Romania – the most precious asset due to the (temporary?) position on the European scoreboard

de Marin Pana | 12.12.2016 .

euro-mecanismAccording to the Eurostat certified data, Romania met last year 13 of the 14 indicators set for the dashboard of the macroeconomic situation of member states.

In terms of economic balances, we rank 2nd, tied with Poland and behind the Czech Republic, the only country that successfully met all the requirements imposed by the procedure for macroeconomic imbalance.

The Macroeconomic Imbalance Procedure (MIP) is a supervisory mechanism aimed at early identifying the risks of macroeconomic instability in a country and correcting them. Precisely the stable position that we hardly won in the recent years by meeting almost all criteria required made us attractive, beyond the well-known deficiencies that we have in infrastructure and the functioning of the business environment.

First, a few technical explanations

The scoreboard that initially included ten indicators considered essential to describe the evolution of a national economy. They increased later to 11 and currently there are 14 performance criteria used for warning on potential problems; problems that might underlie a move to a more thorough analysis for the states where that is a need.

Besides the preventive side, MIP also comprises a corrective aspect translated into the Excessive Imbalance Procedure. Under this procedure, there is a series of gradual measures taken for bringing the key indicators within the accepted limits and they might extend to applying sanctions to the Eurozone countries, if they repeatedly violate the recommendations.

The mechanism for monitoring the potential macroeconomic issues has been established in December 2011 as part of the so-called “six-pack” package. It is noted that the assessment of whether a country falls within the limits set is based on an analysis that takes into account the correlations of the moment, by separating between the benign slippages and those having potential to escalate and cause systemic shortcomings.

The European Commission can approve preventive recommendations to the member states, in accordance with Article 121.2 of the EU Treaty even in the early stage of the imbalances, before they develop. Recommendations can be made at the end of May each year in the context of the so-called European Semester for coordinating the economic and budgetary policies at the EU level.

A member state that falls under the macroeconomic imbalance procedure must submit a corrective action plan comprising clear objectives and deadlines. The implementation of this plan will be monitored and recorded by regular reports. A first failure in achieving the objectives is to be sanctioned by opening an interest bearing deposit that can turn into a fine.

What the scoreboard indicators are and how many countries are within the limits required

The 14 indicators initially set for the scoreboard refer to:

  1. External and competitiveness imbalances:
  2. The average current account balance of the past 3 years (allowed values between -4% of GDP and + 6% of GDP)

Noteworthy is that 5 countries do not comply with this criterion, but three of them because they have a too large surplus from the foreign trade (Netherlands with + 9.1%; Denmark, with + 8.8% and Germany with +7.5%). On the opposite side are the UK with -4.8% and Cyprus with -4.1%. Romania registered -1%.

  1. Net international investment position (liability stock below 35% of GDP)

No fewer than 15 EU countries fail to meet this criterion, because of the substantial foreign investment and their own relatively low investment in other countries, including Romania (-51.9%). This is the criterion where the Czech Republic narrowly surpassed us, a country that reached -30.7%, while Poland is a little weaker though than us, with -62.8%.

  1. Change of the effective real exchange rate in the last three years compared to 42 foreign trade partner countries (between -5% and + 5% for the Eurozone and between -11% and + 11% for the rest of the EU member states)

Five countries fell outside the required limits, including the UK that exceeded a little the limit with + 11.3%, but the pound devalued in the meantime, and Estonia with + 6.4%. At this criterion, Romania has an optimum level of + 2.7%, while the other 16 countries that met the criterion were within the negative range.

  1. The share of country exports in the world exports to not decrease by more than 6% in the last five years

Surprisingly, 11 EU member states have not passed this criterion (including Belgium, Denmark, the Netherlands, Austria, Sweden and Finland, which marked a value of -20.5%, almost identical to the red flashlight Greece, with -20.6 %). Romania is again very well, with + 21.1%, which would be the best performance in the EU if we excluded Ireland’s statistical adventures, of little relevance, and a mini-country as Luxembourg. Maybe we should be more attentive to this aspect, to value correctly what brought us out of the crisis and recalibrate again the growth from the domestic toward the foreign markets.

  1. Nominal unitary costs of workforce (expressed as a ratio between the average pay of an employee and real GDP divided by the number of employed people) to not increase by more than 9%, for the Eurozone countries, and 12% for the rest of the EU members, over the last 3 years.

Only four countries have not done their homework at this chapter, namely the Baltics and our Bulgarian neighbours, accidentally or not all of them being connected to the euro currency as fixed baseline. Unfortunately, although we took a correct decision at the time of the crisis in 1997 – 1998 for the controlled leu floating regime, it seems that now we want to jeopardize this indicator through the populist measures adopted lately.

  1. Internal imbalances:
  2. Real increase of housing prices (below 6% per year)

Six EU countries fail to meet this criterion, the highest increases being registered in Sweden somewhat naturally, by 12.0%, but carefully, also at our Hungarian neighbours, by + 11.6%. We are for now at + 1.7%, but the increased revenues of the households could change the situation quite quickly.

  1. Private flow of credit, consolidated (below 14% of GDP)

Only Luxembourg does not fit this criterion and we are at + 0.2%.

  1. Private sector debt (allowed level of below 160% of GDP)

13 countries do not fall under this level and the private sector’s over-indebtedness is obvious in many Western economies, including France, the Netherlands, Spain, Sweden, Finland. Romania is at 59.1%.

  1. Public debt (below 60% of GDP)

With 37.9% based on the European methodology, we are apparently well at a criterion that raises the biggest problems in the EU. No fewer than 17 states do not meet the requirements, including Germany, with 71.2%, despite the efforts made in the recent years to reduce public debt against a background of a current account surplus of over seven percent of which we can only dream. Therefore, we should hold on this asset that we have, but that would require a budget deficit of maximum 1.8% of GDP (according to the EU estimates) to not unleash the increase of public debt.

  1. Average unemployment rate (recent three-year average below 10%)

12 states do not fall under this threshold, while we are at a reasonable 6.9%.

  1. Total liabilities of the financial sector, non-consolidated (change from the previous year below 16.5%)

All EU countries meet this criterion, even Greece, at a pinch. We are at + 4.1%.

  1. Employment indicators
  2. Total activity rate for people aged between 15-64 (3-year change below -0.2%)

The situation based on this criterion also looks good across all member states, with Romania being at a fair level of + 1.3%.

  1. Long term unemployment, as% of active population aged between 15-74 (3-year change below 0.5%)

7 member states do not comply with this requirement. Romania is on a stationary position with 0%.

  1. Youth unemployment, as% of active population aged between 15-24 years (3-year change below 2%)

Only 3 countries do not fit with Italy and Cyprus having an increase by about 5 percent, and the surprising occurrence of Finland (+ 3.4%). As for us, although we meet (yet) this criterion, the figures from the previous two criteria explain the minus 0.9 percent that illustrates the evolution for the future in terms of economic growth and higher pensions for the elderly.

Situation of the EU countries based on the requirements of the macroeconomic scoreboard:

  • 14 of 14 – the Czech Republic
  • 13 of 14 – Romania, Poland
  • 12 of 14 – Germany, Slovenia, Slovakia
  • 11 of 14 – Austria, Sweden, Luxembourg, Malta, Croatia, Bulgaria, Latvia, Lithuania
  • 10 of 14 – France, Spain, Portugal, UK, Denmark, Estonia, Hungary
  • 9 of 14 – Italy, Belgium, Holland, Finland
  • 8 of 14 – Ireland *, Greece
  • 5 of 14 – Cyprus

* Eurostat discount data on Ireland

Altogether, we marked a very good evolution in 2015 and we should keep these balances at all costs to a level that would make us attractive for investment and support a long-term robust growth.

Unfortunately, given a partially incompetent political establishment, partially irresponsible, we move – because of the populist measures taken last year and this year – towards reactivating certain imbalances that can put us out of the path.

Publicat la data de 12.12.2016 .

Lasa un comentariu


SIMILAR ARTICLES

Marin Pana

Adapting Romanian production to increasing incomes – rapid development and trade balancing are at stake

Romania is increasingly specializing in the extremes of the demand range High-quality products for the foreign markets or parts incorporated at low prices in quality products marketed as final products in other countries Along with products at a modest level of quality and moderate price for the domestic solvent market In other words, we exploit small gaps identified among the already ...
Read more »

Cristian Grosu

Cristian Grosu / Why Romania is doomed to improvise: Unproductive Romania and delirium of decision makers

  It is not that, after a fashion, we have something to cook every evening – us, employees, entrepreneurs, decision makers, plits (politicians for life, irrespective of their skills) or just spectators: but that is (INCREASINGLY!) difficult for Romania to become a productive country in the strict sense, because the context of our economic game requires a visionary conceptualization ...
Read more »

Mariana Bechir

DESI 2017, Romania: Best Internet speed, but ranking last in EU in terms of using it

The European Commission has published the Digital Economy and Society Index (DESI), 2017 edition, which shows that the only thing that Romania prides itself, namely the Internet speed, is not enough for our country to move from the traditional last position in the EU ranking Romania ranks 28th in DESI 2017 The report says: "Romanians benefit from coverage of fast broadband connections in urban ...
Read more »

Mariana Bechir

State, as employer in capitalist Romania: a different analyisis of private economy

Who keeps alive the economy, administrative systems, budgets of all kinds - from the investment to pension budget - and ultimately the whole society The answer to this question - that should be simple: private economy - looks more like a patchwork than it should There are entire areas of the economy where the state is the employer without which nothing moves And "the private ...
Read more »

Marin Pana

Warning (detailed) for lucid ones: 4.8% – highest growth in Europe – NOT based on something tangible: Industry contributed 0.4%, construction 0.1% and agriculture nothing

The National Institute of Statistics (INS) confirmed the last year's economic growth at 48%, the first preliminary version published after the initial forecast announced as a signal (We remind that the second preliminary version is to be announced after about a month and the semi-final version after one year, while the data will remain "set in stone" only after two years, in their final ...
Read more »


NEWS

IMF mission concluded consultations in Bucharest – Government’s options

The IMF mission concluded Thursday a 7-day visit in Romania in the annual process of consultation under Article 4, after a small delegation came to ... Read more

Romanian leu depreciated to reach 4.5654 lei/euro, record level of last four and a half years

The reference exchange rate announced Friday by BNR was 4.5654 lei/euro, 0.3% more than the level reached in the previous session and a maximum level ... Read more

Liviu Voinea (BNR): 7,000 notifications on debt to equity swap, by February; loans amounting to 2 billion lei

The number of notifications registered under the Law on debt to equity swap reached to 7,000 at the end of February, representing total loans amounting ... Read more

Siegfried Muresan: Romania should make joining Schengen a condition to accept two-speed Europe

Member of the European Parliament Siegfried Muresan (photo) said in Strasbourg that the idea of a multispeed Europe is not wrong altogether, and Romania should ... Read more

Valentin Lazea: Absorption of EU funds could lead to a 4.5% increase of potential GDP

The International Monetary Fund (IMF) told the officials of the National Bank of Romania (BNR) that a 95% absorption of the European funds would lead ... Read more

Investigation on record high prices on energy market: 440 million lei in losses generated by seven to eight traders. Guilty ones lose their licenses

Seven or eight energy traders generated total losses of 440 million lei to the suppliers of last resort and the network operators, losses that will ... Read more

ANAF announces a campaign to control compliance of tax declarations

ANAF announced Thursday that will launch inspections starting in April that will include institutions from the financial and banking sector, with the aim of checking ... Read more

Romanians pay among the highest utility costs in Europe, by reference to their income

Romania ranks second in the ranking of families from the European Union who spend more than 40% of their income on home utilities (electricity, gas, ... Read more

Hourly labour cost increased by over 12% in Q4 2016 compared to 2015. Higher earnings in healthcare and education

The hourly labour cost in adjusted terms (by the number of working days) registered an increase of 12.33% in the fourth quarter of 2016 compared ... Read more

Emergency measures to control deficit: Minister of Finance blocked recruitment for budget institutions and halted promotions

Minister Viorel Stefan (foto) urged to keep the deficit under control. In the midst of the discussion about the increased salaries, government officials turn off the ... Read more

Ministry of Finance, investigations on misleading and comparative advertising

The Ministry of Finance announced Wednesday that it has started an information and verification campaign on a sample of 447 firms that sell food, beverages, ... Read more

Budget implementation of January 2017 - 5.7% lower revenue and 3.5% higher expenditure compared to January 2016

The Ministry of Public Finance published Monday the report on the implementation of the consolidated general budget for January 2017. According to the official announcement, ... Read more

Romania, Hungary and Slovakia are competing for an EUR 200 million Mitsubishi investment 

After Renault, Ford and Daimler, another big car manufacturer intends to establish an engine factory in Romania: the company is Mitsubishi, announces ProTV. According to ... Read more

2017 started with a decreasing confidence in economy and leu, according to CFA Romania Index

The index of macroeconomic confidence has declined for the second consecutive month, down to 54.9 points in January 201, of 100 points in total. “The ... Read more

One of 102 taxes eliminated is back: Daniel Constantin announces new version of car pollution tax

Daniel Constantin probably has not read the program of the PSD government The Minister of Environment Daniel Constantin (foto) announced on Tuesday that, probably next ... Read more

Competition Council investigates why fuel prices in Romania exceeds the EU average

The Competition Council has launched a sectoral investigation on the fuel market, to analyse why the prices in Romania are above the EU average, said ... Read more

2017 European Semester, analysis on Romania: growth above potential, worrying deficit estimates

Despite Romania’s progress in implementing the recommendations of the European Commission (EC), “the structural challenges may dampen the medium-term outlook,” mentions the report on Romania. ... Read more

2017 trends : Bucharest Stock Exchange indices hit new 5-year highs. BET exceeded psychological threshold of 8,000 points

The most important indices of the Bucharest Stock Exchange (BSE) registered new 5-year high Wednesday at noon and continued the favourable trend of the last ... Read more

World Bank, interested to support founding of Sovereign Investment Fund

Alexandru Petrescu, Minister of Economy The World Bank is interested in the announcement that Romania plans to establish a Sovereign Fund for Development and Investment ... Read more

Memorandum: Sovereign Fund to be financed from selling shares of state companies and bonds

To obtain financing, the Sovereign Fund for Development and Investment (FSDI) planned by the Government will sell shares in the state companies received in its ... Read more