Friday, January 05, 2007

Europe section lead note

Bulgaria and Romania

The new kids on the block

From The Economist print edition


The European Union's two newest members, Bulgaria and Romania, are both economically and politically backward

WILL it work again? It is tempting to join the revellers in Bucharest and Sofia who seem to believe that European Union membership promises untold riches. The eight ex-communist states that joined in 2004 have done pretty well. Bulgaria and Romania are already growing strongly; EU money will help.

Yet the Balkan pair differ from their predecessors. Bulgaria's GDP per head in 2005 was only $3,480 and Romania's $4,490—against $9,240 for the eight entrants in 2004, and an EU-wide average of $29,330. And they are backward in many other ways. Infrastructure and public services are worse than in the rest of eastern Europe; corruption is more entrenched, and the political culture more fragile.

Although united by weak institutions and their poverty, Bulgaria and Romania differ in size, history, politics and economic structure. Romania, with some 22m people, is the second-biggest eastern European country after Poland. Bulgaria is just over a third as big. This could be a plus, as small countries' elites often work better. But Romania's political class has recently outscored Bulgaria's. Big countries also matter more to foreign investors.

Both countries are on the edge of the EU, but whereas Bulgarians feel out of the mainstream, Romanians do not. They see themselves as a Latin outpost in a sea of Slavs. Their language is linked to Italian and French. Bulgarian is a Slavic tongue, as close to Russian as Danish is to Swedish.

Each has a sizeable ethnic minority from a neighbour. In Romania some 7% of the population are ethnic Hungarians. The Hungarian minority's party, the HDUR, is a fixture in coalition governments, which has blunted its reforming edge. About 9% of Bulgaria's population are ethnic Turks, poorer and less educated than their fellow citizens. Their party, led by Ahmed Dogan, is a frequent target of complaints by anti-corruption campaigners. Both countries also have big Roma (gypsy) populations, often living in abominable conditions, worse than under communism.

The Balkan pair view Russia differently. Bulgarians thanked Tsarist Russia for liberating them from the Ottomans, and many recall communist rule as a time of modernisation. To Romanians, Russia is a predator. It took an eastern province from them in 1812. Romania regained it in 1918 and lost it again to the Soviet Union in 1940-41. This region, plus a strip of land bordering Ukraine, is now Moldova.

Romania, under its president, Traian Basescu, is a bastion of Atlanticism in the Black Sea region. Bulgaria is largely passive in foreign policy, though it has good relations with Russia. Bulgaria's prime minister, Sergei Stanishev, studied in Moscow; past Romanian leaders did so too, but to admit it now would spell political doom. Mr Basescu decries communism as criminal, but Bulgarian leaders only mumble.

In politics, Romania is noted for the recurrent conflict between Mr Basescu and his prime minister, Calin Popescu Tariceanu. Only the need to get into the EU has held Mr Basescu's Democratic Party together in government with Mr Tariceanu's National Liberal Party. In Bulgaria the prime minister and president come from the same party. But the coalition combines the Socialists (ex-communists), quasi-monarchists led by former King Simeon II and Mr Dogan's lot. Elections may take place in both countries this year.

Joining the EU has meant intense pressure to meet Brussels standards, which neither country yet does. The biggest worry is lawlessness. In Romania this takes the form of corruption; in Bulgaria, of organised crime. Criminal-justice systems are weak, and high-level sleaze widespread. Romania has made more progress: its non-party justice minister, Monica Macovei, is an effective administrator who has shaken up the structure and accountability of the judiciary and the prosecutor's office.

Bulgaria has moved more slowly. Some politicians still seem untouchable, as do some organised-crime groups. A recent OECD study rates Bulgaria higher for investment promotion, but Romania higher on anti-corruption and business integrity. Some senior Romanian officials and politicians have lost their jobs and even their freedom. The investigation of a former prime minister, Adrian Nastase, is a contrast to the immunity that Bulgaria's political class still enjoys.

Managers with experience in both countries say that Romanians are more individualistic than Bulgarians. “In Romania the problem is getting them to work in a team. In Bulgaria the problem is getting them to show any initiative,” says one. Higher education is bureaucratic and complacent. Infrastructure is dire; transport links between the two countries are awful, with just one road bridge across the Danube. A big road programme in Romania is bogged down in tendering scandals. Improvements will take EU cash, which may add 2% to GDP in 2007-13. It is hard to be confident that it will be well spent.

The main macroeconomic difference is that Romania's currency floats, whereas Bulgaria's is pegged to the euro. Both countries have huge current-account deficits: Bulgaria's was some 13.5% of GDP in 2006, Romania's 10.3%. Continuing inflation means that euro adoption is at least a decade away. Romania's demographic outlook is good by post-communist standards, with only a mild population decline that is expected to slow as income levels and health care improve. But Bulgaria's is one of the worst in eastern Europe: its population will fall below 7m by 2020.

Then there is emigration, encouraged by low pay, poor working conditions and bad public services. As many as 2m Romanians and 800,000 Bulgarians live abroad. Entry into the EU may stimulate emigration, though most existing members have slapped on temporary labour-market restrictions. That is partly because immigrants from Poland and other countries were more numerous than expected.

Both countries' borders are leaky. Moldovans can work easily (if not always legally) in Romania, as can Macedonians in Bulgaria. Although the two governments try to restrict the issue of passports to ethnic kinsfolk in these neighbours, they cannot stop them coming.

Romania has the advantage of size, demography and a newly confident elite that wants to put the country on the map of Europe. Bulgaria has a stronger industrial base. But given the political chaos that has taken hold in other eastern European countries, most of them much richer and stronger than the two newcomers, it is clear that the Balkan pair's road to EU prosperity and stability will be harder. The only question is how much.


Andy said...

Can you clarify this ambiguous sentence:

The Hungarian minority's party, the HDUR, is a fixture in coalition governments, which has blunted its reforming edge.

Are you saying that the UDMR (HDUR) has blunted the reformimng edge of the government or the other way around? It's not clear to me.

Assuming it's the former, I really can't see how you can argue that at all.

Edward Lucas said...

sorry for the delay. I mean that the Hungarians' own reforming edge has blunted. If I meant the former, I would have said "their reforming edge"