Resilient Romania Finds a Currency Advantage in a Crisis

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BUCHAREST, Romania -- When German de Marco's work dried up in beleaguered Spain earlier this year, the high-powered civil engineer never imagined that Romania, the European Union's second-poorest country, would provide his economic lifeline.

But after the Spanish government ran out of money and halted construction of the high-speed railway he was working on, Mr. De Marco, a 34-year-old Spaniard, found a job here supervising the building of a $90 million tramline. The rent on his apartment in an elegant neighborhood in the Romanian capital is half what it was in Barcelona, helping him save an extra $1,300 a month.

"When my boss suggested transferring me to Romania, I initially thought, 'You must be kidding,' " Mr. de Marco said. Yet, after eight months here, he does not want to leave.

Mr. de Marco's unlikely pilgrimage eastward underscores how many of the European Union's former Communist states are proving remarkably resilient in weathering the crisis. Those newcomers to the union have been conditioned by decades of hardship under the Kremlin's rule. But as the euro crisis has deepened, it has also helped that Romania and the others have kept their own currencies.

That has given these still-developing countries a host of advantages, while many economists believe the euro zone's one-size-fits-all monetary policy has hampered Ireland, Greece and Spain in restarting their moribund economies. Indeed, many of the post-Communist states are having strong second thoughts about their long-running goal of joining the euro.

Mugur Isarescu, the governor of the National Bank of Romania, said in an interview that maintaining its own currency had given Romania the flexibility to set interest rates, control liquidity and allow the currency to depreciate to help rein in the deficit. In the absence of control over monetary policy, he noted, euro zone countries like Greece are forced to rely primarily on fiscal policy: taxing and spending.

"Of course there is a backlash and disappointment because E.U. accession was seen as a panacea," he said. "The dreams were too high."

In Romania's case, maintaining its cheaper currency, the lei, has made its exports -- two-thirds of which go to the euro zone -- more competitive and given it a lower cost of living that has made the country a sudden draw for highly qualified workers from struggling euro zone countries.

Though millions of Romanians were streaming into Spain and Italy in search of economic opportunity only a few years ago, today Spanish unemployment hovers near 25 percent, while in Romania it is about 7 percent.

Seven of the 10 former Communist countries in the European Union have yet to adopt the euro. The Czech Republic, which uses the koruna, wants a referendum before joining and has cited 2020 as the earliest target date. Hungary has stuck with its currency, the forint, and said it would not adopt the euro before 2018. In Poland, Prime Minister Donald Tusk recently deemed the euro "completely unattractive."

Romania's previous target for joining the euro zone, in 2015, is now "out of the question," Mr. Isarescu said. Nevertheless, he argued that trying to meet the criteria to join -- including keeping budget deficits below 3 percent of gross domestic product -- was good discipline.

Though buffeted by the crisis, some countries in Eastern and Central Europe are holding up better than their neighbors to the west that have been joined at the hip by the euro. Poland's economy was the only one in the European Union to grow in 2009, the year the financial crisis exploded. The Baltic states of Latvia and Lithuania, which underwent painful austerity, are booming again. Even in growth-starved countries like the Czech Republic, the social upheaval has been tame compared with the likes of Greece, with Czechs far more likely to vent their frustrations in the pub than on the street.

"We in this region are used to living through difficult times," said Tomas Sedlacek, a leading Czech economist who was an adviser to former President Vaclav Havel. "We still remember Communism when we were poor and miserable and far worse off than Greece."

Of course, Romania has hardly been immune from crisis. Successive governments have grappled with a backlash against austerity. And the political turmoil that ensued when the government of Prime Minister Victor Ponta pressed, and failed, to impeach President Traian Basescu this summer shook investor confidence. It also called into question the future of a $26 billion rescue package from the International Monetary Fund, the European Union and the World Bank that Romania obtained in 2009 in exchange for drastic spending cuts.

The I.M.F. has since made available the latest tranche of about $650 million. Economists said Romania had avoided the profligacy that has unhinged the Greek economy, thanks in part to tough austerity measures beginning three years ago. Romania slashed public sector wages by 25 percent and raised its value-added tax to 24 percent from 19 percent, helping stave off budgetary shortfalls.

Romania's budget deficit amounted to about $2 billion, or 1.2 percent of gross domestic product, in the first nine months of the year, compared with $17 billion, or 5 percent of gross domestic product, in Greece. (Growth this year in Romania is expected to be about 1 percent, according to the government, compared with an expected contraction of more than 6.5 percent in Greece.)

Beyond the advantages of being outside the euro zone, Romania also benefited from the exodus of nearly three million Romanians after it joined the European Union in 2007, said Daniel Daianu, professor of economics at the National School of Political and Administrative Studies in Bucharest and a former finance minister. The manpower drain kept unemployment relatively low and lessened the financial strain on the state. Even with the crisis engulfing southern Europe, few Romanians have returned home.

Though dilapidated tenement houses and poor people hawking scrap metal remain a feature of daily life here in the capital, designer shops, hip sushi restaurants and disco clubs now compete with the stray dogs and street children that have long blighted Romania's image abroad.

In Timisoara, a Transylvanian Silicon Valley about 100 miles from Bucharest, about 5,000 foreign companies, including Alcatel-Lucent, Microsoft and Oracle, have invested, drawn by the country's talented pool of engineers, relatively low wages and a strategic location between east and west.

While the recent political instability has caused major jitters, foreign investors said they were here for the longer term.

Dacia, owned by the French carmaker Renault, is one of the largest investors in the country. Currently employing 8,000 people, it has invested more than $2.6 billion since 2000.

Jerome Olive, Dacia's general manager, noted that the competitive cost of doing business in Romania was helping somewhat to offset the punishing downturn. The cost of an entry-level engineer in Romania is about $1,925 a month -- about half that of a similarly qualified engineer in France. "In Romania our factories never stop," he said.

Mr. de Marco, the Spanish engineer, also praised the Romanian work ethic, though he conceded that it was awkward that he earned 10 times as much as Romanian managers.

"It is easier here to manage a team," he said. "In Spain, people talk back."

world

This article originally appeared in The New York Times.


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