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Greece: Romanian lessons
Greece: Romanian lessons
Financial Times

The public offering for half of the Romanian government’s remaining shares in Petrom, the former state oil monopoly, is another stepping stone in what has been a remarkable economic turnround. The sale of the government’s family silver has been painful, but not as tough as the budget cuts following a €20bn rescue package in 2009, including big reductions in social transfers and an incredible 25 per cent slashing of public sector wages.

The bitter medicine is working. That should encourage hopes that its wealthier and more westernised Balkan counterpart, Greece, can cut its way out of a budgetary trap in a few years. (Some Greeks do not like to be considered “Balkan”, but despite the glories of ancient Hellenes and a more advanced tourist industry, geographically and historically Greece is more Balkan than Romania.)

Balkan bounce

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Romania’s budget deficit was 7.4 per cent of output in 2009 when it needed a rescue, just half of what Greece’s gap was later revealed to be. Romania’s economy contracted by over 7 per cent that year but has now climbed out of recession. The budget shortfall is expected to have halved by next year from its peak. The moves were deeply unpopular but salvation is in sight. And Romania, like Greece, has to deal with rampant tax evasion, demographic challenges, chaotic politics and a legacy of socialist economics.

Can Athens do the same? Romania had two big advantages – a currency that could be depreciated and gross debt a sixth as high relative to output. But on the other side, Greece benefits from the grievous possible repercussions of a default; it is receiving a far larger bail-out, relative to the size of its economy.

Pessimism about Greece’s ability to avoid default is based on social judgments as well as mathematical calculations. Romania’s recovery gives hope that, even in the Balkans, where there’s a will there can also be a way. Test

Greece: Romanian lessons