10 Years of Romania's EU Membership:
Looking to the future
Liviu Voinea, Deputy Governor, National Bank of Romania
26 October 2017
 Ten years after Romania's EU
accession, the world has changed
dramatically: the global financial crisis of 2008-09 led to the revision of
rules in the international banking system, to growing social discontent
with major consequences in terms of flourishing populism and
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protectionism, as well as to a reshuffle of maps be they geopolitical,
military or economic.

Uncertainty is running higher today than prior to the crisis and the room
for quantitative easing policies based on stimulating demand has
narrowed considerably.
 Looking ahead, both the European Union and Romania need structural
reforms.
As regards the EU:

Many steps have been taken so far at institutional level: Stability and
Growth Pact, CRD IV (Capital Requirements Directive), Banking Union,
SRB (Single Resolution Board), SSM (Single Supervisory Mechanism),
ESRB (European Systemic Risk Board). When needed, monetary policy
- -
undertook in Europe as well, similarly to the US, UK or Japan to
escape recession and deflation and to foster renewed economic impetus.

A challenge to the EU is to maintain the pace of economic growth as the
ECB gradually exits from quantitative easing.

Another challenge facing the EU is to manage Brexit properly and avoid
other exits, which would question the very essence of European identity.

The EU should continue and complete institutional reforms, by finalising
the Banking Union, the aspects regarding the operationalisation of EDIS
(European Deposit Insurance Scheme), by setting MREL (minimum
requirement for own funds and eligible liabilities) for banking groups;
moreover, the EU should move towards a fiscal union without debt
mutualisation, should leave less room for discretion and comply with
rules once they have been adopted, it should clarify the fine balance
between the consolidated microprudential supervision of banks and
national accountability in terms of resolution.

But maybe the most important factor for the cohesion and coherence of
the European project is the success in safeguarding the four fundamental
freedoms: the free movement of capital, goods, services, and above all
persons within the Union. A Union that would waive these principles
would no longer be the Union that was established in 1957 and that
Romania joined 10 years ago.
As regards Romania:

Romania has accomplished a lot in the past ten years: nominal
convergence, real convergence in part, financial stability, it has gained
market confidence and has implemented structural reforms.

In order to carry on with real convergence, Romania has to exploit its
growth potential and to get as close as possible to full employment.

With a view to achieving these goals, we should focus on a number of
issues related to real convergence which were less debated in the first ten
years.
 The demographic problem: the equivalent of approximately 30 percent of
the labour force in Romania and of 13 percent of the total population
2005). This is Romania's lost GDP.
work abroad (from 3 percent in
 Moreover, even now, when Romania's economy reports above potential
growth rates, the country continues to record negative birth rates. The
ageing of the population affects potential GDP; and it is not only about
-
ageing ageing is doubled by a high rate of people at risk of poverty
(around 40 percent in 2016).
 According to in-house studies that refer to a panel of 6 Central and
Eastern European countries and cover the period from 2005 to 2016, a
1 percent increase in the share of population aged 65 and above triggers a
1.3 percent decline in potential GDP.

Real convergence is measured not only in quantitative terms, in cold
figures, but also in qualitative terms. For instance, over 90 percent of the
population owns a house, but housing quality is the lowest in Europe
(about 30 percent of the individuals have no access to basic sanitary
facilities and around 70 percent live in overcrowded dwellings).

The living standards and the wage differential further account for
emigration waves even amid the high economic growth. This is a deeply
uneven growth at both interregional and intergenerational levels, which is
unbalanced in terms of structure and which reinforces inequalities within
the society (the Gini coefficient stood at 38 percent in 2015).

The growth potential should be enhanced also by an increase in capital
flows and stock, the absorption of EU funds and a better allocation of
resources via investment prioritisation.

Achieving convergence is not enough, as convergence should be
sustainable, balanced and equitably distributed.

Real convergence should be pursued not only in terms of income, but also
in terms of output structure, by means of the level and composition of
budget revenues and expenditures.

Good European practices should be used to fight tax evasion and
strengthen financial discipline.

In the medium run, a balanced primary budget should be ensured and the
MTO (medium-term objective) should be again pursued; public debt
should be maintained at sustainable levels and inappropriate incentives
leading to over-indebtedness of private sector and households should be
avoided.

It is necessary to improve the access to financing. 83% of households
have 6% of deposits, whereas 0.3% of households hold 25% of deposits.
Housing loans have been accessed by only 1% of very low income
earners (the 1st quintile) and by only 4% of relatively high income
earners (the 4th quintile). 12% of the highest income earners (the 5th
quintile) have accessed housing loans.

A roadmap is necessary for joining the euro area.

The public goods that should be preserved and even strengthened include:
the country's
security, financial stability, investors' confidence.
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European Union Romania joint agenda for 2019
 Conclusion of Brexit negotiations.
 the prudential treatment of banks'
Completion of important files, such as
exposures to sovereign risk (the bank-sovereign link), EDIS (European
Deposit Insurance Scheme), euro area reforms.
 -
2020 budget better use of resources.

Aligning the budgetary provisions of the NATO with those of the EU.
Exemption of the rise in military expenditure, for NATO countries that
are EU Member States, from the EDP (excessive deficit procedure) rule
and from the MTO (medium-term objective).

Monetary policy normalisation and fiscal policy sustainability.