Daily Management Review

A Headache for the EU and Investors is Being Posed by Romania


02/07/2017




A Headache for the EU and Investors is Being Posed by Romania
While asking the Romanian government to increase transparency, both European Union officials and investors have raised concerns over corruption in the country.
 
This followed the government scrapping the constitutional changes to make null and void government's plans to tinker with the constitution so it would make it easier for people to get away with corruption after half a million people took to the streets of Romania over the weekend against the government's plans.
 
However, claiming they have lost trust in the government, protestors did not go home even after the month-old government announced the scrapping of the constitutional changes.
 
For crimes involving corruption and make it more difficult to charge public officials, the new center-left government wanted to implement judicial changes that would reduce prison sentences.
 
"The government in Romania now has reversed its plans but the events clearly show that the process of reducing corruption in Romania still remains far from over," Arko Sen, director at Bank of America Merrill Lynch Global Research told CNBC via email.
 
He added that the recent events add "to the generally negative trend in Romania's credit risk profile over recent years."
 
"We remain bearish on Romanian bonds," he said.
 
The socialist party will make use of its parliamentary majority to ease corruption checks, believes some analysts despite the government backtrack.
 
"The determination of the PSD-led government to charge ahead with the contentious criminal justice reform in disregard of widespread public discontent and political opposition sets a scene for tumultuous period ahead, highlighting a risk of further deteriorating operating environment," Andrius Tursa, advisor on central and eastern European issues at Teneo Intelligence said in a note last week.
 
"The fight against corruption needs to be advanced, not undone," the European Commission, the European Union's executive arm, said on Monday. The developments in the eastern European country have drawn out "great concern" from the top EU officials last week.
 
Negative implications on the broader economy and investor trust and relations with the EU would be severely impacted by the stance of the Romanian government, according to Zsolt Darvas, senior fellow at Bruegel.
 
Compared to 2016, Romania would grow at a slower rate this year, forecast the Commission in its autumn economic forecasts. Compared to 5.2 percent in 2016, it projected a 3.9 percent gross domestic product for 2017.
 
After putting through constitutional changes that affected the judicial system, some tensions with the Commission have also been developed by Poland, another eastern European country. To ensure its changes to the constitutional court would not affect democracy, the Polish government is in talks with the authorities in Brussels.
 
In the recent years, strong growth figures have been registered by both countries. Nonetheless, there wasn't a single regional assessment of opportunities there when it came to Eastern Europe, investors said.
 
"We would not generalize from events in Romania to the region. For example in Transparency International's corruptions perceptions index Poland stood 29th while Romania is at 57th place. Investors are likely to differentiate significantly between different countries in the region. In Poland after the post-election uncertainties that began in 2015 we think the tide is turning more positive as inflation recovers and the undervalued currency remains attractive," Sen from Bank of America said.
 
(Source:www.cnbc.com)






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