The efficient use of the European funds is essential

• Interview with Niculae Idu, the head of the Representative Office of the European Commission in Romania

Reporter: How would you describe the current situation of Romania from an economic point of view? What are the expectations of the Commission relating to the Romanian economy in the second half of the year?

Niculae Idu: In terms of the measures intended to bring about fiscal consolidation measures and reduce deficits, the evolution is good. The programs agreed upon with the international financial institutions have produced positive effects in that regard. This was precisely the objective of those programs. Of course, now comes the second part, in which we must move from the austerity measures, of fiscal consolidation, to measures intended to stimulate economic growth.

The expectations, which were slightly more optimistic in the beginning of the year, became less so in the spring forecast the EC. At the time the estimated growth for this year was 1.4-1.5 percent for this year. Corrections will probably continue to occur, because certain developments in the EU create concerns over its weaker member states, among which we could include Romania as well. In other words, we can say that, although progress has been visible in the process of fiscal consolidation and correction of the imbalances, Romania's economy remains fragile, exposed to potential shocks that may come from the Eurozone or, more specifically, from its vicinity with Greece.

The positive economic growth forecasts this year rely mainly on stimulating domestic consumption, and less on exports, as was the case last year. It remains to be seen what the 2012 harvest year will be, the 2011 harvest year had an important role in the 2.5% growth we had last year. The fact that we changed the government twice this year, and the fact that we are in an election year are taken into consideration when making the forecast. But I do not think we will have any unexpected downsides, and this means keeping the budget deficit, which will not exceed 2.3%-2.4% of the GDP, under control. Also, I think there will be initiatives to stimulate the creation of jobs. The former should also rely on the attraction of European funds, which should be the main engine behind the economic growth this year. We also hope that the European leaders will send confidence-generating signals to the markets, and that the EU economy will move towards a positive growth, if not for the whole year 2012, at least for the end of the year and for next year.

Reporter: What is the current stage of the implementation of Romania's convergence program for the 2011-2014 period? What about the National Reform Program for the 2011-2013 period?

Niculae Idu: The key element in both programs is the need for structural reforms. In some areas, such as the price of energy, the Commission welcomed the fact that a few liberalization measures have been adopted. But there are still elements which need to be implemented. In other sectors, such as transport, structural reforms left to be desired. It is also important to stimulate sectors which the EC considers to be key elements for stimulating economic growth, primarily in the services sector. To do this we need a "smart" fiscal consolidation, in other words friendly to the investment process, that is, we need to continue the process of fiscal consolidation, without adversely affecting potential growth in the sectors related to the new industrial paradigm, based on the "green" economy. This means that austerity measures shall not be applied in a linear fashion, in all areas, but rather we need to select and stimulate those areas which have great potential for growth. In Romania it has been said that there are two sectors that could be economic pillars, namely agriculture and tourism. I have a few doubts in that regard, in particular with regard to agriculture. Not only in Romania, but in the European Union as a whole, its share in the GDP tends to diminish. It remains, however, a sector of great importance, not only from the perspective of providing food, but also when it comes to ensuring the means of subsistence for part some of the people living in rural areas. As for tourism, there is a need for upstream measures, which should come before those intended to stimulate activity, measures to create the necessary infrastructure, a slightly more aggressive and PR campaign, more focused on Romania's resources. Other important aspects concern the deficit of the Retirement Fund and the high rate of unemployment among young people. These two problems must be addressed on national level in order to achieve a vision by which Romania would reduce its deficit of the Pension Fund and to achieve the integration of the young graduates on the labor market. Although the situation of unemployed youth is not as serious as in other European countries, a national ratio of 23% gives us a serious reason for concern, and could cause young people to become seriously disenchanted with society. The European Commission has proposed a package of measures which explicitly provide that, within four months after graduating from any type of school, young people should receive an offer of employment, whether it be apprenticeship, continuing with their further education, in order to get involved in an activity which would give the sense of continuity and of closeness to the moment of entering the labor market. These measures must be implemented in partnership between the Government, local authorities and the social partners. Here we have to deal with a thorny issue. There is a lot of talk about the importance of trilateral dialogue between the Government, employers and trade unions, but it only happens on a central level, and it does not extend to a regional level. However, the hardest battle against the crisis is being fought on a regional level. So the next step is to apply the measures to stimulate economic growth locally and regionally. In Romania there is a regional development law and mechanisms to stimulate the formulation of policies in that regard, but, unfortunately, they have become less active and I think they should receive a boost.

Reporter: Is there a risk of Romania losing part of the European funds allocated during the 2007-2013 fiscal year?

Niculae Idu: This risk does exist, but the odds of it becoming real depends on many factors. We will have a crucial moment, at the end of June, when we review the measures adopted by the Romanian authorities following the observations made by the Romanian Audit Court. First of all, they concern the manner in which the Law of Public Procurement is applied, and on the other hand by the new regulations in the area, which concern the conflict of interest, and other elements which have been established as being irregularities in the unfolding of these programs.

From a functional point of view, it is important for the list of priorities which was set at the government level to represent the key elements on which to focus attention. Because energies dissipated across a very broad front reduce the odds of progress of the important projects. Projects which represent priorities need to have more human resources allocated, funds-for pre-financing and co-financing, and in certain cases, measures of a legislative nature.

So, the crucial moment is at the end of June. If at that time, things will be corrected to an important degree, the danger will not yet be completely gone, but it will have been pushed further away, and after that there will just be measures adopted in order for it to be kept away. Still, the possibility of fully spending the allocated funds for the 2007-2013 period is low.

Reporter: For the 2014-2020 period, does the possibility exist of the allocated funds to be reduced due to the weak performance from the period which ends next year?

Niculae Idu: We need to consider what the final objective of the use of European funds is. The goal is not to fully spend them. If we plan to do that, we allocate them to those sectors where we know they will get spent. Or, the programming of the use of European funds is made following other criteria, which are intended to stimulate the economic growth, the creation of jobs and eventually the rise in the living standard of the population.

For interim periods, we can also imagine situations where we can have some areas in which we would predominantly invest. But, for the long term scheduling, this is out of the question. We don't spend European funds just for the sake of spending it. Then we should act towards creating the conditions for the use of funds according to the programming which takes into account the aforementioned criteria. In the short term, we can finance specific projects which have a higher ability to use their resources, but in the long run, we can't, because such an action could create serious imbalances.

The essential problem at this moment is the efficient use of the European funds. By that we understand an entire set of criteria which, in turn, generate mechanisms of budget planning, mechanisms of implementation and evaluation. What is important is the response of the mechanism of implementation to the mechanism of evaluation. If they do not work, we will find that we are in fact spending inefficiently.

Reporter: What does the European Commission want to achieve by proposing the formation of a banking union at the level of the European Union?

Niculae Idu: The proposal concerning the European Banking Union is an important component of the new initiatives which deepen the process of European integration. This is part of a broader vision which also includes a European political union. On one hand, the banking union aims to achieve a more stable functioning of the banking and financial system, which would increase the confidence in the system, and on the other hand it looks to raise from the shoulders of taxpayers the burden of the recovery of the financial-banking system. Thus a series of proposals were made to restructure and resolve the system through the market mechanisms, and with the intervention of the state at certain moments which would determine the banks which have toxic assets and serious management problems to make the necessary corrections, but through market mechanisms, such as takeover of the banks, the use of bridge-banks and others like that, which would not involve government bailouts by default. Thus, the goal is to save what is good in a bank or in a banking system and to isolate the toxic elements, which would then be managed adequately and would stop affecting the system. The measure is set to be discussed in a broader context, of proposals for stimulating the economic growth, and we hope that it can be implemented in practice. The proposal concerning the banking union, as well as other proposals of this kind, were made by the European Commission one year and a half ago, but they have been ignored and eventually rejected by the member states. And here we are, after one year and a half, the member states seemed to have changed their view, to a degree. Things aren't simple, there is a degree of reluctance, but I do feel that more European integration represents the path towards the exit from the crisis and the stimulation of economic growth.

Reporter: Thank you!