Romania is blind to its severe economic condition, European socialist vice president says

Romania's economic situation is much worse than the Bucharest government seems to realize, one reason being the large sum of money spent before last fall's elections, which widened the budget gap, declared for NewsIn Hannes Swoboda, vice president of the Socialist Group in the European Parliament.

In an unsuccessful attempt on February 9, Austria tried to introduce on the agenda of the council of finance ministers a bailout plan to prop up banks in Eastern Europe, including countries like Romania and Ukraine, according to NewsIn correspondent in Brussels.

But the plan failed because it did not attempt to attract also the central lenders of the targeted states, leaving the impression that it only addressed banks with Austrian capital, according to Swoboda.

The Austrian MEP considers the problem is the fact that some countries fail to realize the desperate situation they are in. For instance, Romania is much worse than it might look like to the authorities.

The budget deficit widened from 2.5 percent in 2007 to 5.2 percent of the gross domestic product (GDP) in 2008, which is a quite common situation after the elections, when a great amount of money is pumped.

The Austrian Finance Minister Josef Proell is expected in Romania tomorrow as part of a visit to Eastern European states to ask for support for a bailout of banks in the region.

The Austrian official will meet today with the finance ministers of Croatia and Turkey and tomorrow he will have talks with his Romanian and Bulgarian counterparts. Austrian banks are among the largest on the market in all these four states.

The Austrian initiative urges the European Union (EU), the lenders' countries of origin and the emerging states to supply additional funds in an attempt to avoid a potential banking crisis.

But Austrian chancellor Werner Faymann was not received with great enthusiasm last week by his German counterpart Angela Merkel, who stated that no additional financing was required. The same opinion was shared by Czech premier Mirek Topolanek, which currently holds the EU's rotating presidency.

Germany is less affected than Austria by the financial turmoil, despite holding many banks with high exposures in Eastern Europe. Moreover, as one of the main contributors to the EU budget, Berlin is rather skeptical when it comes to European financing.

The Czech Republic's stance on the subject can be explained by a relatively stable economy and banking sector, as well as the state's position as a mediator given that it holds the helms of the EU presidency.

Romania's president Traian Basescu also stressed last week his country cannot afford to support subsidiaries of foreign banks and Western owners together with the EU should provide the funds needed to prop up the lenders.

The largest banks by assets on emerging European markets are the Italian group Unicredit, Raiffeisen International and Erste Group of Austria, France's Societe Generale (SocGen) and Belgian KBC.

The Erste Group announced yesterday it decided to allot 480 million euro for the partial amortization of its commercial fund in Romania.