Romania in the Europe 2020 Strategy. One year one

Newsroom 03/10/2011 | 17:05

The Centre for European Policy Studies (CEPS), together with the European Policy Institutes Network (EPIN) and the European Institute of Romania (IER), organized last week a conference called Strategic Thinking in the EU.

One topic of debate was the Europe 2020 strategy and Romania’s progress in this area. Mathias Oel, Special Adviser of the President of the European Council H. Van Rompuy explained that the EU2020 strategy had to cut the initial target number of 28 to 5 in order to make more appealable to member states. Oel added that the objectives are tailored on national levels allowing member states to come up with better solutions.

Romania set to meet 2020 targets in green energy earlier
Valentin Lazea, Chief Economist for the National Bank of Romania, presented Romania’s progress in achieving the Europe 2020 targets. The employment rate for population aged 20-64 was 63.3 percent in 2010, while the long term target is 70 percent.
Romania has already met carbon emission reduction target of 20 percent, and is also doing rather well in the final gross consumption of renewable energy with 19.4 percent versus the 24 percent target. However, the country is failing to meet the early school leaving target of 11.3 percent. In 2010, this indicator stood at 18.4 percent, with a forecasted decrease to 14.8 percent in 2013. Romania reached 18.1 percent in the tertiary education this year, aiming to achieve 26.7 percent by 2020. However, the most challenging task of reducing the population at risk of poverty will remain a key issue, as only 123.000 will pull out of poverty by 2013, while the target for 2010 is set at 580.000.
 
Progress in solving Romania’s structural issues
Lazea stated Romania’s progress on solving the main five structural bottlenecks to growth, as highlighted by the European Commission.
Romania has reduced the cyclically-adjusted deficit from 5.2 percent of GDP in 2020 to 3.3 percent in 2011. Pensions have started to be linked to the inflation rate, rather than two wages.

Furthermore. The financials sector is stable, increasing their capital, with the average solvency rate reaching 14.2 percent, way above the mandatory 8 percent threshold. In addition, the labor market has been improved through the implementation of the new Labor Code. The absorption rate of EU funds will also be enhanced by the set up of the new European Affairs Ministry. However, Romania failed to progress in the education system.

How can EU member states get out of debt
George Pagoulatos, Professor of European Politics & Economy at the Athens University of Economics, explained the main avenues allowing the EU to release from the debt pressure.
One solution would be to pursue economic growth, but the EU economy is largely based on services, with an aging population, incapable of growing further on credit. According to Pagoulatos, the EU Economy is trapped in a juncture of stagnation and recession. Hence, the exports as a growth strategy will be seriously undermined.

Secondly, states can pursue fiscal discipline and consolidation. As the effort to raise taxes in recession is counter effective, states should tackle the fiscal evasion by expanding the tax base and removing tax avoidance. A more fair distribution of the tax burden can only bring about the much sought after economic growth.

Flaws in the architecture of fiscal rules in the EU allowed Greece to build up huge deficits. Moreover, financial and real estate bubbles built up in Spain and Ireland. Pagoulatos explained these two states saw the private debt turned into public debt.

The Greek professor added that the EU didn’t impose fiscal sustainability, allowing current account deficits in the south and surpluses in the Northern states.

The European Commission has already given a green light for the taxation of financial transaction, expected to come into effect from 2014. Moreover, the EU should also put barriers between retail and investment banking. Also, banks in danger of failure could be nationalized.

Mathias Oel presented an economic scenario for the EU: the growth pace will continue to slow down, forcing member states to keep a balance between austerity and stimulus, in order to avoid a double dip recession.

Oel mentioned that EU member states should consider raising the retirement age and reducing the tax burden on labor, as solution to the high level of national debts.    

Ovidiu Posirca

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