This autumn, the economic programs with which the parties will go to the elections next year should be written. Next, I describe a policy that is necessary but unlikely to find political support or attention for a variety of reasons.

Current situation

Romania’s economy is in a very good state. We have economic growth (Q1 2.4%, Q2 1.1%) above the European average (Q1 1.1%, Q2 0.5%), inflation seems to be back under control (IPC, June 2022: 15.05%; June 2023: 10.25%) , unemployment is low (June 2023: 2.91%).

In general, Romania is doing relatively well, as recently confirmed by the Fitch rating agency, which maintained the rating as stable. Other rating agencies are likely to maintain the current rating.

In the regional comparison, Romania stands out according to the main macroeconomic indicators. Historical gaps with Hungary, Austria and Poland are currently narrowing.

But appearance is what it is, appearance. There are several main disadvantages:

1. Trade balance. A current account deficit and a financial account deficit mean that our economy depends on international financing. Whether we are talking about European funds, whether we are talking about public loans, private loans or international private investments, it is the flow of capital from outside that ensures the trade balance, which is always in deficit.
2. Budget deficit. Even the deficit target of 4.4% is at risk of being exceeded, with forecasts suggesting that a possible deficit could exceed 6%. If during the COVID period it was logical to have a deficit above 3%, now Romania is operating with a deficit reserved for periods of economic crisis.
3. Human resources. Emigration, declining birth rates, poor education and a host of other factors mean that Romania is experiencing a workforce crisis that is seriously reducing potential GDP.
4. War on the border. Like it or not, we are a country bordering a theater of war, which adds a level of near-term uncertainty, the possibility of war expanding or a large-scale humanitarian crisis, and uncertainty about what the end of the war might mean.

   At the international level, from an economic point of view, the signals are chaotic. According to some, the world’s major economies are doing well, according to others, we are seconds away from collapse. Strictly objectively, both approaches, although diametrically opposed, are correct. The major economies of the world, USA, China, Japan, Germany, India, UK, France, Canada, Italy, etc., have serious problems, some shared, some of their own, but they all have one bad solution from disaster.

   Probably, in the next ten years we will witness a change in hierarchies. China appears to be a threat to US leadership, but it is likely approaching peak dynamism when the generational change takes place, and it is possible that it will lose the context to achieve a leadership position. Japan, after a long period of stagnation, is reaching the limits of its capabilities and is likely to enter a decline in positions. Germany, Great Britain and France are small countries for a new level of competition. This has been known since the question of the creation of the EU arose, and what is happening now with Great Britain has confirmed it even more. Canada is now fueled by emigration, the resources of the vast territory it governs, but it has major problems with the real estate market, and as aggressive “progressivism” deepens, it is likely to become a very unattractive country.

   The only really dynamic country seems to be India. It has enormous potential, is likely to surpass China in population, and is absorbing technology and manufacturing capabilities at a remarkable rate. In fact, India is a very interesting economy at the moment.

   From the point of view of EU members, we must consider that the EU will soon be a market below the US, China and India, with a set of countries dependent on emigration, with birth rates below any level of alarm, with a generation of taxpayers retiring at the same time as paying off huge debts covered by the stagnation characteristic of paternalistic bureaucratic societies. The EU risks becoming irrelevant, outdated, with a dusty and disconnected agenda. The solution is not to leave the EU, but to try to find an agenda that solves the real problems and promote it at EU level.

   What should happen in the next 4-5 years?

   Known clear imperatives:

   1. Reducing the budget deficit. Romania must achieve a budget deficit below 3% of GDP. Unfortunately, reducing this deficit requires a series of unpopular measures, raising taxes and cutting government spending. Probably the smartest solution would be to raise taxes on public services rather than direct or indirect taxes on labor or capital. At least this way, citizens would pay for services, and not pay money for nothing. If the number of posts is reduced gradually through retirements and redistribution of work, administrative costs can be reduced without special legislation. Cost reduction in many areas involves revision of laws and computerization to make administrative processes simpler and faster. This is almost impossible to achieve in the short term, but it can and should be a long term goal. A lot of ink has been spilled on this topic, neurons have burned out, pixels and processors have consumed current, I don’t think I can come up with anything new, I can only repeat what someone or others have said. Maybe I’ll say what needs to be done, and no one dares.
   2. Reducing the trade deficit. Here it should be taken into account that there is no control over foreign trade policy at the level of Romania, it is the prerogative of the EU. There can be no protectionism within the EU. What can be done is to create a very favorable investment environment. I go back to a very old idea, let’s focus our efforts on “Doing Business” metrics. Any minute cut from the authorization period, any approval, any simplification of the investment process can have an exponential multiplier effect. I have repeatedly spoken on this topic, now I will not delve into it.
   3. Stimulating the development of human resources. In the short term, Romania should become an importer of labor. The legal framework and the administrative system must be revised so that expats find a favorable environment in Romania and stay here, instead of transiting to the west. But at best it’s a short-term patch. We only start talking about solutions when we see two main debates: fertility and education.
   4. Updating the national security system. For a country that is located on the border with NATO, it is necessary to modernize and update the armed forces, which means costs, but also the possibility of developing the sectors of the economy related to the defense sector. In the short to medium term, the existing security system is satisfactory, but in the long term, anything is possible. Not being an expert in this field, I can only say that the percentage of GDP allocated to defense should be higher than 2%, perhaps in the region of 4-5%, and that the vast majority of this expenditure should be a source of funding for the development of the domestic military industrial complex. We should have munitions factories, drones, vehicle production and maintenance, etc. Sic vis pacem, para bellum.
      

      Reducing the budget deficit-Administrative reform

      No one can start a serious discussion about administrative reform without instantly losing concrete (rather than declarative) political support. Reforms and reformism are declared, declared, but almost impossible to apply.

      While I realize that an initiative that includes the following ideas may not be supported politically, I will list some reforms that are necessary and have a significant impact on budget stability.

      1. Merger of villages and communes bordering cities with cities (bordering communes become suburbs). A significant number of town halls and some of the administrative costs associated with them will disappear. On the other hand, the management of the general problems of the urban agglomeration could be solved more efficiently.
      2. Collapse of communes with a small number of residents. Apparently, it is necessary to calculate the number of inhabitants of the commune that will be able to finance the administration. Such a measure can be achieved in two ways: either by establishing a minimum number of inhabitants (5-10-15,000) or by introducing a rule according to which any commune that cannot support itself financially within three years must be merged with a neighboring one a commune that can be effectively administered starting with the next election cycle. Thus, local residents who want a town hall are almost forced to pay taxes, and therefore demand less social assistance.
      3. Consolidation of counties either at the regional level or to achieve a minimum number of inhabitants (for example, at least 500,000-700,000). Unification at the regional level can only make sense when county councils and all county institutions are abolished, becoming regional, municipal or city. I do not think that the regional administration will be so close to the citizens as to be called a local administration. – Read the entire article and comment on Contributors.ro