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Romania and Greece: Together Or Alone Against the Present Global Crisis

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Romania and Greece: Together Or Alone Against the Present Global Crisis African Journal of Business Management Vol. 4(19), pp. 4191-4198, December Special Review, 2010 Available online at http://www.academicjournals.org/AJBM ISSN 1993-8233 ©2010 Academic Journals Review Romania and Greece: Together or alone against the present global crisis Ionescu Romeo Dunarea de Jos University, Domneasca Street no.111, Galatz, Romania. E-mail: [email protected]. Accepted 8 November, 2010 The fiasco of the Lisbon Agenda and the latest EU Agenda 2020 are the main European political effects of the present global crisis. The paper analysed the effects of the global crisis on Greece and Romania because these countries have a lot of common historical, cultural and socio-economic characteristics and they became the greatest socio-economic problem for the EU27. As a result, was realised a comparative analysis connected to macroeconomic indicators during 2004 to 2010, using a neutral database, as Eurostat. We used this comparative analysis in order to highlight that the adhering to the EU was not able to solve the socio-economic difficulties of the member states. In order to support the analysis, the paper used GDP, investment, consumption, unemployment and inflation rates, foreign debt and other important indicators which gave the idea that the problems of these two countries are the same. A distinct part of the paper deals with the differences between Greece and Romania connected to socio-economic problems. But these common and different problems of these two countries had the same solution: a major foreign credit which had approximately 25 billion Euros from everyone. The main conclusion of the paper was that of the necessity of a new approach about the Euro area and the European Cohesion Policy. The paradox was that this conclusion came from a comparative analysis of two countries which have a different position inside the EU: Greece is a member of the Euro area and Romania wants to adhere here in 2014 to 2016. The ideas from this paper were supported by pertinent diagrams and tables. Key words: Trade balance, unemployment, GDP, fiscal policy, foreign credit. INTRODUCTION The global crisis supports the idea that the regional Eurozone member state and it becomes the first victim of economies, even European Union (EU27) or USA, are an inadequate fiscal policy and of a deficient monetary not able to face to the new challenges. union. As a result, the EU is constrained to adopt an As a result, every EU Member State tries to face to this efficient recovery plan for Greece, in order to crisis as well as possible. The paper analyses the effects demonstrate its socio-economic force and management of the global crisis on Greece and Romania because performance and to prevent the same situation in Spain these countries have a lot of common historical, cultural and Portugal, as well. and socio-economic characteristics. Moreover, both There is no other research about these two countries countries became a wager for the EU27 and its future. under the impact of the present global crisis till now. The As a result, we realise a comparative analysis con- paper represents a challenge for the EU27 policy nected to macroeconomic indicators during 2004 to 2010, approach, because it represents a tocsin against the idea using a neutral database, as Eurostat. For the beginning, that EU is able to overcome any political and economic we focused on the evolution of the trade balance, obstacle. unemployment, GDP, building sector and industry. The next step is to analyse the evolution of the public debt and the effects of this crisis on the citizens’ welfare. ROMANIA UNDER THE GLOBAL CRISIS A distinct part of the paper deals with the differences between Greece and Romania connected to the socio- The most affected economic sectors are those connected economic problems. The problem is that Greece is a to export in the EU27. EU27 represents the destination for 4192 Afr. J. Bus. Manage. for 73.5% (Romanian National Institute of Statistics, 10 October 2010) of the Romanian exports. As a result, the net exports had a negative contribution to the GDP 8 growth. 6 The GDP growth was faster, from 6.2% in 2007, to 7.1% in 2008. The problem appeared in 2010, when GDP 4 decreased by 7.1%. The forecasts for 2010 and 2011 talk 2 GDP UE about a negative rate of growth, followed by a zero growth in 2011, even that the European Commission was 0 GDP IMF 2007 2008 2009 2010 2011 more optimistically, of 0.8% in 2010 and 3.5% in 2011 -2 (European Commission, 2010). The IMF forecast talks about a rate of GDP growth by - -4 0.5% in 2010 and by 0.1% in 2011 (Figure 1). The -6 differences between these forecasts are significant. The great fluxes of FDI in Romania stopped suddenly -8 th during the 4 quarter of 2008, as a result of a significant Figure 1. GDP rate of growth in Romania (%) [Source: Personal contraction of the international capital inputs, the growth contribution using the IMF’s database, October (2010)]. of the investment risk and national economy vulnerability and the decrease of the disposable revenue. The FDI in Romania achieved 7.251 billion Euros in 2007 and 9.02 billion Euros in 2008 (Romanian National Institute of 40 Statistics, July 2010). The total investment in Romania decreased by 29.1% 30 in 2009 (14.75 billion Euros) regarding 2008, as a result of the great decrease in investment in equipment. These 20 last investment decreased by 44.5% regarding 2008. Gross Moreover, the weight of the investment in equipment in 10 f ixed total investment decreased by 9.4% in 2009 (37.4%) capital regarding 2008 (Romanian National Institute of Statistics, 0 July 2010). 2007 2008 2009 2010 2011 f ormation The investment in new construction works decreased -10 by 13.8%, while the investment with other expenditures decreased by 25.3%. The most important part of -20 investment were in trade and services (wholesale and retail, repair of motor vehicles 42.6%) and buildings -30 (9.1%). The investment in agriculture had 2.8% of total investment, and the investment in other sectors had 3.7% Figure 2. Gross fixed capital formation in Romania (%) (Romanian National Institute of Statistics, July 2010). (Source: Personal contribution using Ionescu (2010), p.115). During the last quarter of 2009, the total investment decreased by 39.9% (4.6 billion Euros) regarding the same period of 2008 (Romanian National Institute of 30 Statistics, July 2010). An important element, connected to the investment 20 process, is the evolution of the gross fixed capital Exports formation. After a significant decrease in 2009, the forecast is positive: 2.3% in 2010 and 5.8% in 2011 10 (Figure 2) (Ionescu, 2010). Imports The foreign trade had a negative influence on 0 Romania’s GDP, as a result of the powerful growth of the 2007 2008 2009 2010 2011 imports. On the other hand, the international markets are -10 not full recovery and the demand in still low. As a result, Trade balance the trade balance will have a negative impact on -20 Romanian economy, even that it will decrease (Figure 3). The good news is that the evolution of the Romanian exports will be positive: 5.5% in 2010 and 6.5% in 2011. -30 But the bad news is that the Romanian imports will grow Figure 3. The foreign trade of Romania (%) (Source: Personal more in 2011 (7.6%) (European Commission, 2010). The contribution using European Commission (2010), p.134). Romeo 4193 growth of these imports is connected to the impossibility 15 for the Romanian economy to produce goods which are necessary for the economy, even that the general level of 10 the households’ revenues will be smaller. Nowadays, Romania is set up, because it is not able to have a 5 functional economy. Moreover, the SMEs sector is done Private as a result of the government policy, and the households have not enough revenues to support the domestic 0 consumption demand. Until 2008, the consumption was the engine of the -5 Public economic growth in Romania. The EU’s forecast is too consumption optimistic when it talks about a growth of the private -10 consumption of 0.7% in 2010 and 4.2% in 2011. On the other hand, the public consumption has to decrease, as a -15 result of the stand-by agreement with IMF (Figure 4) 2007 2008 2009 2010 2011 (European Commission, 2010). In 1990, there were 8.156 million employees and 3.577 Figure 4. The evolution of the consumption in Romania (%) million retired. The unemployment rate was about zero. (Source: personal contribution using European Commission, 2010, Still 2006, the unemployment rate began to decrease, p.134). until 2008, when it achieved 5.8%. The unemployment rate grew as a result of the registered unemployment growth. In 2009, the unemployment rate was 6.9% and 10 the unemployment stock was 625,000 persons. The unemployment rate grew even that evolution of the 8 employment was negative until 2009 (Romanian National 6 Institute of Statistics, July 2010, pp. 100-102, 128-131). Employees A worrying phenomenon is the age structure change: 4 the growth of the demographic aging population as Unemployme-nt 2 Unemploy rate number and weight in the unemployment stock. This is a ment rate major negative trend which supports on long term the 0 decrease of the total population and the labour supply. 2007 2008 2009 2010 2011 -2 The forecast of the EU is too optimistic again. The unemployment rate will be 8.5% in 2010 and 7.9% in -4 2011 (Figure 5) (European Commission, 2010, p.134).
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