demands of the regions in Romania. Tom Gallagher discusses this critique convincingly in his monograph Romania and the European Union, How the Weak Vanquished the Strong of 2009. Although his arguments are mostly based on Romania`s pre-accession experiences with EU funds, they have significant value for taking into account for Romania`s first experience with EU Regional Policy. Gallagher blames the EU for treating Romania as a peripheral exotic country and argues that EU decision-makers failed to devote major attention to Romania from the very early stage.22 This standpoint is supported by Lavinia Stan and Rodica Zaharia in their contribution to Life in Post- Communist Eastern Europe after EU Membership in which they argue that the EU treats Romania as a second-class member.23 These arguments shine a light on a possible factor that might have problematized the efficiency of EU Regional Policy in Romania. Indeed, it will become clear in a later stage of this thesis that EU`s devotion to the Romanian case prior to it became eligible for EU Regional Policy funds has not been optimal. But this has definitely not been the only factor for the policy`s inefficiency in Romania.

Preparations and Implementation in Romania

In addition to being a challenge for Romania in regards to its relation with EU Regional Policy, the period 2007-2013 was also a stormy period for its politics and economy. Political instability remained evident in Romania, as it has been since the revolution of December 1989.24 At the time of Romania`s accession to the EU, Traian Băsescu was the president of Romania. His position was not undisputed referring to his suspension by the parliament on April 19, 2007. Băsescu was accused for unconstitutional conduct, but the Romanian national impeachment referendum of May 19, 2007 resulted in a majority against a forced resignation of the president. Băsescu returned in his position but in 2012 followed another attempt for impeachment, this time due to a conflict between the president and Prime Minister Victor Ponta. Once the political crisis of 2012 was resolved, political stability seemed to have been achieved. Unfortunately, the

22 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, Manchester: Manchester University Press 2009, p. 5. 23 Lavinia Stan and Rodica Zaharia, ‘Romania’, p. 200. 24 Steven D. Roper, Romania, the Unfinished Revolution, Amsterdam: Harwood Academic Publishers 2000, p. 65.

15 structural problems of Romanian politics, of which corruption remained the worst, resurfaced again.25 Traian Băsescu would remain in place until December 2014.

Along with Băsescu`s unstable presidency, Romanian governments were also characterized by their instability, in the years of the first budgetary period of EU Regional Policy. Instable multi-party coalitions were predominant in Romanian politics. Until the parliamentary elections of November 2008, Romania was governed by a coalition of the liberal PNL (Partidul National Liberal), Băsescu`s PD (Partidul Democrat), the party of the Hungarian minority UDMR (Uniunea Democrată Maghiară din Romania) and the Conservative Party, led by Prime Minister Călin Tăriceanu. These parties only had a small majority in the parliament. This government`s main accomplishment was Romania`s accession to the EU. From 2008 until 2012, the Romanian government consisted of a coalition of the liberal democrat PDL (successor of the PD) and the social democrat PSD, led by Prime Minister Emil Boc (PDL). In 2012, four prime ministers and two parliamentary majorities changed in Romania.26 In May 2012, Victor Ponta (PSD) became prime minister of Romania but unfortunately did not bring stability to Romanian politics. Ponta, as well as numerous other Romanian politicians, got involved with multiple scandals, mostly for corruption and other forms of abuse of power. The lack of political stability and the fact that we may seriously doubt the functioning of Romanian politics in the period 2007-2013 is certainly a factor that may have problematized Romania`s performance concerning EU Regional Policy. The central authorities play an important role in the functioning of EU Regional Policy. Any form of corruption, fraud or mismanagement impedes the success of the implementation and management of EU funds. This feature of Romanian politics and management will be further clarified in the next chapter.

Another factor that may have indirectly influenced the effectiveness of EU Regional Policy is the global financial crisis that also had its impact on Romania`s economy. The crisis reached its peak in 2009 when the GDP growth rate was -5.6 %, while GDP in the previous three years consistently increased by 6.8% (2006), 7.1% (2007) and 6.8% (2008).27 The Romanian government`s budget realized a deficit of 9% of the GDP in 2009. This was a record since the end of communism in Romania.28 The crisis indeed affected all aspects of the Romanian economy and its society. Due to the financial crisis, a possible abrupt adjustment of exchange rates and upholding of a high inflation rate during from 2009 to 2012 were expected to create pressure on the enforcement of contracts and the cost of construction works and thus

25 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, Romanian Journal of Political Sciences, no. 1 (2013), p. 104. 26 Ibid., p. 106. 27 Eurostat, ‘Real GDP Growth Rate – Volume, Percentage Change on Previous Year’, accessed February 22, 2016, http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115. 28 Trading Economics, ‘Romania Government Budget 1993-2016’, accessed February 22, 2016, http://www.tradingeconomics.com/romania/government-budget.

16 on the performance of EU Regional Policy in Romania.29 The crisis not only affected the authorities` financial capacity for co-financing projects, but also those of the private sector. Gábor Hunya argues how especially the SME`s were particularly victimized by the crisis. As a result of the crisis, profitability had seriously declined and the number of SME`s going out of business increased, while most of the rest fought for survival.30 The financial crisis had its impacts on EU Regional Policy in Romania, though the economy started already to show growing rates in 2011 and could not be seen as the main factor for the challenging implementation of EU Regional Policy in this particular budgetary period.

Before Romania became officially ready for receiving EU funds, it had to implement several institutional reforms to convince the EC that it had undertaken sufficient action to become able for dealing efficiently with the billions of funds that were being allocated. According to EU Regional Policy, Romania needed to create and install several managing and supervising authorities which all had to safeguard the efficiency and legal implementation of EU Regional Policy in their specific field of responsibilities.31 Among these: Management Authority, Audit Authority, Authority for Coordination of Structural Instruments, Certification and Payment Authority and the National Authority for the Regulation and Monitoring of Public Procurement and Unit for Coordination and Verification of Public Procurement. In hindsight, we may seriously doubt the effectiveness of these authorities, since mismanagement and corruption became prominent influencers of the budgetary period 2007-2013 in Romania.

Although Romania became officially involved with EU Regional Policy in 2007, important efforts for becoming eligible for EU funds had started already in late 1990s. An important stage of this was the restructuring of Romania`s regional division into eight regions at the NUTS-2 level in 1998. NUTS (nomenclature of territorial units for statistics) is a hierarchical system for dividing up the economic territory of the EU for several governing purposes, among them are the framing of EU regional policies and socio-economic analyses of regions.32 NUTS regions are divided into three levels, ranging from NUTS-1 as major socio-economic regions to NUTS-3 as small regions for specific diagnoses. EU Regional Policy is managed on the NUTS-2 level. With the purpose of becoming eligible for EU funds, Romania had to harmonize its regional administration with EU structures to face the challenge of regional

29 Gheorghe Zaman and George Georgescu, ‘Structural Fund Absorption: A New Challenge for Romania?’, Romanian Journal of Economic Forecasting’, no. 1 (2009), p. 146. 30 Gábor Hunya et al., ‘An Assessment of the Access by Romanian SMEs to Structural Funds’, p. 4. 31 Camelia Popa, ‘Implementation of Cohesion and Structural Funds in Romania’, Journal of Knowledge Management, Economics and Information Technology, issue 7 (2011), p. 5-7. 32 Eurostat, ‘NUTS – Nomenclature of Territorial Units for Statistics, Overview’, accessed February 19, 2016, http://ec.europa.eu/eurostat/web/nuts/overview.

17 development.33 From having its regional policy based on a county-level division of 41 counties plus the capital of Bucharest, Romania shifted to a regional-level of 8 development regions at NUTS-2 level. This regional reform was inevitable for Romania to gain accession to EU funds and for this reason it could have been seen as a big achievement in Romania`s reforming approach towards EU-membership.

Figure 3: Romania - Development Regions (NUTS-2 level)

Unfortunately, the reorganization of Romania`s regional divisions also provides important evidence for the lack of determination of Romanian ruling powers towards EU policy and legislation. This argument is convincingly made by Dragoş Dragoman in his article Regional Inequalities, Decentralisation and the Performance of Local Governments in Post-Communist Romania from 2011. The 1998 division of Romania into eight NUTS-2 development regions was in fact nothing more than a development tool for gaining access to EU funds. Dragoman criticizes the Romanian government for the fact that the newly created regions did not become territorial administrative units, replacing the counties in order to realize more administrative efficiency in Romania.34 The eight development regions became no legal entities, but only formal associations between counties. They were in fact powerless, while the EU based its EU Regional Policy on these regions.

33 Dragoş Dragoman, ‘Regional Inequalities, Decentralisation and the Performance of Local Governments in Post- Communist Romania’, Local Government Studies, vol. 37, no. 6 (2011), p. 649. 34 Ibid., p. 652.

Each of the eight development regions were provided with a regional agency with an executive function and a ministry for regional development. Law 315/2014 further provided the regions with a regional development council, provided with a deliberative function, only for coordinating the development programs of the regional agencies. Although the regions indeed gained some functioning authority, they still lacked any significance. Still the counties and certainly not the regions were having the administrative power as fixed by the Romanian constitution.35 According to the constitution, the counties are run by County Councils which are the legislative power at the county level. The county council is headed by a president who bears the responsibility for the functioning of the county administration. These facts clarify largely my choice for focusing on three counties instead of the regions at NUTS-2 level. Since these regions only function as development tools for receiving EU funds and do not form any territorial legal administrative entity, I do not expect them to be interesting for the purpose of my research. Instead, the counties do have a legal administrative power and even have a certain political identity.

A final point of critique made by Dragoman is the lack of a decentralization of power in Romania. Dragoman remarks that although the development regions had been created and the counties had their local administrative power, the general policy of regional development and its financing continued to be run in a centralized manner by the national government, seated in Bucharest.36 Regional development in Romania was coordinated through the National Council for Regional Development (NCRD) and through the National Regional Development Fund (NRDF). A decentralization of administrative and fiscal power would provide the regions a necessary tool for effectively coordinating regional development. Nevertheless, the centralized character of politics and ruling power in Romania is a generally known problematic issue that seems to be a negative inheritance from its communist past.37 The lack of ruling and administrative efficiency and therefore the lack of experience and capacity on the lower levels of governance will form an important issue in the remainder of this research.

35 Dragoş Dragoman, ‘Regional Inequalities, Decentralisation and the Performance of Local Governments in Post- Communist Romania’, p. 654. 36 Ibid., p. 653. 37 Ibid., p. 667.

Cluj, Iaşi and Dolj

This final paragraph of chapter one will focus on the three counties of Cluj, Iaşi and Dolj. First, I will introduce the counties and clarify why specifically these counties will be researched. Accordingly, I will examine essential points concerning the counties` political and economic situations, as well as several important geographical and cultural-historical characteristics from each of them.

Figure 4: Romania - Counties (NUTS-3 level)

In addition to the argument mentioned in the introduction that the selection of these three counties is based on their geographical location in each of the three described historical provinces of present Romania this choice is in fact motivated on more specific characteristics of these particular counties. First, the counties of Cluj, Iaşi and Dolj are more or less comparable in terms of their population. In 2011, the three counties` population counted 691.106 (Cluj), 772.348 (Iaşi) and 660.544 (Dolj).38 The counties` population density is not completely corresponding (103.639, 141.140, 89.141), due to the fact that Iaşi

38 Institutul National de Statistică, ‘Populația Stabilă după Etnie – Județe, Municipii, Orașe, Comune’, Rezultate Definitive RPL 2011, vol. I Populația Stabilă (Rezidență) – Structură Demografică, accessed February 24, 2016, http://www.recensamantromania.ro/noutati/volumul/. 39 Direcția Județeană de Statistică Cluj, ‘Populația și Densitatea Populației la Recensăminte’, accessed February 24, 2016, http://www.cluj.insse.ro/cmscluj/files/judet2013/pop_refacut_Mela/13_pop_si_densit_recensam.htm. 40 Direcția Județeană de Statistică Iaşi, ‘Populația și Densitatea Populației la Recensăminte’, accessed February 24, 2016, http://www.iasi.insse.ro/main.php?lang=fr&pageid=477. 41 Direcția Județeană de Statistică Dolj, ‘Populația și Densitatea Populației la Recensăminte’, accessed February 24, 2016, http://www.dolj.insse.ro/cmsdolj/rw/pages/j2_rpl.ro.do.

20 county has the smallest territory while its capital is corresponding in size and population with its counterparts. The role and importance of the county`s capital city for the entire county`s economic and political sectors is another comparable feature that forms an important motivation for this selection of counties. The geographical locations of the counties in terms of their cross-border relations are also comparable and should not be ignored. Each county has close connections with a different neighboring country of Romania (Fig. 4). While Cluj is not a frontier county, its cultural, economic, historical and political relations are the strongest with neighboring Hungary. Iaşi shares a border with the Republic of Moldova, while Dolj has Bulgaria and Serbia as its close neighbors. Next to comparable factors, several crucial differences between these counties have also motivated my selection for making this research significant. One of these differences is the division in economic development of the counties in terms of GDP. Finally, the diversity of the political identity of the County Councils is an important factor for this comparable study and has been an important criterion in the selection of these three counties.

Cluj county belongs to the EU development region (NUTS-2 level) Nord-Vest (north-west). This development region had a GDP per capita of 40% of the EU-average in 2007 and was ranked as among the more developed regions of Romania.42 Its capital, Cluj-Napoca, is the main administrative and economic center of the county and with 324.576 citizens in 2011 it is ranked the second largest city of Romania in population. The counties ethnographic makeup represents the general characteristic of Transylvania`s ethnographic composition. In addition to ethnic Romanians (75.4% of the population), Cluj`s population consists of a significant minority of ethnic Hungarians (15%) and Romas (3.2%).43 The county`s economy is specifically based on services and industry.44 The county`s high economy performance relies, according to the county council mainly on the well-developed tertiary sector. While the main economic sectors are predominantly based in and around Cluj-Napoca, agriculture remains an important sector for the rural areas of Cluj. Cluj-Napoca has proven to be an attractive county for local and foreign investors, referring to the fact that it has after Bucharest the highest number of companies in Romania. The county council attributes Cluj`s attractiveness to its multi-cultural character, its favorable geographical location in terms of infrastructure and western alignment, dynamic economy, and impressive supply of human resources.45

42 Eurostat, ‘Regional Statistics Illustrated’, accessed February 29, 2016, http://ec.europa.eu/eurostat/cache/RSI/#?vis=nuts2.economy&lang=en. 43 Institutul Național de Statistică, ‘Populația Stabilă după Etnie – Județe, Municipii, Orașe, Comune’, Rezultate Definitive RPL 2011, vol. I Populația Stabilă (Rezidență) – Structură Demografică, accessed February 24, 2016, http://www.recensamantromania.ro/noutati/volumul/. 44 Consiliul Județean Cluj, ‘Economia Județului Cluj’, accessed February 24, 2016, http://www.cjcluj.ro/economie/. 45 Ibid.

The county of Iaşi is part of the EU development region Nord-Est (North-East) and is located on the border with the Republic of Moldova. This development region was the most underdeveloped of the eight with a GDP per capita of only 26% of the EU-average in 2007.46 The homonymous capital had a population of 290.422, ranked as the fourth biggest city of Romania in 2011.47 In line with Cluj-Napoca, the city of Iaşi functions, to a comparable extent, as the main administrative and economic center of its county. The ethnographic composition of Iaşi county represents the general common in the historical region of Moldova. 91% of the population is ethnic Romanian while the most significant minority is Roma (1.5%). Iasi is more homogeneous than Cluj, but the ethnic Romanians differ among the historical regions in their cultural-historical characteristics. The main concerns and characteristics of the county`s economy are discussed in a report of the county council. According to this, the county can be divided into two parts: the first accounts for the capital and its direct suburban region, where almost half of the county`s population lives and works and who generate approximatively 90% of the county`s total economic output, while the other part exists of the rural area of the county characterized by its poverty, lack of jobs and opportunities in general.48 While the capital has a growing service and industrial sector, in the rural areas agriculture dominates the economy. The points of attractiveness of Cluj are not valid for Iaşi, while the main problematizing factor for development is generally called the lack of sufficient infrastructural system especially towards the west and thus the EU.49

The County of Dolj is part of the EU development region Sud-Vest (South-West) and is located on the border with Bulgaria. This development region had a GDP per capita of 32% of the EU-average ranked among the middle developed Romanian regions.50 The capital Craiova had a population of 269.506 and was ranked the sixth largest city of Romania in 2011.51 The county`s ethnographic composition is relatively homogenous, namely 90% of its population is ethnic Romanian and 4.5% Roma as the most significant minority. Again, this county is predominantly agrarian but its capital has an

46 Eurostat, ‘Regional Statistics Illustrated’, accessed February 29, 2016, http://ec.europa.eu/eurostat/cache/RSI/#?vis=nuts2.economy&lang=en. 47 Institutul Național de Statistică, ‘Populația Stabilă după Etnie – Județe, Municipii, Orașe, Comune’, Rezultate Definitive RPL 2011, vol. I Populația Stabilă (Rezidență) – Structură Demografică, accessed February 24, 2016, http://www.recensamantromania.ro/noutati/volumul/. 48 GEA Strategy & Consulting, Identitatea Economică, Socială, Culturală a Județului Iaşi, 2014, p. 25. 49 Adelina Mihai, ‘Cum arată economia județului Iaşi, capitala „bogată“ a celei mai sărace regiuni din țară, unde antreprenorii își promovează singuri orașul în fața investitorilor străini’, Ziarul Financiar, May 22, 2014, accessed February 25, 2016, http://www.zf.ro/zf-24/cum-arata-economia-judetului-iasi-capitala-bogata-a-celei-mai-sarace- regiuni-din-tara-unde-antreprenorii-isi-promoveaza-singuri-orasul-in-fata-investitorilor-straini-12642935. 50 Eurostat, ‘Regional Statistics Illustrated’, accessed February 29, 2016, http://ec.europa.eu/eurostat/cache/RSI/#?vis=nuts2.economy&lang=en. 51 Institutul Național de Statistică, ‘Populația Stabilă după Etnie – Județe, Municipii, Orașe, Comune’, Rezultate Definitive RPL 2011, vol. I Populația Stabilă (Rezidență) – Structură Demografică, accessed February 24, 2016, http://www.recensamantromania.ro/noutati/volumul/.

22 important economic and administrative function. Craiova also has an important industrial and service sector. Compared with the western and north-western regions of Romania, the south-western regions` economies are characterized by their heterogeneity.52 The industrial sector of Dolj is focused on: food, textile, and automobile parts. The industry of Craiova was given a big boost in 2007, when Ford opened a factory in the city.

In terms of socio-economic standards on county-level, the Romanian newspaper Gândul published a useful research in 2013. All counties were ranked on their level of living standards based on seven important socio-economic indicators (resp. unemployment rate, net average salary, amount of green areas, crime rate, accessibility of running water, GDP per capita, and life expectancy). The counties of Cluj, Iaşi and Dolj were ranked respectively as: 5th, 10th, and 17th. Cluj thanks his high ranking mainly for its relatively high salary level and its high life expectancy (74.8 years). Cluj`s negative points were its high rate of criminality and the GDP per capita which was below Romania`s average. The ranking of Iaşi was mainly a result of its relative high life expectation (73.6) and the relative high monthly net salaries together with a low rate of criminality. The seventeenth position of Dolj was predominantly a result of its fourth highest unemployment rate of 9,69% and the low net salary which is around 10% lower than the national average.53 Although this research provides insight in the balances of socio-economic standards among the Romanian counties and shows interesting differences between Cluj, Iaşi and Dolj, it is important to note that the statistics are average data of the counties. The importance of the capitals in these three counties surely fade the realities of rural, non-urban circumstances.

Concerning the political identity and voting behavior, there were worth mentioning differences between the three counties during the budgetary period 2007-2013. Dragoman`s explanation that ‘transition losers’, especially post-communists, vote more frequently with communist successor parties as a result of their structural dependency seems to be legitimate in these cases.54 When we look to electoral behavior in the three counties during the local elections of 200855 and 201256, the majority of the votes in Cluj go to liberal parties, while in Dolj and especially in Iaşi a majority of the votes go to the PSD

52 GEA Strategy & Consulting, Studiu de Fundamentare pentru P.A.T.Z – Zona Metropolitană Craiova – Studiu de Economie Urbană, 2015, p. 54. 53 Corina Vârlan and Alexandra Pele, ‘HARTA INTERACTIVĂ a nivelului de trai din România. Cât de bine se trăiește în județul tău’, Gândul, April 8, 2013, accessed on February 25, 2016, http://www.gandul.info/financiar/harta-interactiva-a-nivelului-de-trai-din-romania-cat-de-bine-se-traieste-in-judetul- tau-exclusiv-10675712. 54 Dragoş Dragoman, ‘Regional Inequalities, Decentralisation and the Performance of Local Governments in Post- Communist Romania’, p. 665. 55 Autoritatea Electorală Permanentă, ‘Alegeri Locale 2008’, accessed February 25, 2016, http://alegeri.roaep.ro/?alegeri=locale-2008. 56 Autoritatea Electorală Permanentă, ‘Alegeri Locale 2012’, accessed February 25, 2016, http://alegeri.roaep.ro/?alegeri=alegeri-locale-2012.

(communist successor party) and later USL (coalition of center-left and center-right parties including PSD).57 This is not surprising when we look to the regional development of these counties. Cluj is the most developed of the three, while Iaşi and Dolj are among the bigger losers of the transition in terms in socio-economic development. I assume the analysis of the political identity of the county councils important for this research, since it is argued by scholars that clientelism, as a part of the regional trend of corruption, among political authorities has been an important deficit of Romania`s political performances.58 The general unwritten rule is that most of the money goes to the ruling party or the parties within the ruling coalition.59 It is in this light argued that all parties in government tended to favor their own council presidents and mayors.60 The following chapters will examine in how far clientelism indeed has been an influencing factor regarding to EU Regional Policy.

This first chapter has researched what the implementation of EU Regional Policy in Romania has meant and under which circumstances and characteristics the counties of Cluj, Iaşi and Dolj experienced the accessibility of EU funds. The first part of the chapter discussed several important aspects of the policy and its objectives as constructed by the EU. The main conclusion from this part is that EU Regional Policy has become a complex policy, with a wide range of legislation to be implemented by Romania. The policy surely shows certain deficiencies in its design and construction that likely may have influenced the inefficiency of itself.

Accordingly, in the second part I have discussed the Romanian political environment and economics in the period 2007-2013. It became clear that during these years Romania faced important crises and instability that definitely may have influenced the performance of the country concerning EU Regional Policy. On the contrary, several actions undertaken by the government strengthen the idea that the determination among the ruling elite has not been sufficient in Romania in the vital first years of the policy. Among these are the lack of decentralization and multiple political scandals. Finally, the three counties were introduced and discussed in terms of their cultural, political and economic characteristics. Important differences as well as similarities have been examined in service of the research and their identification.

57 Autoritatea Electorală Permanentă, ‘Alegeri Locale 2012’, accessed February 25, 2016, http://alegeri.roaep.ro/?alegeri=alegeri-locale-2012. 58 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 106. 59 Ibid., p. 106. 60 Ibid., p. 106.

Chapter 2. The Main Challenges of Dealing with EU Funds in Romania

In the first years of the budgetary period 2007-2013 statistics already showed Romania`s underperformance in dealing with the billions of allocated EU funds. Among the CEE member states of the EU, Romania faced the most difficulties in gaining access to the already allocated funds. This phenomenon is called ‘absorption of funds’ and is demonstrated by the absorption rate. This rate shows the amount of accessed funds as a percentage of the total allocated funds of a specific country. It was indeed not merely the absorption of funds that seriously impeded regional development and cohesion in the development regions of Romania.

This chapter will analyze the most dramatic challenges and deficiencies of the management and implication of EU funds in Romania in the period 2007-2013. This chapter will be divided into three stages of fund management that are assumed to have been critical in the case of Romania. The foundation will be created for the comparative analysis of the counties of Cluj, Iaşi and Dolj, which will be conducted in the next chapter. The analysis of fund management in Romania will be done in the following order. First, the main causes for the deficient absorption of funds will be examined. Second, this chapter will focus on the payment ratio of funds in Romania, which can be seen as a next challenge since it will be demonstrated that Romania had a very low payment ratio of funds what provides evidence of a malfunctioning management of funds. Finally, the factual spending of funds will be reviewed according to the results of projects and the numerous cases of corruption, fraud and mismanagement that have dominated the field.

The Low Absorption Rate

When speaking of EU Regional Policy, developed to realize regional development and convergence of the least developed regions, it can be said that the absorption capacity of eligible states in order to gain access to the allocated funds is one of the determining factors of the policy`s success. The absorption capacity represents the extent to which a country is able to effectively spend the allocated EU funds and is expressed in percentage of the total allocated funds. The fund absorption capacity can be related to three main features:

- Macroeconomic capacity: the rate of a country`s GDP to which EU funds are limited to amount. - Financial capacity: the ability to co-finance the programs and projects supported by the EU.

- Administrative capacity: the ability of central and local authorities to manage the Operational Programmes (OPs) and projects.61

The absorption capacity is mainly expected to be influenced by the administrative and the financial capacities of a state.62 Zaman and Georgescu even argue that there is a consensus around the fact that absorption depends heavily on institutional factors, both of EU and national structures.63 At the EU level these factors are mainly related to the transparency of the fund allocation process, the consistency of using various funds and the bureaucratic administration. At the national level, institutional factors are related to the real structure of the economy, the administrative capacity, the political system and the economic policies.64 This argument claims that the absorption capacity, an important factor of the efficiency of EU Regional Policy, depends indeed on both EU and national factors, suggesting that the main factors for the inefficiency of EU Regional Policy are indeed to be found on the side of the EU as well as on Romania`s territory.

It is proven that the link between the economic situation and the absorption capacity is a paradoxical one, since the most economically disadvantaged regions also experience the greatest difficulties in the absorption of EU funds.65 The problematic feature of this paradox is that the most disadvantaged regions need the largest financial support in order to restructure their economies and overcome regional disparities. This paradox can be interpreted as evidence for the inefficient functioning of EU Regional Policy, since it should be no surprise that the lowest developed regions experience the biggest difficulties in managing development. According to Zaman and Georgescu, the explanation for this paradox lies in the administrative and financial capacities of the various regions as well as within the regions and counties of Romania. Statistics show that regional disparities have increased in the period 2007-2013. Also within counties have the centers proven to have better capacities in dealing with EU funds than the peripheries and mostly rural areas of Romania. This phenomenon is on a regular base emphasized and reflected in Romanian news articles. For instance, these mention the fact that the more developed regions and cities have managed to realize development with the support of EU funds, but at the same time in the villages a serious amount of people still live without electricity or running water.66 Living standards in the

61 Ivana Katsarova, ‘The (low) Absorption of EU Structural Funds’, Library of the European Parliament, 1/10/2013, p. 2. 62 Gheorghe Zaman and George Georgescu, ‘Structural Fund Absorption: A New Challenge for Romania?’, p. 142. 63 Ibid., p. 143. 64 Ibid., p. 143. 65 Ibid., p. 142. 66 L.C., ’EU funds absorption in Romania A funding obsession’, The Economist, June 5, 2012, accessed March 23, 2016, http://www.economist.com/blogs/easternapproaches/2012/06/eu-funds-absorption-romania.

26 peripheries are indeed lagging more and more behind the developments of these in the centers, mostly direct surrounding areas of the bigger cities. This problematic paradoxical issue of EU funds will be analyzed in detail in the next chapter.

Evaluations and studies of Romania`s absorption performance in the period 2007-2013 have demonstrated that the main causes of Romania`s absorption problem are to be attributed to the administrative and financing capacities. Lavinia Stan argues that the low absorption rate can be explained by the inefficiency of the Romanian bureaucracy, the high levels of corruption and the inability of applicants to come with matching funds.67 Iulian Braşoveanu examines in the article Structural and Cohesion Funds: Theoretical and Statistical Aspects in Romania and EU, that the absorption of EU funds has been a problem due to a high rejection rate of submitted projects and the problems for beneficiaries in procuring their own part of funding for covering costs related to own contribution, starting the project and covering non-eligible expenditure.68 These findings are convincingly represented in a 2008 survey of www.fonduri-structurale.ro, Romania`s main information source for European financing opportunities. The aim of this survey was to collect information from Romanian insiders, regarding the main causes of Romania`s low absorption capacity. The results are represented in Figure 5 and show that the main causes of the poor performances regarding the management of EU funds are indeed related to Romania`s administrative and financial capacities.

Figure 5: Main Causes of Romania`s Low Absorption Capacity

Source: Dragoş Jaliu and Crina Rădulescu, ‘Six years in managing structural funds in Romania. Lessons learned’, Transylvanian Review of Administrative Sciences, no. 38 (2013), p. 87.

67 Lavinia Stan and Rodica Zaharia, ‘Romania’, p. 194. 68 Iulian Brașoveanu et al, ‘Structural and Cohesion Funds: Theoretical and Statistical Aspects in Romania and EU’, Transylvanian Review of Administrative Sciences, no. 33 (2011), p. 46.

At the end of the budgetary period 2007-2013, Romania`s absorption rate was about 34% - the lowest of all EU member states.69 The rate in 2013 was even quite optimistic since Romania had made a significant improvement of the absorption rate in the final year of the period. In 2012, the rate amounted to barely 15%.70 As a result of the poor achievements, the accessibility of the funds in order to finalize projects was extended by two years for Romania. This resulted in a final absorption rate of 55% at the end of July 2015.71 It was thus in roughly the first six years that Romania managed to absorb only several of the almost €20 billion of allocated funds.

The first years of Romania`s access to the funds were characterized by a high rejection rate of submitted projects. Brașoveanu argues that the large number of rejected projects can be partially explained by an insufficient availability of knowledge on the side of applicants, even in cases where consulting services were contracted.72 Examples of this are submitted projects by ineligible applicants, incomplete documentation, by documentations not fulfilling eligibility criteria or the submitted projects not taking into account the objectives of the programs. The KPMG Progress Report 2007-2013 on EU funds in Central and Eastern Europe emphasizes this same shortcoming and advises public authorities in charge of each OP to focus on efficient monitoring of projects in progress and on a rapid evaluation of reimbursement applications, in order to speed up the absorption of the allocated funds.73

The high rejection rate is in this respect not only the result of the lack of knowledge and managing capacities of applicants for EU funds but at the same time of the public authorities who are in charge of the administration and management of the submitted projects. As a result of faulty public procurement procedures, defective financial management and an inadequate prevention and detection practice regarding fraud and conflict of interest, reimbursement claims were halted in 2011 and 2012. At the end of 2012 Romania was even subject to pre-suspension because of suspicions of fraud and the lack of adequate management and control functions.74 This gives evidence that indeed Romanian authorities were not performing ideally.

69 Maria Stancu, ‘KPMG – Major progress in EU Funds absorption, although Romania is still below average by comparison to other Central and Eastern European countries’, KPMG Press Release, February 2, 2014, accessed March 24, 2016, http://www.kpmg.com/ro/en/issuesandinsights/articlespublications/press- releases/pages/kpmg%E2%80%93major-progress-eu-funds-absorption-although-romania-is-still-below- average.aspx. 70 Guvernul României - Ministerul Fondurilor Europene, ’Stadiul Absorbţiei Fondurilor Structurale şi de Coeziune pe fiecare Program Operaţional 31 decembrie 2012’, accessed March 24, 2016, http://old.fonduri-ue.ro/. 71 Ibid. 72 Iulian Braşoveanu et al, ‘Structural and Cohesion Funds: Theoretical and Statistical Aspects in Romania and EU’, p. 46. 73 KPMG, EU Funds in Central and Eastern Europe, Progress Report 2007-2013, 2014, p. 44. 74 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 102-103.

Besides the management and administrative capacities that negatively influenced the absorption rate, the financial capacity of applicants also proved to be a serious obstacle. Romanian applicants generally lacked the financial resources for co-financing projects, thus inhibiting them from receiving EU funds. Romanian SME`s in particular experienced difficulties in accessing loans needed to pre-finance contributions for projects due to stricter loaning policies of Romanian commercial banks, as a result of the economic crisis.75 Other aspects that have influenced the financial capacity of Romania in this period were the increase of the VAT rate and the worsening exchange rate between the RON and the EURO in the course of the budgetary period. These events resulted in numerous cancellations of planned projects by beneficiaries since their business plans could not be realized under the new circumstances.76

The Low Payment Ratio, Evidence for Mismanagement

Besides having realized the lowest absorption rate among the CEE member states, Romania scored among the worst in the contracting ratio and the payment ratio of EU funds in the period 2007-2013.77 The difference between these two numbers is an important indicator that measures the actual level of efficiency and effectiveness of the management of EU funds by the beneficiary state.78 The contracting ratio equals the amount of actual contracted grants in 2007-2013 divided by the available budget for this period and includes the ERDF, CF, and the ESF. Contracted grants are the amounts for which contracts have been signed by managing authorities and the beneficiaries. The payment ratio in his respect equals the amount of actual paid grants in 2007-2013 divided by the available budget for this period. Paid grants should be interpreted as the grant amounts (including advance payments) which have been disbursed to the beneficiaries.79 It is generally argued that the smaller the difference between the contracted grants and paid grants, the more effective is the management of these funds in terms of real distribution.80

As becomes clear from Figure 6, Romania realized, together with its southern neighbor and fellow new EU member, the biggest differences between the contracting and payment ratios. Bulgaria`s difference was only a fraction bigger, since its contracting ratio was higher as well as its payment ratio. Causes for this evidence of mismanagement are mentioned as of the same character as the causes for

75 Iulian Braşoveanu et al, ‘Structural and Cohesion Funds: Theoretical and Statistical Aspects in Romania and EU’, p. 46. 76 Cristina Batusaru et al, ‘7 Years of European Funding in Romania – Between Success and Failure’, Eurint, no. 2 (2015), p. 25. 77 KPMG, EU Funds in Central and Eastern Europe, Progress Report 2007-2013, p. 14. 78 Ibid., p. 30. 79 Ibid., p. 6. 80 Maria Stancu, ‘KPMG – Major progress in EU Funds absorption, although Romania is still below average by comparison to other Central and Eastern European countries’.

Romania`s low absorption rate. It is argued the Romania`s predicament is a result of a combination of lack of administrative capacity, mismanagement and corruption.81 This is more or less confirmed by the aforementioned KPMG report, since they still see a number of recurrent negative aspects that have impacted the results. The most significant of them are delays in the evaluation of financing/disbursement applications, lack of technical/institutional skills of beneficiaries, and cumbersome public procurement procedures in terms of speed, quality and resources involved.82

Figure 6: Difference between Contracting and Payment Ratios 2007-2013

Source: KPMG, EU Funds in Central and Eastern Europe, Progress Report 2007-2013, 2014, p. 14.

Another feature of Romania`s performance with EU funds are the large amount of corrections applied by EU authorities as a result of audit missions. Although Romania had the lowest absorption rate, it became even subject to the highest level of corrections of all member states.83 Most of the corrections are referred to deficiencies in public procurement procedures.84 The large amount of corrections give evidence for the malfunctioning authorities in Romania and it is in this respect not a surprise that most of

81 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 103. 82 Andrei Chirileasa, ’Romania manages to get only a quarter of allotted EU funds between 2007-2013 period. Lowest absorption rate in CEE’, Romania-Insider, July 3, 2014, accessed March 25, 2016, http://www.romania- insider.com/romania-manages-to-get-only-a-quarter-of-allotted-eu-funds-between-2007-2013-period-lowest- absorption-rate-in-cee/126466/. 83 Elena Iorga, ’Note de constatare a neregulilor si de stabilire a corectiilor financiare in proiectele cu finantare din fonduri structurale financiare’, Institute for Public Policy Romanian Municipalities` Association, 2013, accessed March 22, 2016, http://www.ipp.ro/library/IPPconcluziicorectii. 84 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 118.

30 the corrections were indeed consummated in the field of public projects and contracts. The corrections had of course impact on Romania`s absorption rate. It is researched that the main reasons for the corrections were: illegal qualification requirements (56%), unequal treatment of contenders (11%), the winning offer not fulfilling the conditions (9%), procurement decisions with only one candidate (9%), illegal increase of the contract`s value (6%), using the qualification criteria as evaluation factors (6%), and ignoring the transparency principle (3%).85 Mismanagement and fraud was in this respect found both on the side of the beneficiaries and within particular national and local state authorities entrusted with management functions.86 In the period 2007-2012 the total amount of corrections estimated between 20 and 22.5% of the funds absorbed until the end of 2012.87

A phenomenon which has been evident among all projects and EU fund applications are serious delays in the reimbursement of funds to the beneficiaries.88 Again public authorities concerned with funding processes proved to be inefficient. In most cases the maximum 45 days of performing the reimbursement were exceeded, sometimes even by more than 300 days. Beneficiaries have stated that these delays have a negative impact on the implementation of projects and thus the efficient spending of EU funds.89 The delays are caused by confusing and time consuming bureaucratic procedures. In this case again the administrative capacity seems to be the embracing cause of this phenomenon. Lack of experience of public authorities in the management and implication of EU-funded projects are concluded to be decisive for Romania`s underperformance. However, besides a lack of experience alone, Romania is also characterized by insufficient personnel in relation to the considerable amount of work. This is mainly caused by the migration of the most experienced staff to the private sector due to higher salaries and better working conditions compared to these in the public sector.90 A governmental study shows that only in 2010, 179 persons quit their jobs in public authorities implementing EU funds due to ‘personal and financial reasons’.91

As a consequence of the poor performances regarding the absorption and management of EU funds, Romania left billions of allocated funds untouched and missed so an important opportunity in order to realize national and regional development. In statistical numbers, Romania`s performance seems even to be more dramatic. At the end of 2013 the paid grants to beneficiaries amounted only €7 billion of the

85 Elena Iorga, ’Note de constatare a neregulilor si de stabilire a corectiilor financiare in proiectele cu finantare din fonduri structurale financiare’. 86 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 119. 87 Ibid., p. 118. 88 Dragoş Jaliu and Crina Rădulescu, ‘Six years in managing structural funds in Romania. Lessons learned’, Transylvanian Review of Administrative Sciences, no. 38 (2013), p. 87. 89 Ibid., p. 87. 90 Ibid., p. 89. 91 Ibid., p. 89.

€19.2 billion of available allocated budget. For each Romanian citizen the total allocated budget amounted for €956, but after seven years of being available only €259 were realized.92 Romania`s mismanagement and incapacity of dealing with EU funds has in the first seven years of its EU membership definitely proven to be decisive in the country`s inability to gain access to the billions of funds and to further develop the country into a credible EU member.

The fact that only €7 billion of EU funds were paid to beneficiaries did not automatically mean that these were spend efficiently and used for the right purposes. Numerous resources give evidence that the EU funds have not had the intended effects and that the management of the authorities and projects lacked serious efficiency and the right persons to make a success of the already dubious budgetary period.

When looking again to the statistics of submitted and approved projects for the eight OPs, it becomes clear that indeed the most important of these (OP Transport and OP Environment) experienced significant problems in approving projects and thus accessing funds. Improvement of infrastructure was one of the major priorities of Romania`s development program, but especially this sector lacked the capacities to access the necessary EU funds. Multiple reports and supervisors of Romanian infrastructural projects have argued that it was not only accessing funds but also the management of the started projects that seriously problematized the effects of EU funded projects.93 It is mentioned in a news article of January 2, 2014 that the OP Transport was allocated the highest amount of funds of the seven OPs. At the end of the budgetary period the absorption rate amounted only 19%. In addition, at the end of 2013, none of the six major highway projects were completed successfully.94 As this is only one example of unsuccessful implementations and management of projects, delays and mismanagement of projects have been the standard in Romania in the period 2007-2013.

Corruption, Fraud and Mismanagement as the Main Obstacles

The above discussed causes of Romania`s problems in using EU funds efficiently, should be more or less interpreted as unintentionally and a result of the lack of sufficient administrative and financial capacities in Romania. The fact that absorption of funds significantly increased in the final years of the budgetary period could give evidence of, and might assume that, an improvement of these capacities has occurred. However, one of the main causes of Romania`s incapacity in spending EU funds efficiently has not been

92 KPMG, EU Funds in Central and Eastern Europe, Progress Report 2007-2013, p. 12. 93 Wall-street.ro, ‘Bilanţul Romaniei in 7 ani de fonduri UE – 5,7 mld euro absorbite; nicio austrada terminată’, January 2, 2014, accessed March 24, 2016, http://www.wall-street.ro/articol/Economie/159419/bilantul-romaniei-in- 7-ani-de-fonduri-ue-5-7-mld-euro-absorbite-nicio-autostrada-terminata.html. 94 Ibid.

32 discussed in detail yet and should not be interpreted as an unintentional cause but rather as the opposite and has not only its impacts on the management of EU funds but impedes the entire development of the post-communist Romanian state. This cause of underperformance and feature of Romania is the corrupt character of both the public authorities as well as the business sectors. Corruption and fraud have been predominant in Romania long before its accession to the EU and it is therefore naïve to think that it would not have its impact on EU Regional Policy.

It is always difficult to precisely measure the effects of corruption, fraud and mismanagement. By nature, corruption occurs behind closed doors and it is usually only a single case that reaches the public. However, the sheer volume of cases of fraud, corruption and mismanagement in Romania in relation to EU funds have made it possible to research the relation between corruption and the management of EU funds in Romania. It is argued in a publication of România Curată, an important Romanian non- governmental anti-corruption organization which focuses among others on corruption and fraud with EU funds, that corruption and the excessive politicization of national, regional and local public administrations are one of the most important factors influencing the impediment of Romania`s absorption capacity of EU funds and the efficient spending of them.95 A report of the European Anti- Fraud Office (OLAF) shows that 2011 alone, 225 cases of fraud and corruption in relation to EU funds were registered in Romania, putting the country on ahead of all EU member states in fraud and corruption.96 OLAF even emphasizes the inefficiency of the judicial system in Romania, referring to the very small amount of cases that eventually lead to a conviction.97 This leading position in the amount of registered cases of fraud and corruption shows that the management of EU funds and thus the efficient spending of them is seriously influenced by these forms of illegal activities.

A first argument for the negative impact of corruption on the absorption capacity and management of EU funds is convincingly explained by Andrei Sebastian Badea in his article Corruption – An Inhibiting Factor for the Efficient Implementation of Structural Funds in Romania, in which he gives an insight into the link between corruption and the implementation of EU funds in Romania. Badea concludes that there is surely a strong link between the Corruption Perception Index (CPI) and the absorption rate: countries with the lowest level of corruption have the highest absorption rates of EU

95 Grațian Mihailescu, ‘Doua țâri Est-Europene cu trasee diferite. De ce Polonezii reușesc să absoarbă eficient bani Europeni, iar Romania sta cu fondurile blocate’, Fonduri Europene, October 16, 2012, accessed March 24, 2016, http://www.romaniacurata.ro/doua-tari-est-europene-cu-trasee-diferite-de-ce-polonezii-reusesc-sa-absoarba-eficient- bani-europeni-iar-romania-sta-cu-fondurile-blocate/. 96 OLAF, The OLAF Report 2011, Luxembourg: Publications Office of the European Union 2012, p. 22. 97 Ibid., p. 22.

33 funds.98 The CPI is annually published by Transparency International and the index covers more than 180 countries. The CPI is based on surveys and assessments that measure the perception of corruption. The score ranks from 0 (worst) to 10 (best). Although the CPI lacks tangible data it has proven to be a powerful, reliable, and widely accepted tool.99 By studying the CPI of Romania during the period 2007- 2013, it becomes clear that its score has been more or less stable from 2007 (3.7) until 2011 (3.6) and that only 2012 showed a certain increase (4.4), although Romania was still ranked on the same place as it was in 2007, 69th. Badea`s research was based on the CPI of 2011 and the score revealed a high level of corruption at the national level with peaks in political parties, parliament and legislature, public officials and civil servants. 87% of the interviewed people for the CPI felt that corruption has increased in the period from 2007 to 2010. Corruption has remained a dominant feature of Romania in the period 2007- 2013. Figure 7 shows the relation between the absorption rate and the CPI of the CEE member states for 2011. It becomes clear that indeed Romania and Bulgaria, the two CEE member states with the poorest absorption capacity are featured by the lowest CPI scores (meaning the highest rates of corruption).

Figure 7: Corruption and Absorption Rates in CEE States

Source: Andrei Sebastian Badea, ’Corruption – an Inhibiting Factor for the Efficient Implementation of Structural Funds in Romania’, CES Working Papers, no. 2 (2012), p. 118.

98 Andrei Sebastian Badea, ’Corruption – an Inhibiting Factor for the Efficient Implementation of Structural Funds in Romania’, CES Working Papers, no. 2 (2012), p. 118. 99 Franciso Javier Urra, ‘Assessing Corruption. An analytical review of Corruption measurement and its problems: Perception, Error and Utility’, United Nations Public Administration Network (2007), p. 4.

The Romanian Academic Society (SAR) has identified a list of 38 methods of fraudulent mismanagement of EU funds after analyzing national and local press articles which deal with cases of fraud and corruption involving EU funds between 2004 and 2013 (Fig.8). The diversity and numerous examples of methods assume that corruption and fraud in the management of EU funds in Romania should not be interpreted as one-sided, but rather as a multiform phenomenon. Raluca Pop has analyzed the risk of corruption in the management of EU funds in Romania. Although her research is predominantly based on the first years of Romania`s access to EU funds, it provides relevant insight into specific elements of corruption and fraud in Romania. Pop argues that corruption should be taken very seriously since in the period 2007-2013 several persons of the higher ranks of Romanian politics have been accused and in some cases convicted of corruption and fraudulent activities. She refers to the cases of Prime Minister Adrian Nastase who was finally imprisoned in 2012, after being convicted for illegally funding a presidential election campaign by collecting approximately €1.6 million from companies that declared the payments as attendance fees for a government symposium.100 Another example is seen in the case of Sorin Blejnar, the former president of the Agency for Fiscal Administration (ANAF), and the leader of his cabinet, Codrut Marta, in 2012. Both were accused of selectively favoring fiscal evasion, while Marta was also accused of organized crime and human trafficking.101

100 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 104. 101 Ibid., p. 105.

Methods of Fraudulent Mismanagement of EU Funds

- abuse of office (and instigation) against the public interest - accepting bribes (and instigation) - using consultancy services throughout the project’s implementation in order to obscure the destination of funds - changing the purpose of spending contrary to contract provisions - using EU funds to amass personal benefits - offering bribes to win a public procurement contest - trading political influence with individuals who approve financing contracts - demanding bribes to accept false reimbursement claims - demanding bribes to give a public procurement contract to a certain firm - following flawed construction techniques - delaying contract closure after grant decision - restrictive public procurement criteria - discriminatory treatment of participants in a public procurement procedure - imposing a subcontracting percentage to the provider of services - the winner of the public procurement contract failing to fulfil conditions necessary for the implementation of a contract - providing invoices to values lower than the true costs incurred - falsification of proof of attainment of a project’s intended results and realization of activities - lying about the value of declared indicators - copy/paste evaluation of proposed projects - copy/pasting the contents of a project proposal - tampering with the technical-economic evaluation result - projects written up by consultancy companies favored by the contracting authority - buying financial statement letters from banks - the use of false, inexact or incomplete documents, statements or falsified certificates - use of bribery to ensure co-financing - disappearing after having received the pre-financing funds - money laundering - additional works declared as being similar activities - conflict of interest - exorbitant amounts used in public procurement contracts administered by certain Management Authorities - delays in finalizing works - omitting to publish the public procurement announcement electronically or publishing it only with a considerable delay so as to favor preferred firms - acceptance by the Management Authority of ineligible reimbursement claims - unauthorized access to a project’s control and verification documents - high salaries for project experts although the project’s aim does not justify them

Figure 8: Methods of Fraudulent Mismanagement of EU Funds

Source: SAR Project, ‘Misuse of Public Funds in Romania before and After EU Accession’, http://sar.org.ro/initiativa-fonduri- europene-manual-de-fraudare/.

Although the above list of methods of corruption and fraud shows that corruptive and fraudulent mismanagement takes all shapes in Romania, multiple cases give evidence that two specific forms of corruption are quite dominant in Romania, namely: clientelism and favoritism. In political studies, clientelism is generally defined as giving material goods in return for electoral support.102 The fact that the politics and business are closely connected in Romania assumes that the dominance of clientelism is no surprise. Favoritism is not much different than clientelism but does not necessarily require electoral support in return of the received goods. A general unwritten rule explains clientelism in Romania as that most of the money (EU funds) goes to the ruling party or the parties within the ruling coalition. Raluca Pop has measured the clientelism score, meaning the ratio between funds allocated to mayors of the government party and the share of vote for the government party. The results of this research show how public funds are distributed in Romania in some form of legal corruption.103 Pop clarifies that funds are distributed to client local governments which further use them to fund locally networked businesses. Those businesses then fund the local political parties in return.104 The primary constraint is that this form of corruption is difficult to prove, though it clearly has a serious negative impact on the efficacy of EU funds in Romania.

An infamous example of favoritism, or in this case nepotism (a form of favoritism in which the links of actors are based on familial lines), is the accusation of the former minister of Tourism and Regional Development, Elena Udrea. Udrea, married until June 2013 to businessman Dorin Cocoş, was accused of corruptive and fraudulent public procurement processes in favor of her husband. Cocoş was favored with EU funds and projects thanks to his close relationship with an influential politician.105 In the course of the 2010s more and more accusations followed.

The factual practices of favoritism within Romanian public procurement procedures have been studied and presented in The Anticorruption Report 3: Government Favoritism in Europe, edited by Alina Mungiu-Pippidi. The report is produced in the framework of ‘Anti-corruption Policies Revisited: Global Trends and European Responses to the Challenge of Corruption’(ANTICORPP). ANTICORPP is a large- scale research project, funded by the EC, which investigates and explains the factors that promote or hinder the development of effective anti-corruption policies and impartial government institutions. The analysis is based on data of the Electronic Public Procurement System (SEAP) in which public procurement contracts are registered. The research brings statistical evidence for the presence of political

102 Susan C. Stokes, ‘Political Clientelism’, in: C. Boix and S. C. Stokes eds., The Oxford Handbook of Comparative Politics, Oxford Handbooks Online 2009, p. 1. 103 Raluca Pop et al., ‘Risks of Corruption and the Management of EU Funds in Romania’, p. 107. 104 Ibid., p. 107. 105 Lavinia Stan and Rodica Zaharia, ‘Romania’, p. 195.

37 favoritism in public procurement procedures, specifically in the infrastructure and construction sectors. It is argued that about 40% of the contracts between 2007 and 2013 were influenced by governmental favoritism. Single bidding (when only the favorite company bids) and awarding of contracts to politically connected companies seem to exist in the entire public procurement market in Romania.106 The report concludes that favoritism in public procurement procedures is the rule of the game at the regional level, widespread at the local level and quite frequented in state-owned companies.107 The public procurement sector is argued to be vulnerable for corruption and fraud, especially at the local level where the administrative capacity is proven to be weak. The declaration that especially the construction and infrastructure sector are influenced by practices of favoritism can be explained by the fact that in these sectors public spending usually amounts to a serious rate of the total public procurement.108 Since improvement of infrastructural services has been one of the major priorities of Romania`s OP`s, the negative impacts of corruptive practices of clientelism and favoritism should not be neglected in the study of why EU Regional Policy has been insufficient in Romania.

In this chapter Romania`s main challenges of efficiently dealing with EU funds have been analyzed. I argue that these challenges can be divided into two groups: 1) the capacity deficit challenges, and 2) the intentionally-occurred challenges. In the first part it has been examined that Romania experiences serious problems in absorbing EU funds, due to administrative and financial capacity deficits. The administrative capacities of the managing authorities as well as of the applicants have proven to be especially insufficient in dealing with EU legislature and the Romanian bureaucratic practices. This phenomenon has been further discussed in the second part of this chapter, in which the low payment ratio of Romania in comparison to other CEE member states has been analyzed. Accordingly, the focus has shifted to the intentionally-occurred challenges of efficiently managing EU funds. Corruption, fraud and purposeful mismanagement have proven to be serious obstacles for Romania in realizing regional development and convergence. The fact that this phenomenon is present in all levels of Romanian politics makes it even more difficult to overcome this cultural illness.

106 Mădălina Doroftei and Valentina Dimulescu, ‘Corruption Risks in the Romanian Infrastructure Sector’, in: A. Mungiu-Pippidi ed., Government Favouritism in Europe, The Anticorruption Report 3, Berlin, Opladen & Toronto: Barbara Budrich Publishers 2015, p. 19. 107 Ibid., p. 19. 108 Ibid., p. 19.

Chapter 3. EU Regional Policy in the Counties of Cluj, Iaşi, and Dolj

The serious amount of attention in the Romanian media on national, regional and local levels to topics related to EU structural funds could be a reflection of the high expectations the Romanian public has of the effects of these funds in creating prosperity and diminishing the regional disparities in their country. Especially during the period 2007-2013, media at all levels devoted a remarkable amount of attention to the implementation, management and results of the EU funds in their specific region or branch. Together with several official reports on the evaluation of EU Regional Policy, the media have collected the results of EU funds within various fields in the closing years of the budgetary period 2007-2013. Statistics show that the absorption, distribution and management of EU funds among and within the different Romanian counties differ significantly. Socio-economic statistics and variables even show that during this particular period most of these have increased, in line with the general trends, but that the regional disparities have only further increased.

This chapter will focus on the efficiency of EU Regional Policy in the counties of Cluj, Iaşi, and Dolj. It will demonstrate how these three counties have experienced EU Regional Policy compared to each other through a regional comparative analysis. The findings of the previous chapter will be, where applicable, analyzed at the regional level. The first part of this chapter will focus on the absorption of EU funds in these counties, compared with the national trend. Special attention will be given to the specific features of this and center-periphery divide, which has proven to be crucial in Romania. Accordingly, the second part of the chapter will compare the developments of socio-economic data and variables in these counties to give evidence of the lacking efficiency of EU Regional Policy in its aim to diminish regional disparities. It will be argued in this chapter that the presence of a large city in the counties of Cluj, Iaşi, and Dolj has been mandatory for the above average performances of these counties regarding the absorption of EU funds and their development within their development regions. The fact that the differences between counties and their rates of development, and in relation to the national average, has not declined gives evidence for the paradoxical success of the EU Regional Policy.

Absorption and Management of EU Funds in Cluj, Iaşi, and Dolj

Data concerning the absorption and management of EU funds is mainly collected at the national level and at the NUTS-2 level. However, for this research data concerning EU fund management at the county level were essential but hardly accessible. Among others thanks to a study of the Institute for Public Politics in Bucharest (Institutul pentru Politici Publice București, IPP) called: ‘The Outcomes of Structural Funds

Investment during the Current Fincancial Exercise – The Lessons we (failed to) learn for 2014-2020, I have gained access to critical data of EU funds for this research at the county level.

The total amounts of EU funds absorbed by Cluj, Iaşi, and Dolj for all Operational Programmes (OP`s) is the first factor which will be compared between these three counties and with the national average. The results are represented in the below table (Fig. 9). The collected data show that all three counties have performed significantly better in absorbing EU funds than the national average. Especially Iaşi, which has performed excellently in relation to the national average. By leaving the data of Bucharest out of the calculations, the differences between the national average and the amounts of Cluj, Iaşi, and Dolj, become only more significant. The reason for leaving Bucharest out of the calculation of counties` performances lies in the fact that the administrative region of Bucharest is not comparable with the 41 counties of Romania in its economic as well as its territorial proportions and structures. However, the performances of Cluj, Iaşi, and Dolj prove that some features of these counties have resulted in their amply above average performances, meaning that some counties must have performed significantly less successfully.

County Total value of absorbed Rate of absorbed EU Funds as Rate of absorbed EU EU funds (2007- June percentage of the National Funds as percentage of the 2013) in millions RON average (incl. Bucharest) National average (excl. Bucharest) National Average 1.350/1.053 100 100 (incl./excl. Bucharest) Cluj 2.187 162 208 Iaşi 2.615 194 248 Dolj 1.960 145 186 Figure 9: Absorption of EU Funds at County Level

Source: data collected from: IPP, ‘The Outcomes of Structural Funds Investments during the Current Financial Exercise – The Lessons we (failed to) learn for 2014-2020’, Policy News, no. 5 (October 2013), appendixes 6-7, p. 36-38.

An important feature and similarity of the absorption of EU funds at the county level in Romania becomes evident when looking to the performances of Cluj, Iaşi, and Dolj within their particular development regions. In order to clarify this, the total amounts of EU funds absorbed for all OP`s and for all Romanian counties are clearly represented in Figure 10. Whereby the darker the color of the county stands for the higher amounts of funds absorbed. When we see the dark green areas of Cluj, Iaşi, and Dolj, their surrounding counties are all much lighter, meaning that these counties have absorbed less EU funds. In other words, this figure shows that especially the counties with an important urban center have

40 performed significantly better in absorbing EU funds than the more rural neighboring counties. One factor for this, is that large private companies managed to absorb most of the EU funds through projects.109 Private companies, mostly located in urban areas, prove to have the right administrative and financial capacities in order to absorb EU funds. The better performance of urbanized areas is completely in line with economic theories of, for instance Paul Krugman and applied by the World Bank, who argue that urbanization and economic growth go hand in hand meaning that urbanization is a powerful force for economic growth and poverty reduction.110 This finding also gives evidence that the NUTS-2 developing regions are not efficient territories in monitoring EU Regional Policy, since the differences within these regions in absorbing EU funds are significant. The differing financial and administrative capacities of the counties within the developing regions prove only in this field their diversity.

Figure 10: Absorption of EU Funds of all Romanian Counties at County Level

Source: IPP, ‘The Outcomes of Structural Funds Investments during the Current Financial Exercise – The Lessons we (failed to) learn for 2014-2020’, Policy News, no. 5 (October 2013), Appendix 7, p. 38.

109 IPP, ‘The Outcomes of Structural Funds Investments during the Current Financial Exercise – The Lessons we (failed to) learn for 2014-2020’, Policy News, no. 5 (October 2013), p. 3. 110 Bogdan-Nicolae Păcurar and Claudia Elena Tudorache, ‘Urban vs. Rural. The Economic Performance of Romanian Counties’, Journal of Settlements and Spatial Planning, Special Issue, no. 3 (2014), p. 47.

According to the study of the IPP, Iaşi has been the best performing county in terms of absorbing EU funds, with Cluj ranking second, immediately followed by Dolj. Several media sources have also emphasized the high performances of these counties in absorbing EU funds. An article of the local newspaper in Iaşi, Ziarul de Iaşi, provides more evidence of the inefficient functioning of EU Regional Policy in Romania. It represents how Iaşi has absorbed more than one third of the available EU funds for the Regional Operational Program for the six counties of development region Nord-Est.111 The author also emphasizes the fact that no one of the neighboring counties has managed to absorb 50% of the value of absorbed funds of Iaşi. Also in terms of the absorbed funds per capita, Iaşi has managed to absorb significantly more money than the other counties of region Nord-Est.112 The capitals of Cluj, Iaşi and Dolj have proven to be the main absorbing forces behind the absorption success of their counties. Statistics of the signed contracts and their values of the Regional Operational Program show that most of the money within the counties have been absorbed by the cities and not by the rural areas that needed the money the most in order to realize cohesion within Romania.113 This finding gives evidence that EU Regional Policy not only inefficiently distributes its funds among the counties but also within. This indeed might naturally cause increasing disparities even at the county level.

As it has become clear in the above section that Cluj, Iaşi, and Dolj have proven to have both above average administrative as well as financial capacities in order to absorb EU funds, this does not automatically mean that the management of the funds has been of the same level. In the previous chapter the features of mismanagement, corruption and fraud have been examined already. It will be analyzed now how these features have been present in the counties of Cluj, Iaşi, and Dolj and how this might have influenced the effects of EU Regional Policy in these counties. An important and useful indicator of mismanagement is the analysis of corruption data. România Curată, in collaboration with the Romanian Academic Society (SAR), has developed an easily accessible and comprehensive database of corruption and fraud cases in the Romanian counties during the period 2007-2014. Official data from the Romanian anticorruption directorate (DNA) have been used for this project. I will use the data from this project to analyze and compare the convictions for corruption and fraud in Cluj, Iaşi, and Dolj.

111 Paul Bălhuc, ‘Unde s-a dus Caimaul Fondurilor UE? Iaşul, campion la capitolul “mari proiecte”, Ziarul de Iaşi, July 27, 2014, accessed April 18, 2016, http://www.ziaruldeiasi.ro/stiri/unde-s-a-dus-caimacul-fondurilor-ue-iasul- campion-la-capitolul-a-mari-proiectea--69683.html. 112 Ibid. 113 Fonduri-structurale.ro, ‘Lista proiectelor contractate Programul Operaţional Regional 30.11.2014’, accessed April 18, 2016, http://www.fonduri- structurale.ro/Document_Files//Regional/00000026/s5orv_Lista%20proiecte%20contractate%20POR%2030%20noi embrie%202014.pdf.

The figure below (Fig. 11) shows the rates of corruption in the Romanian counties on the basis of the total amount of convictions of corruptive practices in the years 2010-2014 per 10.000 inhabitants. This includes cases in which the trials were started in 2007, referring to the sometimes long duration of the processes. The darker the color of the county, the higher the rate of corruption. From this figure it becomes clear that Iaşi has a lesser rate of corruption than Cluj and Dolj. The figure also shows that there is no strong relation between corruption and rural-urban divide. Maramureş for instance is one of the most rural counties of Romania, while Bucharest has almost the same rate of corruption. At the same time, many rural counties show very low rates of corruption, compared to more urban counties. Rich or poor, urban or rural, convictions of corruption have taken place in every Romanian county during this period.

Figure 11: Map of Corruption Rate per 10.000 Inhabitants

Source: Societatea Academică din România (SAR), Harta corupției judeţene 2010-2014, Bază de date machine readable, 2015, accessed April 18, 2016, http://romaniacurata.ro/harta-coruptiei.

However, analyzing the convictions of corruption when involving EU funds represents a completely different view of this phenomenon. In the table below (Fig. 12) data of convictions for corruptive practices have been collected for the counties Cluj, Iaşi, and Dolj. When we focus only on

43 convictions involving EU funds, it becomes clear that Iaşi performs the worst, while in Cluj no single conviction of corruption involving EU funds has been registered. Also, 32% of the cases involving EU funds took place in the public sector, which also gives evidence of the quality of the management of administrative bodies within this county. A third factor of these findings that works against the reputation of Iaşi`s administrational bodies is the fact that six of the seven cases involving EU funds in the public sector, concerned important functions: Mayor (4x), vice-Mayor (1x) and lawyer (1x).114 Dolj in its turn has performed relatively on the national average regarding the rate of convictions involving EU funds.115 Another finding of this analysis is that corruption involving EU funds has been evident predominantly in the lesser-developed and rural counties of Romania.116

County Total Convictions Total Convictions Convictions Convictions involving Convictions involving of Corruption per 10.000 involving EU funds EU funds in Public EU funds in public (2010-14) inhabitants (2010- (percentage of total Sector (percentage of sector and important 14) convictions) total cases involving EU functions funds) Cluj 90 1.3 0 0 0 Iaşi 64 0.83 22 (34.4%) 7 (31.8%) 6 Dolj 85 1.29 11 (12.9%) 3 (27.3%) 1 Figure 12: Convictions of Corruption, Data for Cluj, Iaşi, and Dolj

Source: data collected from: Societatea Academică din România (SAR), Harta corupției judeţene 2010-2014, Bază de date machine readable, 2015, accessed April 18, 2016, http://romaniacurata.ro/harta-coruptiei.

This analysis shows that corruption does not seem to play a significant role in the management of EU funds in Cluj. The high rate of fund absorption and zero cases of corruption involving EU funds assume that Cluj performs relatively well in relation to EU Regional Policy. On the other hand, the paradoxical relation between fund absorption and corruption involving EU funds in Iaşi, provides still no evidence for the factual performances of Iaşi with EU Regional Policy. Dolj in its respect seems to perform in between the two other counties. The significantly high amount of absorbed EU funds and the average score on corruption still assume that Dolj has performed relatively well. However, the fact that all three counties have performed above average in absorbing EU funds and that the general phenomenon of corruption is evident in all corners of Romania, gives evidence that cultural-historical differences between

114 Societatea Academică din România (SAR), Harta corupției judeţene 2010-2014, Bază de date machine readable, 2015, accessed April 18, 2016, http://www.romaniacurata.ro/harta-coruptiei/?judet=IS. 115 Ibid. 116 Ibid.

44 these counties have not been of influence in these particular fields. In the next chapter I will dive deeper into the cultural-historical aspects of this research.

Socio-Economic Development in Cluj, Iaşi, and Dolj During the Budgetary Period 2007- 2013

This paragraph will focus specifically on the factual development of the counties Cluj, Iaşi, and Dolj as registered at the end of the first budgetary period of EU Regional Policy in these counties. Data of several crucial socio-economic variables will be analyzed on their development between 2007 and 2013. The growth rates of these variables will be compared between the three studied counties and with the national averages of these variables. When crucial and possible, the comparisons will also make a divide of the urban-rural developments of the particular variables within the counties. The socio-economic variables and indicators of development which will be analyzed are in line with the objectives of EU Regional Policy in the Romanian counties. This specific set of variables is the outcome of a well-considered selection of numerous socio-economic variables and has proven to be representative for the general socio- economic developments in these counties. The inclusion of certain alternative variables would not have a significant effect on the outcomes of this research. These take not only into account purely economic variables, but also indicators of living standards in terms of transport, environment, and health. The studied data are collected from both EUROSTAT and the digital database (Tempo online) of the official Romanian National Institute for Statistics (Institutul Naţional de Statistică, INS). The developments of the following socio-economic topics will be analyzed:

- Gross Domestic Product (GDP) - Infrastructure - Salaries - Unemployment - Life expectancy - Urbanization - Drinking water supply

The fluctuation of a country`s, region`s or county`s GDP is generally used as an important indicator for economic growth. For this reason, I will compare the developments of the GDP of the three counties and the national average with each other in order to give insight into the balance of development of these counties. Indeed, the developments of this indicator, as well as all the others, is not only influenced by EU funds, but the developments can give insight into the effectiveness and strength of the policy in its aim to

45 diminish regional disparities and create cohesion within Romania. The table below (Fig. 13) shows the collected data and results of the calculations of GDP-related variables. The GDP per head of inhabitant provides data that allows us to compare the GDP development across Cluj, Iaşi, and Dolj. The data are collected from the Eurostat database and the GDP per capita variables are calculated by using the average annual population data, also from the Eurostat database.

County GDP 2007 GDP 2013 Growth rate GDP per GDP per Growth rate (million (million 2007-2013 capita 2007 capita 2013 2007-2013 Euro) Euro) (%) (Euro) (Euro) (%) National 125.403 144.253 15,03 6.005 7.218 20,2 Cluj 5.413 6.277 15,96 8.067 8.993 11,48 Iaşi 3.672 4.452 21,24 4.590 5.722 24,66 Dolj 3.161 3.546 12,18 4.575 5.430 18,69 Figure 13: GDP Growth Rates 2007-2013

Source: data collected from: Eurostat, ‘Gross Domestic Product (GDP) at current market prices by NUTS 3 regions’, accessed April 19, 2016, http://appsso.eurostat.ec.europa.eu/nui/show.do and Eurostat, ‘Average annual population to calculate regional GDP data by NUTS 3 regions’, accessed April 19, 2016, http://appsso.eurostat.ec.europa.eu/nui/show.do.

The data in the above table show that among three more developed counties, high differences in GDP are evident. Even the GDP per capita shows serious differences between the three and the national average in 2007 and still in 2013. In terms of GDP per capita it becomes clear that Iaşi and Dolj have realized a stronger increase around the national average. The lower per capita increase of Cluj is the result of an increase of the population, while the populations of Iaşi and Dolj have decreased between 2007 and 2013. It is obvious that the differences in GDP are still significant between the counties, but that from 2007 to 2013, a modest form of levelling has taken place.

However, a more negative and inefficient truth of EU Regional Policy becomes clear when we compare the developments of GDP rates of Cluj, Iaşi, and Dolj with their neighboring and less developed counties. As it has been discussed earlier in this thesis that Cluj, Iaşi and Dolj are the central and most developed counties of their development region, data show that their economies have been developing significantly faster than their underdeveloped neighbors, while, according to the objectives of EU Regional Policy, we might have expected the contrary. Developments of GDP in the most underdeveloped counties of the development regions of Nord-Vest (Cluj), Nord-Est (Iaşi), and Sud-Vest (Dolj) are represented in the below table (Fig. 14). These results show that the center- periphery divide has only further increased between 2007 and 2013. The data show that the general development of these counties` GDP lags far behind the developments of Cluj, Iaşi, and Dolj. The

smaller differences in GDP per capita growth is a result of the general trend of a stronger population decline in the underdeveloped counties.

County GDP 2007 GDP 2013 Growth rate GDP per GDP per Growth rate (Dev. Region) (million (million 2007-2013 capita 2007 capita 2013 2007-2013 Euro) Euro) (%) (Euro) (Euro) (%) Bistrița- 1.464 1.478 0,96 4769 5204 9,1 Năsăud (Nord-Vest Suceava 2.610 2.691 3,10 3815 4257 11,6 (Nord-Est) Mehedinți 1.123 1.055 -6,05 3872 4058 4,8 (Sud-Vest) Figure 14: GDP Growth Underdeveloped Regions 2007-2013

Source: Eurostat, ‘Gross Domestic Product (GDP) at current market prices by NUTS 3 regions’, accessed April 19, 2016, http://appsso.eurostat.ec.europa.eu/nui/show.do and Eurostat, ‘Average annual population to calculate regional GDP data by NUTS 3 regions’, accessed April 19, 2016, http://appsso.eurostat.ec.europa.eu/nui/show.do.

As it has been discussed earlier in this thesis, one of the main objectives of EU Regional Policy for this budgetary period was the improvement of Romania`s infrastructure. Especially the roads and transport facilities were seen as an important factor for development.117 To analyze in how far this objective has been achieved, I will now discuss the developments of these facilities in Cluj, Iaşi, and Dolj. The table below shows the developments in the total length of public roads by road type in kilometers.

County Total length of Growth rate Total length of Growth rate Total Length of Public Roads 2007-2013 (%) Modernized 2007-2013 (%) Motor 2007/2013 roads Highways (KM) 2007/2013 2007/2013 (KM) (KM) Cluj 2625/2978 13,45 612/1078 76,14 0/52 Iasi 2390/2361 -1,21 401/408 1,75 0/0 Dolj 2211/2435 10,13 547/844 54,30 0/0 Figure 15: Development of Total Length of Public Roads by Road Type 2007-2013 (in KM)

Source: data collected from: INS, ‘Length of Public Roads by type of Road, type of Road Surface, Macroregions, Development Regions and Counties’, Tempo Online Database, accessed April 20, 2016, http://statistici.insse.ro/shop/.

117 Ana-Paula Laissy (ed.), Working for the Regions, EU Regional Policy 2007-2013, p. 27.

The data show that the situation in the most underdeveloped region, in terms of infrastructure, has made the lowest rate of development in realizing more roads and thus transport facilities. The results in this indicator are also conflicting with the developments in GDP. However, Cluj and Dolj have shown that development of roads was definitely possible. These data also indicate that Iaşi and its region in general remains relatively isolated from Western Europe, meaning that the objectives of EU Regional Policy are not being achieved in Iaşi. Developments of roads was indeed one of the main priorities in Iaşi.118 The exact cause for this failure of Iaşi is near impossible to pinpoint, but it is possible to assume that EU Regional Policy has not been sufficiently effective to overcome the circumstances in Iaşi that have prevented the successful development of public roads.

The development of net monthly salaries is another variable that indicates the socio-economic circumstances in these counties. The data are represented in the below table. Due to the lack of consistent data from 2007 this table comprises data from 2008 and 2013. What becomes clear from this data is that the average salaries in the most developed county of the three (Cluj), in terms of GDP, have increased more than in the other two counties and the national average. This means increasing disparities among the Romanian population in terms of net monthly salaries. Another remarkable finding is the growing difference between the average net monthly salaries and those in the rural economic activities in Cluj. Rural industries seem to lose priority in Cluj, while Iaşi and Dolj are among the national average. The high rate of development in Cluj and the increasing urban-rural divide in net monthly salaries is another evidence that mostly the more urbanized counties seem to develop faster in this first period of EU Regional Policy in Romania. Cluj is indeed the most urbanized county of the three. In 2013, 33,6% of the county`s population lived in rural areas in contrast to 53,95% in Iaşi and 48,3% in Dolj.119

118 GEA Strategy & Consulting, Evoluția Economica a mediului urban din județul Iasi, 2013, p. 41. 119 INS, ‘Resident population by age group and ages, sex, urban and rural areas, macroregions, development regions and counties at January 1st.’, Tempo Online Database, accessed April 19, 2016, http://statistici.insse.ro/shop/.

County Average net Growth rate Average net Growth rate monthly salary 2008-2013 (%) monthly salary in 2008-2013 (%) 2008/2013 Agriculture, (RON) Fishery and Mining 2008/2013 (RON) National average 1309/1579 20,63 914/1179 28,99 Cluj 1315/1672 27,15 939/1036 10,33 Iasi 1257/1499 19,25 910/1126 23,74 Dolj 1216/1465 20,48 836/1120 33,97 Figure 16: Development of Average Net Monthly Salary 2007-2013

Source: data collected from: INS, ‘Average net nominal monthly salary earnings by economic activities at level of CANE Rev.2 section, sex, macroregions, development regions and counties’, Tempo Online Database, accessed April 20, 2016, http://statistici.insse.ro/shop/.

The first budgetary period of EU Regional Policy in Romania doesn’t also seem to have been effective and efficient in diminishing the inequalities of the unemployment rates in Romania. The national average rate of unemployment increased from 4% in 2007 to 5,7% in 2013. Of course numerous factors have their impacts on the phenomenon of unemployment, but the disparities between the counties diminished barely. The unemployment rate of Cluj increased in this period from 3% to 3,5%, Iaşi realized a small decrease from 5,6% to 5,2%, and Dolj remained further behind with its unemployment rate increasing from 4,9% to 9,7%.120 Also unemployment, an important socio-economic indicator of the functioning of a county`s economy proves not to be efficiently influenced by the presence of EU Regional Policy.

Another indicator that gives more specifically evidence of the still increasing disparities between the rural and urban areas of Romania, is the development of the life expectancy. Even within these three relatively developed and urbanized counties, differences in the development of the life expectancy between the urban and rural populations during the period 2007-2013 are evident. The collected data and the percentage increase of the life expectancy in the rural and urban areas of Cluj, Iaşi, and Dolj are represented in the below table (Fig. 17). Again, the most developed county registers higher increases of its living standards than the less developed counties. Another finding of these calculations is the fact that

120 INS, ‘Unemployment rate by gender, macroregions, development regions and counties’, Tempo Online Database, accessed April 19, 2016, http://statistici.insse.ro/shop/.

49 the urban areas develop faster than the rural areas, which means that the disparities of this variable have further increased in this budgetary period.

County Life Increase (%) Life Increase (%) Life Increase (%) expectancy 2007-2013 expectancy 2007-2013 expectancy 2007-2013 2007/2013 urban areas rural areas 2007/2013 2007/2013 National 72.61/75.16 3,51 73.34/76.34 4,09 71.64/73.66 2,82 average Cluj 73.31/76.38 4,19 73.88/77.25 4,56 72.22/74.75 3,50 Iaşi 73.13/75.42 3,13 74.36/77.07 3,64 71.95/73.77 2,53 Dolj 72.18/74.4 3,07 73.88/76.18 3,11 70.25/72.41 3,07 Figure 17: Development of Life Expectancy 2007-2013

Source: data collected from: INS, ‘Life expectancy by urban and rural areas, sex, by macroregions, development regions and counties’, Tempo Online Database, accessed April 20, 2016, http://statistici.insse.ro/shop/.

An article of the regional newspaper Gazeta de Sud from February 9, 2016, emphasizes the lagging development of several primary needs of the Romanian citizens that seriously determine the living standards in the Romanian counties. The article mentions that the situation in Dolj is especially shocking for the reason that about half of the residents in the county do not have an interior toilet, and 19% of the residents have no direct access to drinking water facilities. Data collected from INS and represented in the below table (Fig. 18), show that in the period 2007-2013 progress has been made in the rate of people connected to a public water supply. However, Dolj remains far behind the developments of Cluj and Iaşi in this field. Other indicators of primary needs development such as electricity, interior toilets and natural gas indicate that the rural areas remain far behind the levels of development of the urban areas.121 Statistics show that at the national level in 2013, 91,7% of the dwellings in urban areas are equipped with a bathroom and flushing toilet inside the dwelling. The rural areas are still far behind with a rate of only 31,4% of dwellings equipped with an inside bathroom and flushing toilet.122 According to these findings it may be seriously questioned why the large amount of EU funds allocated to Romania have put so little priority on these basic needs.

121 INS, Tempo Online Database, accessed April 20, 2016, http://statistici.insse.ro/shop/. 122 INS, ‘The percentage of households by the existence of bathroom and flushing toilet inside the dwelling, on area of residence, in total number of households from each category’, Tempo Online Database, accessed April 20, 2016, http://statistici.insse.ro/shop/.

County Population connected to Growth Rate public water supply 2008-2013 (%) 2008/2013 (% of total population) National average 56,3/61 8,3 Cluj 75,5/85,3 13 Iaşi 48,5/74,9 54,4 Dolj 50,7/50,3 -0,08 Figure 18: Development of Population Connected to Public Water Supply 2008-2013

This chapter has analyzed several important variables that represent the performances of Romanian counties and the efficiency of EU Regional Policy during the budgetary period of 2007-2013. In the first part of this chapter two factors that give an indication of the performances of the Romanian counties of Cluj, Iaşi, and Dolj in the way they deal with the availability of EU funds have been analyzed, namely: the total amount of absorption of EU funds in these counties and the phenomenon of corruption involving EU funds during this particular period. The results of this analysis show that in the case of EU fund absorption, predominantly the most developed counties registered the highest amounts. This is indeed in contrast with the objective of cohesion and diminishing regional disparities of EU Regional Policy in Romania and can be seen as a seriously inefficient feature of the policy. Also, the analysis of regional corruption shows a paradoxical relation, meaning that indeed the poorer regions registered the highest rates of corruption, especially in cases involving EU funds. As this could not be seen directly as an inefficient feature of EU Regional Policy, but rather as a negative feature and impeding factor for the development of these counties.

The second part of this chapter focused on concrete socio-economic developments of Cluj, Iaşi, and Dolj from 2007 to 2013 that are in line with the objectives of EU Regional Policy in Romania. The results of this analysis are in line with the argument, as given by Tom Gallagher and several other scholars, that regional development in Romania does not lead to diminishing disparities, but rather to increasing differences within Romania.123 It should be noted that in fact every region has made progress in its socio-economic circumstances in this period, but the disparities have not diminished. The increasing differences are not only evident between the regions, but also within the regions. The urbanized areas prove to develop faster than the rural areas and EU funds do not seem to have sufficient power to stop this

123 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 87.

51 trend. On the contrary, the provided EU funds seem only to support the trend of increasing disparities in Romania, for the reason that the most developed counties absorb the highest rates of funds and especially the private sector, mainly located in urbanized areas are the main beneficiaries of the funds.

Chapter 4. Regional Development Trends and the Presence of the Structural Problematizing Factors of EU Regional Policy Prior to EU-Membership

In the previous chapters, the main features of EU Regional Policy`s inefficiency and its problematizing factors for Romania from 2007 to 2013 have been articulated. The trends of regional development have also been clarified. It is clear that the reasons for the lack of effectiveness and efficiency of EU funds are multi-faceted and evident in all aspects of the involved parties. However, when studying Romania, not only for the period 2007-2013, but for its entire post-communist period, it is easy to conclude that most of the problematizing factors of EU funds in Romania were not new at that time, but rather structural factors that have dominated Romania`s internal affairs and development for decades. Moreover, the unequal trends in regional development that have been discussed for the period 2007-2013 do not show any significant break with the trends from before Romania began receiving EU funds. These statements assume that the lack of success of EU Regional Policy in fighting regional disparities in Romania were surely preventable, since most of the problematizing factors have been present in Romania for decades, and the different patterns of development of Romanian counties were also observable long before 2007.

This chapter will further clarify the presence and notoriety of the structural factors that have challenged EU Regional Policy, prior to Romania`s EU accession. In the first part of this chapter, I will discuss the long-lasting presence of the main structural factors (i.e. lack of political determination and commitment, purposeful mismanagement (corruption, fraud), administrative/financial incapacity) in Romania, of which their negative impact in the success of EU funds have been examined in the previous chapters. Also the trends in regional development before 2007 will be discussed in order to demonstrate that EU Regional Policy did not have the power to enforce a significant change in regional development trends in Romania. The second part of this chapter will be used to analyze Romania`s experience with the billions of EU funds it received before its accession to the EU. The analysis of sources related to pre- accessions funds gives more evidence that the EU had significant information available, observed and even reported, in order to prevent the inefficiencies of EU Regional Policy. The purpose of this chapter is to clarify that the lack of success of EU funds was not unpreventable at all, but rather the result of a lack of powerful action and commitment, devoted to structural internal factors, from both the EU and Romania, during its pre-accession period.

The Structural Challenging Factors in Post-Communist Romania

After the end of Romania`s Communist era, which ended after the December Revolution of 1989 against the dictatorship of Nicolae Ceaușescu, Romania was expected to start a transition toward a market economy and multiparty democracy, and subsequently apply for EU-membership. However, despite the euphoria of the Romanian people following the revolution and the significant support from the western world, the transition turned into a bitter disillusion.124 Romania`s post-communist transition is generally seen as one of the least successful transitions of all former communist CEE countries, referring to poor performances and slow economic and political development. In ‘Romania, Transition to Underdevelopment’, Per Ronnås states that during the first post-communist decade, Romania experienced a transition to underdevelopment, rather than to prosperity and improvement of living standards.125

The causes of Romania`s unsuccessful transition are numerous and it should not be ignored that Romania began its transition with a false start. Compared to the other CEE countries, the situation in Romania was different in the sense that until 1989, the Romanian economy was still strongly politicized. Before the end of communism, Romania did not experience any reforms like in most of the other communist states. Rather, Ceaușescu continued to increase desperate attempts to further socialize all aspects of the economy.126 In this respect, the Romanian transition could be seen as a bigger challenge than in most of the other transition countries. However, most of the scholars who have studied Romania`s post-communist transition have concluded that it was not primarily this false start that caused the problematic transition, but rather factors that have strong links with the aforementioned structural factors (i.e. lack of political determination and commitment, purposeful mismanagement (corruption, fraud), administrative/financial incapacity).

An important failure of Romania`s transition was its incomplete rupture with communism in the first years after the revolution. Although Ceaușescu’s dictatorship had come to an end after the December Revolution, this did not mean the end of the careers for most of the former communist elites (nomenklatura). The nomenklatura members actually became the winners of the revolution, knowing that 74.2 percent of those who were in nomenklatura positions in 1989 became members of the first post- communist government in Romania.127 According to Cătălin Stoica`s article ‘Our Martyrs of 1989 Did Not Die for This!: Political Capitalism in Post-Communist Romania’, 20 percent of government officials

124 Per Ronnås, ‘Romania: Transition to Underdevelopment?’, p. 13. 125 Ibid., p. 29. 126 Ibid., p. 14. 127 Raluca Grosescu, ‘Conversia Elitelor Comuniste din Romania in Perioada de Tranziție’, in: M. D. Gheorghiu and M. Lupu eds., Mobilitatea Elitelor in Romania Secolului XX, București: Editura Paralela 45 2008, p. 328.

54 in 2014 were former members of Ceausescu`s administration.128 Ion Iliescu, a former high-ranking member of the Romanian Communist Party and high placed official of Ceausescu`s dictatorship, became the first president of Romania from 1989 until 1996 and later from 2000 until 2004. According to Juan L. Linz and Alfred Stepan, it was the specific dictatorial feature of Ceausescu`s regime that enabled Iliescu to present Ceausescu as the embodiment of the system and to imply that Iliescu had changed the political and economic system by removing Ceausescu.129 In combination with the absence of any significant oppositional movement, this created a desirable situation for the former communist elites to take the power in post-communist Romania.130

According to post-communist transition theorists, the dominance of former communists in Romanian politics and economics were not in favor of the country`s transition performance. According to Alan Smith, Romania`s inability to make a clean break with its communist past in the crucial initial stage is an important factor for Romania`s poor transition.131 Smith argues that the shock therapy has proven to be the most successful transition approach for former communist states. Shock therapy implies a transition to a market economy as rapid as can be sustained under the prevailing circumstances.132 A clean break with communism has proven to be essential to implement this theory and to make it successful.133 Romania followed a gradualist approach to transition which means a slower, step-by-step process with a controlling role for the state. This was of course a more interesting approach for the nomenklatura who had to protect personal interests during the first post-communist years.

In their work ‘Post-Communist Romania, Coming to Terms with Transition’, David Phinnemore and Duncan Light blamed the Romanian transition after the first decade for its half-hearted commitment, insufficient political will and flawed implementations that all have undermined many of the transitional efforts.134 According to the findings of the previous chapters, these factors are more or less in line with the lack of political will and commitment from the Romanian state in order to prepare the country for a successful implementation of EU funds. Cătălin Stoica clarifies why the transition in Romania became characterized as described by Phinnemore and Light. Stoica argues that the first fourteen years after the

128 Cătălin Augustin Stoica, ‘Our Martyrs of 1989 Did Not Die for This!: Political Capitalism in Post-Communist Romania’, Historical Social Research, vol. 37, no. 2 (2012), p. 40. 129 Juan L. Linz and Alfred C. Stepan, Problems of Democratic Transition and Consolidation: Southern Europe, South America, and Post-communist Europe, Baltimore: John Hopkins University Press 1996, p. 368. 130 Ibid., p. 368. 131 Alan Smith., ‘Problems of the Transition to a Market Economy in Romania, Bulgaria and Albania: Why has the Transition Proved to be so Difficult?’, in: I. Jeffries ed., Problems of Economic and Political Transformation in the Balkans, New York: Pinter 1996, p. 116-117. 132 Ibid., p. 116-117. 133 Ibid., p. 113. 134 Duncan Light and David Phinnemore, Post-Communist Romania, Coming to Terms with Transition, New York: Palgrave 2001, p. 1.

55 revolution had paved the way for the emergence of political capitalism in Romania.135 The concept of political capitalism, first introduced by Max Weber, concerns a system that is affected by corrupt influences on the economy.136 More specifically for post-communist states in transition, political capitalism means an economic and political order in which ex-communist officials would control and privatize public resources for their own private benefits.137 Stoica claims that post-communist political capitalism is most likely to emerge in countries that before 1989 had no significant opposition, did not reform their communist regime and where former communists won the first free post-communist elections.138 It was in this period that the former nomenklatura attempted to convert its former positions of power into economic power.139 According to a comparative study on informal networks in the Czech Republic, Bulgaria, Slovenia and Romania, conducted in 2007 by Åse Berit Grødeland, of these countries in Romania political contacts were most common and necessary in business.140 This finding further strengthens the argument that political capitalism dominated Romanian transitional performances and that corruption and informal networks were already evident during this period.

The administrative and financial incapacity of Romanian counties (which is shown to have been another important challenge for the management of EU funds between 2007 and 2013) was not evident during these years alone, but has rather been present for decades in Romania. This challenge can be seen as a result of Romania`s state tradition for being a unitary and highly centralized state, strongly influenced by the French constitutional and administrative tradition.141 Dimitris Papadimitriou and David Phinnemore have argued in their work ‘Romania and the European Union, From marginalisation to membership’, that Romania`s centralization of power must be seen as a cultural-historical phenomenon that dates back to the early life of the Romanian state in 1860.142 The centralist approach of the Romanian state was motivated by attempts to submerge the strong regional identities in its two historical regions: Wallachia and Moldova. After the end of World War I, when Transylvania became part of Romania, the

135 Cătălin Augustin Stoica, ‘Our Martyrs of 1989 Did Not Die for This!: Political Capitalism in Post-Communist Romania’, p. 43. 136 Ibid., p. 27. 137 Ibid., p. 29. 138 Ibid., p. 33. 139 Ibid., p. 43. 140 Åse Berit Grødeland, ‘Red Mobs, ‘Yuppies,’ ‘Lamb Heads,’ and Others: Contacts, Informal Networks, and Politics in the Czech Republic, Slovenia, Bulgaria, and Romania’, Europe-Asia Studies, vol. 59, no. 2 (2007), p. 230. 141 Dimitris Papadimitriou and David Phinnemore, Romania and the European Union, From marginalisation to membership, Abingdon: Routledge 2008, p. 120. 142 Ibid., p. 120.

56 centralized approach was intensified for the same reason that led to further centralization of political power in Bucharest.143

After World War II, when Romania became a communist state under regimes of first Gheorghe Gheorghiu-Dej (1947-1965) and later Nicolae Ceaușescu (1965-1989) the Romanian state became only more centralized. The communist leaders of Romania were strongly opposed to a decentralization of power to the regional or county level, since this was seen as a possible threat to national security.144 The leaderships of Gheorghiu-Dej and Ceaușescu were characterized by the propagation of a personality cult, this contributed to further centralization of power around a small group of party members and especially family insiders.145 This process continued and even intensified until the end of Ceaușescu’s dictatorship. In terms of regional power, Romanian regions and counties did not have any significant experience in having power or managing any other administrative function. This clarifies to a certain extent that the lack of financial and administrative capacities of Romanian counties can be seen as a cultural-historical inheritance of the Romanian state.

However, the idea that the strong centralization of power is a cultural-historical phenomenon of the Romanian state does not mean that is an unsurmountable phenomenon. Several scholars have argued that during the post-communist period both the Romanian state and the EU have acted poorly in helping Romania overcome its centralized character of power and prepare its inexperienced regions and counties to properly manage the availability of EU funds. Papadimitriou and Phinnemore state that Romania`s post-communist elites showed little sympathy for decentralizing political power away from Bucharest.146 During the 1990s, power remained mainly centralized in Bucharest. Despite a constitutional amendment in 2003 and several legislative initiatives in 1999, 2001 and 2004, which were meant to convince the EU of Romania`s commitment to decentralization, confusion over the division of labor between central and local authorities remained and the autonomy of local authorities continued to be generally undermined by their weak administrative capacity and their financial dependence on the central government in Bucharest.147 Indeed, political capitalism seemed to have played a role in this respect as well. The “new” Romanian elites had of course all interests in keeping the ruling power centralized in Bucharest, where most of the nomenklatura members remained after Ceausescu`s regime.

143 Dimitris Papadimitriou and David Phinnemore, Romania and the European Union, From marginalisation to membership, p. 120. 144 Ibid., p. 120. 145 Ibid., p. 120. 146 Ibid., p. 120. 147 Ibid., p. 120.

The lack of commitment to decentralization and the empowerment of sub-national levels of government by post-communist governments resulted in the very slow development of a regional development policy in Romania. The Romanian state finally started to devote attention to the need to develop policies for reducing regional disparities after it applied for EU membership in 1995. 148 The reform of local and regional governance structures was part of Chapter 21 of the accession negotiations, and is an implicit condition for accession to the EU.149 The EU has regarded decentralization of power as an integral part of the wider process of democratization in the CEE states, but also as an important precondition for the functioning of its structural operations150, for instance EU Regional Policy. However, despite the EU`s strong normative commitment to centralization of power, Papadimitriou and Phinnemore argue that the EU fell short of providing a clear institutional blueprint for reform.151 They state that while the EU demanded the creation of the NUTS-2 regions, the competencies, composition and democratic legitimacy of the different layers of state administration were generally left for Romania itself to determine.152 These arguments are very much in line with the findings and the main arguments of Tom Gallagher as discussed in his work ‘Romania and the European Union’. Gallagher generally argues that the EU roadmap to membership did not work for Romania.153 He states that the EU failed to devote major attention to Romania and that its multi-layered system of decision-making was unequal to the stark of challenges presented by a candidate with as many problems as Romania.154 In this respect, it is not assumable that the lack of administrative and financial capacities of Romanian counties, that have influenced the results of EU funds, are solely an unsurmountable cultural-historical phenomenon, but that as well as the Romanian state as the EU have not showed sufficient determination to make Romania overcome this challenging feature.

The analysis of regional development trends in post-communist Romania provides another form of evidence that crucial information was surely available for the EU in order to adjust its EU Regional Policy in a more effective way. Jozsef Benedek and Réka Horváth have argued that the differences in development between the historical regions in Romania are rooted primarily in the different historical and economic evolutions of these regions.155 Already in the 18th century serious differences between the current regions of Romania were evident. Central and western located regions have always been the more

148 Dimitris Papadimitriou and David Phinnemore, Romania and the European Union, From marginalisation to membership, p. 121. 149 Ibid., p. 119. 150 Ibid., p. 119. 151 Ibid., p. 119. 152 Ibid., p. 119. 153 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 11. 154 Ibid., p. 3. 155 Jozsef Benedek and Réka Horváth, ‘Romania’, in: M. Baun and D. Marek eds., EU Cohesion Policy After Enlargement, Basingstoke: Palgrave 2008, p. 230.

58 developed regions, mainly due to their early industrialization in the 18th century. The predominant southern and eastern regions remained behind in their development, where industrialization took place in the 19th century. During the communist period, the state promoted the equalization of development. Despite this, no significant changes in the hierarchy of the regions were realized.156 After the end of communism in Romania, the regions reacted differently on the transition. The “transition winners” were generally the urban agglomerations with a developed service sector, the coastal region, and the border regions of western Romania.157 On the contrary, the “transition losers” were the remote mountain regions, rural regions and the former industrial districts.158 These findings are in line with the trends of regional development as analyzed for the period 2007-2013. This analysis shows that the EU funds have predominantly enforced the already existing trends of regional development in Romania and that the undesired results of regional development in the period 2007-2013 could have been avoidable if sufficient attention would have been paid to the available information and realities of regional development in Romania.

The EU and the Pre-Accession Funds for Romania

The official procedure of negotiations and reforms for Romania`s accession to the EU started in February 2000. Romania`s road to EU membership is highly contested and many people still seriously doubt whether Romania was actually ready to become a full member of the EU in 2007. Gallagher argues that the political desire of the EU to complete its ‘big bang’ expansion into Central and Eastern Europe resulted in a relaxation of the conditions required for EU-membership.159 In its pre-accession years, Romania made very slow and little progress in fulfilling its reforms in order to meet all the requirement of the acquis communautaire. It is argued that unwilling political elites have had a leading role in this dubious process,160 but also a lack of attention to and knowledge of Romanian realities from the side of the EU can be seen as a crucial deficit of Romania`s problematic road towards EU-membership.161

156 A. Iara, European Integration, Regional Structural Change and Cohesion in Romania, EURECO Working Paper 2005, as cited by: Jozsef Benedek and Réka Horváth, ‘Romania’, p. 230. 157 I. Ianoş, ‘Potential Strukturdynamik, Attraktivität der rumänischen Wirtschaft’, in: T. Kahl, M. Metzeltin and M. R. Ungureanu eds., Rumänien. Raum und Bevölkerung. Geschichte und Geschichtbilder. Kultur. Gesellschaft und Politik heute. Wirtschaft. Recht und Verfassung. Historische Regionen, Wien: Lit Verlag 2006, pp. 105-130, as cited by: Jozsef Benedek and Réka Horváth, ‘Romania’, p. 230. 158 Ibid., p. 230. 159 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 1. 160 Lavinia Stan and Rodica Zaharia, ‘Romania’, p. 187. 161 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 6.

Several scholars have researched the existence of the EU`s transformative power towards candidate members. Many of them describe this phenomenon as EU`s power to transform candidate member states into full member states applying to all conditions and standards of the EU by offering support and rewards to the candidates. Heather Grabbe argues in her book ‘The EU`s Transformative Power, Europeanization Through Conditionality in Central and Eastern Europe’, that the EU has an enormous potential influence on public policy in CEE states, since between 1989 and 2004 almost every government in every applicant country claimed EU-membership to be its first foreign policy priority. However, the EU`s influence never did fulfill this potential, mainly because of the diffuseness of its influence and the inconsistency of the accession criteria.162 According to Tom Gallagher`s findings, it becomes highly assumable that the existing transformative power of the EU was not sufficiently applied in the case of Romania. Gallagher blames the EU for the fact that the old political structures of Romania, that had problematized the country`s post-communist transition as well as its road towards EU- membership, remained substantially unchanged after 2007.163 The EU accepted the experience of the ruling elite (mostly nomenklatura members) as the right people to rule Romania towards EU-accession. Gallagher claims convincingly that a greater vigilance and knowledge of local political realities would have served the EU well in this respect. The EU proved to be naïve towards Romania`s internal realities and it seemed that it was seen as a peripheral exotic country.164 At the same time, Romania`s ruling elites showed to be unwilling to enforce reforms at all costs. It is generally argued that Romania absorbed the laws, values and decision-making procedures of the EU, during its pre-accession period, only at a superficial or declaratory level, while it became a Romanian tendency to focus on minor aspects of the accession criteria and proclaim major successes, and avoid resolute action on the more substantial chapters of the accession procedure.165 The EU seemed to have ignored Romania`s unique character in relation to its fellow CEE candidate states, since it was not willing to apply a customized accession approach for Romania, but instead treated all the candidate states on equal footing, who were destined to join the EU on the basis of the same criteria.166

162 Heather Grabbe, The EU`s Transformative Power, Europeanization through Conditionality in Central and Eastern Europe, Basingstoke: Palgrave Macmillan 2006, p. 200. 163 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 3. 164 Ibid., p. 4. 165 Ibid., p. 80. 166 Leonard Orban, ‘Romania`s Accession Negotiations with the EU: A Chief Negotiator`s Perspective’, in: D. Phinnemore ed., The EU & Romania, Accession and Beyond, London: Federal Trust for Education and Research 2006, p. 78.

During its pre-accession period, Romania was allocated in total almost €5 billion of pre-accession funds by the EU, in order to assist the country in its preparations and reforms towards EU membership.167 This period of implementing and managing pre-accession funds in Romania more concretely shows that several of the factors that have negatively influenced EU Regional Policy between 2007 and 2013 were already evident in these pre-accession years. The pre-accession funds were divided into three particular programs (PHARE, ISPA, SAPARD) which all concentrated on their own specific fields. PHARE was the main financial instrument of the pre-accession strategy for the CEE candidate states and provided support for institution building, investment to strengthen the regulatory infrastructure needed to ensure compliance with the acquis, and investment in economic and social cohesion.168 The ISPA program financed infrastructure projects in the fields of environment and transport.169 The SAPARD program was designed to provide aid for agricultural and rural development.170

The EU Court of Auditors - generally known as the guardians of the EU finances - as well as several scholars, have critically analyzed Romania`s performances in implementing and managing these pre-accession funds. There was surely enough reason to do this, since it also became clear in this period that Romania experienced serious problems in the absorption and implementation of the pre-accession funds.171 The European Court of Auditors concluded from audits on the PHARE program that for over half of the audited investment projects, assets were not used, or only partially used for the intended purpose.172 The results of these projects lagged mostly behind schedule. The European Court of Auditors claimed that these shortcomings were due to the continuing lack of both administrative capacity and national resources.173 It is interesting to see that the Court also blamed the Commission in this respect. The Commission`s overall management of investment projects was criticized by the Court in three particular areas. First of all, the Court concluded that the Commission overestimated the management capacity of the public authorities in Romania. Second, the Commission neglected the principles of sustainability and co-financing and finally it did not consider enough the expected added value and

167 European Court of Auditors, ‘Special Report no. 4/2006 concerning Phare investment projects in Bulgaria and Romania, together with the replies of the Commission’, Official Journal of the European Union, C174/01 (2006), p. 6. 168 European Commission, 2003 Regular Report on Romania`s Progress towards Accession, Com 2003, p. 7. 169 Ibid., p. 7. 170 Ibid., p. 7. 171 Jozsef Benedek and Réka Horváth, ‘Romania’, p. 239. 172 European Court of Auditors, ‘Special Report no. 4/2006 concerning Phare investment projects in Bulgaria and Romania, together with the replies of the Commission’, p. 3. 173 Ibid., p. 3.

61 catalytic effect of the PHARE money.174 The Court recommended the Commission to take steps to improve its management regarding these aspects.

The findings of the Court are strongly in line with the arguments of Tom Gallagher as given in his chapter ‘The Futility of EU Funding’. Gallagher argues that the EU`s assistance model for the CEE states had serious flaws in the case of Romania. It became obvious in an early stage that Romania was experiencing serious problems in getting projects started on time and that it had a limited capacity to manage EU funds. The EU had plenty of evidence of this phenomenon but did not demonstrate willingness to carry out a fundamental review of its strategy and consider to adopt a customized approach that would pay attention to the reform blockages that Romania was experiencing.175 On the other hand, the Commission did everything to guarantee Romania`s accession in 2007 by allocating more financial help, which was of course also intended to safeguard the credibility of the EU`s accession process in general. However, the decision to increase the amount of funds towards Romania was not accompanied by a willingness to increase the number of officials, who were able to ensure that the funds were correctly used.176 The EU delegation in Romania complained continuously that it had a lack of staff needed to function effectively.177 In 2004, the absorption rate of the pre-accession funds was still very low, coupled with the issue that the overall capacity for programmes, operational management and financial control remained insufficient.178

The above-introduced pre-accession instruments also aimed at narrowing the regional economic disparities in Romania. According to Gallagher, it is not surprising that only little progress occurred in realizing this objective.179 The instruments were criticized for their negligible impact on structural reform and the regional development structures proved to be among the worst performing of all. This is no surprise, since these structures had never existed in Romania before and were only created during the pre- accession period. Both the 2003 and 2004 Regular Report on Romania`s Progress Towards Accession, an annual report of the EC focusing on the accession progress of candidate countries, reported already that regional economic disparities widened during Romania`s pre-accession period.180181 On the other side, practices of corruption and malfunctioning Romanian state key players have also been present during this pre-accession period and have seriously impeded the effects of the pre-accession funds. The Commission

174 European Court of Auditors, ‘Special Report no. 4/2006 concerning Phare investment projects in Bulgaria and Romania, together with the replies of the Commission’, p. 3. 175 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 72. 176 Ibid., p. 79. 177 Ibid., p. 79. 178 European Commission, 2003 Regular Report on Romania`s Progress towards Accession, p. 7. 179 Tom Gallagher, Romania and the European Union, How the Weak Vanquished the Strong, p. 86. 180 European Commission, 2003 Regular Report on Romania`s Progress towards Accession, p. 34. 181 European Commission, 2004 Regular Report on Romania`s Progress Towards Accession, Com 2004, p. 35.

62 reported already in 2003 that corruption was still a widespread phenomenon and that it affected all aspects of the Romanian society.182 Corruption was argued to undermine the effectiveness and legitimacy of state institutions and restricts Romania`s economic development. The Commission also observed already at this stage, that the fight against corruption was insufficient.183 Despite these observations of the Commission, the EU has proven to be powerless to fight corruption in Romania to date.

This chapter has discussed several features and developments of Romania before it became a member of the EU. It has been discussed that these features and developments have a link with the factors that have negatively influenced Romania`s performances regarding EU Regional Policy that have been clarified in the previous chapters. In the first paragraph, I have examined several aspects of Romania`s problematic post-communist transition. It has become clear that Romanian politics have been dominated by former nomenklatura members for decades, who have proven to be incapable and unwilling to make the transition a success. These political elites had all reasons to prevent Romania from moving smoothly towards EU membership. Accordingly, the administrative incapacity of the Romanian counties has been clarified as being a result of the cultural-historical tradition of Romania`s centralization of its power. Moreover, the trends of regional development that have been observed for the period 2007-2013 can be traced back to earlier times. The factors that have challenged EU Regional Policy were thus no phenomena of that particular period only, but rather structural factors that have been present in Romania long before its accession to the EU in 2007.

The second paragraph has focused more specifically on relevant aspects of Romania`s EU accession process. Also in this period and especially in the field of implementing the pre-accession funds, similar factors that have dominated EU Regional Policy in the period 2007-2013, were already observable, and have even been observed by EU actors, in this pre-accession period. It seemed that the EU ignored the particular realities of the Romanian state in its strategy to prepare the country to become a full member. Also, the instruments used to support Romania with the reforms it had to realize did not seem to be sufficiently effective in the case of Romania. At the same time, unwilling Romanian key players seemed to have taken advantage of this inefficient strategy and uninterested EU. The main conclusion of this chapter is that most of the factors that have contributed to the inefficiency of EU Regional Policy in the period 2007-2013 were observable in Romania long before its accession to the EU. This gives reason to assume that the unsatisfied results of EU Regional Policy in Romania were not

182 European Commission, 2003 Regular Report on Romania`s Progress towards Accession, p. 20. 183 European Commission, 2003 Regular Report on Romania`s Progress towards Accession, p. 20.

63 unavoidable, but rather that more determination and commitment from both the EU and the Romanian state would have been desirable.

Conclusion

This thesis has sought to find the answer on the question why EU Regional Policy has been inefficient in Romania during the 2007-2013 budgetary period. It has become clear that the answer is definitely not unilateral and that it involves various factors and key players involved in the practices of EU Regional Policy in Romania. Each of the four chapters has focused on a specific aspect of this research that has been crucial in the creation of the answer on the research question, which will be elaborated in this conclusion.

First of all, this research has revealed that EU Regional Policy has been inefficient in Romania in different ways. It is discussed how Romania experienced serious problems in the absorption of the funds of the EU Regional Policy. Romania managed to absorb only a small part of the allocated funds in the period 2007-2013, meant to support Romania in its challenge to achieve the objectives of the policy. This could be seen as a serious inefficient characteristic of EU Regional Policy of which its causes were manifold and to be found both on the side of Romania and the EU. The complexity of EU Regional Policy is discussed in the first chapter, where it became clear how the wide range of legislation was insufficiently implemented by Romanian state leaders. An important shortcoming has proven to be the lack of decentralization of power from Bucharest towards the regional and local administrative units. Already at the stage of implementation it is shown that, in the case of Romania, the policy itself displayed certain deficiencies in its design and construction that likely may have influenced its inefficiency. The fact that other CEE member states proved that a more successful implementation of EU Regional Policy was possible in the first years after accession, gave more reason to believe that factors from the side of Romania have caused the inefficiency of EU Regional Policy in terms of the absorption of funds.

The first chapter has clarified that both the political and the economic circumstances in Romania were not ideal during the studied budgetary period. Romania faced serious crises and instability that definitely may have influenced the country`s performances concerning EU Regional Policy. However, several actions and behaviors of Romanian state leaders have validated the assumption that the determination and commitment among these leaders were not sufficient during the crucial first years of the policy. In chapter two, Romania`s main challenges of efficiently dealing with EU funds have been analyzed. These main challenges in this respect were divided into two groups: the capacity deficit challenges and the intentionally-occurred challenges. The first further explained Romania`s problems in absorbing EU funds, mainly due to administrative and financial deficits. Specifically, the administrative capacities of managing authorities as well as of the applicants have proven to be insufficient in dealing with EU legislature and the Romanian bureaucratic practices. The intentionally-occurred challenges,

65 which are to be understood as practices of corruption, fraud and purposeful mismanagement, have had significant negative influences on the efficient management of EU funds in Romania.

The above described factors (administrative/financial incapacity; purposeful mismanagement through corruption and fraud; and lack of political determination and commitment) that have caused the inefficient functioning of EU Regional Policy regarding the inability to absorb funds in Romania are all factors from Romanian soil and must be seen as structural factors, since most of them have been present in Romania long before its accession to the EU. Romania has proven to be incapable and even unwilling to overcome these problematic structural factors. However, the earlier described complexity of the policy and the findings of chapter four clarify that also the EU has its stake in this failing feature of its policy. It has become clear in chapter four that most of Romania`s problematic factors were structural factors that have been influential on Romania`s entire post-communist development and that these were observable by the EU long before the official negotiations for Romania`s accession started in 2000. During this accession period, several EU institutions have even reported most of these problematizing factors, as well as the insufficient functioning of the European Commission. The analysis of Romania`s performances with the billions of pre-accession funds in chapter four, has made clear that Romania experienced already in this pre-accession period, the same problems of absorbing and managing funds efficiently. These findings support the arguments of several scholars who blame the EU for paying insufficient attention to the internal realities of Romania and for not being willing to adapt a customized approach to its EU Regional Policy.

The other way in which EU Regional Policy has proven to be inefficient in Romania concerns its effects on regional development and diminishing regional disparities in Romania. The different cultural- historical features of the Romanian regions did not appear to influence the efficiency of EU Regional Policy, since the problematizing structural factors have shown to be present in the entire country. The regional comparative study of the counties of Cluj, Iaşi, and Dolj demonstrate that EU Regional Policy did not achieve its objectives but that it rather has supported the increase of disparities within Romania. The comparative study showed that especially the more developed counties with an urbanized center registered the highest amounts of absorbed funds. This is not very surprising, since more urbanized regions are expected to have higher administrative capacities, but it is strongly in contrast with the objective of cohesion and diminishing regional disparities of EU Regional Policy. This finding can be seen for this reason as a serious inefficiency of EU Regional Policy. Another negative feature and impeding factor for the development of the counties was the finding of the paradoxical relation of regional corruption, meaning that the poorer regions registered the highest rates of corruption, especially

66 when EU funds were involved. These findings show once again that the causes of EU Regional Policy`s inefficiency are to be found both by the EU and the Romanian state itself.

The analysis of socio-economic developments of several selected variables in Cluj, Iaşi, and Dolj gave more evidence for the increasing regional disparities in Romania between 2007 and 2013. The increasing disparities are not only evident between regions, but also to the same extent within the regions and counties of Romania. It became clear that the urbanized areas proof to develop faster than the rural areas and EU funds do not seem to have sufficient power to stop this trend. On the contrary, the EU funds only strengthen the trend of increasing disparities in Romania, since the most developed counties absorb the highest rates of funds and especially applicants from the private sector, mainly located in urbanized areas, are the main beneficiaries of the funds. The comparative study at the county level, has also proven that EU Regional Policy is not efficiently monitored at the NUTS-2 level. The Romanian Development Regions at NUTS-2 level, specifically created for the purpose of monitoring regional policy, are strongly heterogeneous in the makeup of the counties and EU Regional Policy overlooks the strong division in the levels of development within these regions. According to the findings of chapter four, the trends of regional development of the period 2007-2013 were generally in line with those of Romania`s post- communist years. In terms of regional development trends, the EU had thus the required information available in order to customize its policy according to the Romanian regional realities. Together with unwilling Romanian state leaders to prepare their country sufficiently for EU Regional Policy, the EU naively assumed its regional policy to be an efficient universal instrument.

This thesis has examined the causes of the inefficiency of EU Regional Policy in Romania during the budgetary period 2007-2013. I conclude that both the EU and Romanian key players, involved in the practices and management of EU Regional Policy have showed crucial shortcomings in their performances. The Romanian key players have failed to devote sufficient commitment and determination in preparing their country for a successful and efficient implementation of EU Regional Policy, both during the pre-accession period and after gaining accession. Romania`s problematic internal features inherited from the communist era should not be ignored, but the unwillingness of political elites to reform their country sufficiently according to EU values has been crucial. The lack of decentralization of power, widespread corruption and administrative incapacity have problematized the well-meant intentions of EU Regional Policy. In terms of the inefficient functioning of the policy itself, the insufficient performances of the EU can be seen as the main cause. The structural factors, including administrative/financial incapacity of regional and local administrative bodies, purposeful mismanagement (corruption, fraud), and lack of political determination and commitment, that have been revealed as the problematizing factors for the implementation and management of funds had been present and notorious in Romania for decades

67 and were not expected to disappear without strong pressure and influence from external actors. The EU`s transformative power has proven to be insufficient in this respect, to make Romania overcome these structural factors. Moreover, the unintended effects of its funds in terms of socio-economic developments prove that EU Regional Policy was not able to overcome Romania`s internal realities.

Next to critics of the past, this thesis has also revealed several recommendations for both the EU and the Romanian state itself in order to improve the chances for more successful budgetary periods of EU Regional Policy in the future. Apart from the fact that Romania has showed significant overall progress in the absorption of funds in the final years of the studied budgetary period, the inefficiency of the policy and the increase of regional disparities still applies. The EU should take the findings of this thesis in consideration and realize that EU Regional Policy in its current state is not an efficient universal policy which can be applied without any customization to the internal realities of Romania. The role of the EU is in this respect crucial, since I expect that the internal challenges of Romania, which have been revealed in this thesis, are structural factors which have been present in the country for decades or even centuries. There is no reason to expect that Romanian key players will make the country overcome these factors without significant support or better pressure from the outside. The EU should further intensify the pressure on Romania to fight the corruption and force a further decentralization of power. Of course, a vital ingredient for a more efficient result of EU Regional Policy, is the ultimate realization of Romanian elites that the time has come to stop wasting time and funds for personal interests, but that it is their job and duty to serve the development of Romania and its counties in a legal and justified way.

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