Romanian economy fails crucial EU test due to lack of reforms

BRUSSELS (Reuters) – Romania failed yesterday to win the status of a «functioning market economy» in a crucial European Union report, highlighting the vulnerability of its ambitious bid to join the wealthy bloc in 2007. The annual European Commission progress report called on the country to speed up economic and other reforms to get the tag next year, when it plans to conclude membership negotiations. «Romania can be considered as a functioning market economy once the good progress made has continued decisively,» it said. «A vigorous and sustained implementation of its structural reform program is required for Romania to be able to cope with competitive pressure and market forces within the Union in the near term,» it added. The Commission said it still hoped Romania could make it in 2007 and Romanian Prime Minister Adrian Nastase kept a brave face. «We are aware of the need to continue economic reforms,» Nastase told reporters. «The European Commission makes clear that the objective of joining the EU in 2007 is realistic.» Romania must close negotiations next year to meet its 2007 entry target, which it shares with neighboring Bulgaria, already recognized by the EU as a market economy. Bulgaria was generally praised in the EU report but the reproach for Romania, the poorest among current EU candidates, could hurt its neighbor’s chances because the EU wants to admit both countries at the same time. «It is bad news for both countries. It may delay both countries’ entry,» a Bulgarian government official, who declined to be named, told Reuters in Sofia. Analysts say a delay to 2008 or 2009 would allow the ex-Yugoslav republic of Croatia, with which negotiations have not yet started, to join together with Bulgaria and Romania. «The 2007 target may prove too optimistic for Romania but not just because of the economy but other issues as well,» said Heather Grabbe from the London-based Center for European Reform. «In any case, Romania and Bulgaria may end up being influenced a bit by Croatia’s timetable,» she added. Romanian officials admitted that not getting the tag meant EU negotiations would be more difficult from now on, when the most difficult chapters such as agriculture and energy needed to be closed ahead of national elections in the autumn. Bucharest has so far closed 20 out of 30 chapters, and Sofia 26. Some analysts said not granting the tag was the EU’s way of ensuring Romania accelerates privatization and continues fiscal prudence. «It puts the right kind of pressure on the government to move a bit more quickly,» Philip Poole, an analyst with ING Bank in London, said. The report pointed out several problems – endemic corruption, the need to reform the administration and judiciary, and lack of reform in energy.