Romania still doesn’t have any Competitor in South Eastern Europe

I am tested, these are my answers (part 2)

Today I continue my reply to the reader who challenged me. If you want to see the first part of  the answer, together his comment and questions, press here.

The fundamentals of Romanian economy are healthy
Let us talk about the trade deficit. Please find for me a country which does not have this problem, except China, Germany and few more. USA and almost all European countries are in the same direction since we know this world. Especially Romania requires a deficit, so as to invest and catch up the rest of Europe. I would tell you that the problem is not the deficit itself, but the fact that a serious part of it represents stupid consumption, invested in all categories of luxury by people who simply can not afford it (This is why a decline of leu would block this consumption and practically cut off part of the deficit).

For me, the Romanian trade deficit should is necessary, but under control
Romanian economy, either you like to believe it or not, is one of the healthiest European economies today. The total volume of government loans is very low comparing to the GDP (around 35%, while in Italy and Greece it is around 100% and in most of the other countries between 50 – 80%). Also, the increase of GDP by around 9% this year and around 5 – 6% in the next four years is a guarantee that this situation will remain like this, something very important in a period that all the nations have serious trouble due to the Credit Crunch (you heard about the measures on Sunday, soon you will find out what these measures mean for your pocket). No one will die by an inflation which is +2% than the rest of Europe.
There is an economic strategy which focuses on the low inflation and the elimination of the trade deficit, but does not care about the evolution of economy and the happiness of the people (like the measures that the International Monetary Fund keeps asking and Romania is one of the last countries in the World which even pays attention to these guys). The results of this strategy had leaded endless number of countries to bankrupt, with the latest example the countries of Latin America in the late 90’s and the beginning of this decade. In my opinion, in countries like Romania we need trade deficit in necessary, but it has to be under control, because we can not sentence to death one generation of poor people, asking them to wait some decades until we will create enough wealth for them to share too. Trade deficit and black economy was, is and will be the “sponsor of the poor”.
On the other hand, the Romanian State’s income reaches every year a new record, which means healthy economy and the society’s ability to contribute more taxes (plus the correct way the Foreign Direct Investments were invested). The European Funds did not really start to be absorbed yet, which means that Romania remains a country with a “weapon” of around 30 billion euro until 2013. This year the Foreign Direct Investments reach 10 billion euro, covering half of the deficit. Yes, you are right, the Fiscal Policy is pro-cyclical. Do you really estimate that Romania, a country which will double its GDP in the next 5 years, will have a problem of tax collection?

Romania still does not have any real competitor in South Eastern Europe
Romania (because of luck? Good strategy by its politicians? Decision of someone else? It doesn’t really matter, whatever your opinion is) has managed to become a part of European Union. Today, with the biggest financial crisis since 1929, European Union will not probably welcome another member in the next 2 – 3 years. Based on this fact, please let me know which country of South Eastern Europe is able to compete Romania. Here you have:

• A big country
• In E.U.
• With 22 million citizens
• Some more around the world
• A healthy economy (except if its politicians decide to commit suicide, but I don’t think this is the case)
• Very good “investor friendly” business environment
• Super safe
• With its Real Estate market in the very beginning, covering just a small part of the needs of hundreds of thousands of families.
• With its citizens thirsty for improving their status of life (yes, I am the first one who says that many of them try to improve this status in the wrong way, but still the trend exists).

Please give me one more country in E.U. with this potential and I will move there tomorrow morning…

Who can borrow leu, buy a property and pay the huge interest?
Regarding Romanians having borrowed money in euro currency, so as to buy their homes… Why do you consider this so bad? Because euro will increase by another 10 – 20%? Ok, even if this will happen, what is better? To take a 100.000 euro loan, with an interest of 8% and to be obliged to return back the equivalent of 110.000 – 120.000 euro? Or to take a loan in leu, let us say 400.000 leu, with the interest of 12 – 15%? Who will pay more in 20 years time? The one who borrowed euro with a low interest (which in few years will be lower, as euribor will go down sooner or later) or the one who borrowed ron and in 4 years time the amount will be almost double, because of the huge interest?
Why don’t we admit that today euro is the unofficial currency of the country, with most of the prices expressed and paid in euro, the billions that the emigrants send home in euro (or dollars) and the whole system calculating all costs in euro? If the interest was the same, I would agree with you. But with over-double interest, I find it more reasonable for someone to buy a property with a loan expressed in euro currency (ok, I will also agree that it is a matter of his job too, his financial status in general, his perspectives about life etc, but in the vast majority of the cases, euro is better than ron).