Europe’s Fastest-Growing Economy Could Be Headed For Trouble

How can a country have the fastest-growing economy in Europe and at the same time be heading for an economic crisis? Well, take the case of Romania. Its government is handing out salary raises like candy and encouraging consumer spending, in a populist attempt to maintain the people’s approval. Just by doing that it’s cutting, for instance, infrastructure investments, thus affecting the business environment. Entrepreneurs find it difficult to move their merchandise across the country when there are almost no highways to operate on.

Moreover, successful foreign investments happen in a country that is sure to be corruption-free. The National Anticorruption Directorate, “an agency created more than a decade ago, as part of Romania’s successful campaign to join the European Union”, is doing a fairly good job at that, putting away tainted members of parliament and ministers. And by doing this, they have become a target of the corrupt government, which tried this January to pass a decree that barred prosecution for corruption activities involving sums less than about 45,000 euros. After massive demonstrations at the beginning of the year — the biggest since the 1989 revolution — the decree was dropped.

The hassle from the government is continuous, and concerned citizens need always be alert, lest laws are changed overnight. The tax code has, however, been modified almost two dozen times this year. Companies cannot keep up with this confusion and are also reluctant to make long-term decisions regarding their businesses.  

Whether all the pay raises and tax cuts will leave Romania indebted and facing a Greece-like situation is something worth keeping an eye on.