Bulgaria, Romania in EU -- Good for Eurofunds, if it works
January 10, 2007

This month, Bulgaria and Romania became the newest members of the European Union (EU). Amid the celebration, there is also concern that the EU is not yet stable enough to integrate these two impoverished countries.

Combined, these two countries have a population of 29 million and a GDP of $125 billion (as of 2005). However, while the population represents 6% of the EU’s total of 450 million (not counting the new members) their GDP is less than 1%.

Furthermore, they both have current account deficits, adding to Europe’s own, and their inflation rates are higher. Add to that concerns about corruption and crime within the economic system, and it is easy to see why many in the EU are concerned about their destabilizing influence. (Source: IMF World Economic Outlook Database).

What the accession of Bulgaria and Romania means:
To be members of the EU, these two ex-communist countries must be able to:

• Guarantee democracy, rule of law, human rights and the protection of minorities.
• Operate a functioning market economy that can survive effectively with other, much more developed countries within the EU.
• Work towards adopting the euro, which means lowering their current account deficits and controlling inflation.
• Although not specifically mentioned in the 2003 Council decision , these countries are rife with corruption and organized crime. Their ability to comply with the Decision decrees means they must eliminate this entrenched lawlessness.

If, however, they are successful, their EU membership will achieve three major successes:

1. It will lift their populations, which consist of Romania / Gypsies, out of poverty.
2. It will show other EU members that the Union can tolerate their low-income neighbors to the east. This could potentially be good news for Turkey’s desire to join the EU.
3. It will invigorate the EU economy itself, which suffers from an aging workforce and the slower rate of growth endemic to developed nations.

Action steps:
Continue to maintain a healthy allocation of European mutual funds -- and monitor the success of these new EU members.

Source: Council of the European Union, Council Decision of 19 May 2003 on the principles, priorities, intermediate objectives and conditions contained in the Accession Partnership with Bulgaria and Romania