This analysis by Deutsche Bank Research looks at the two Balkan countries’ preparation for membership of the EU from an economic perspective.
The economies of both Romania and Bulgaria are developing favourably. In the course of preparation for the planned EU membership, the two economies have become more productive and stable. The international rating agencies have steadily upgraded the two countries over the past years and most of them are now rating both Bulgaria and Romania in the “investment grade” category.
Both countries boast strong economic growth. Between 2001 and 2005, growth came to 5.5% p.a. in Romania and to 5.0% in Bulgaria. If the two countries continue their stability- and reform-oriented economic policies, they should be able to further exploit their growth potential of roughly 5% p.a.
Public-sector finances are in good shape. Both countries’ budgets and public-sector debt have for years met the relevant Maastricht criteria for membership in the euro area. Government debt looks set to continue its downward trend from a low level. Inflation in both countries is beyond the Maastricht threshold but will likely come down in 2006 and 2007.
High current account deficit is main weakness in both economies. In the short run its financing is ensured by foreign direct investment (FDI), relatively high forex reserves and access to the international capital markets. Over the medium term, the deficits will have to adjust to limited financing opportunities, as FDI inflows will decline when the privatisation process is completed.
EU membership from January 1, 2007 or January 1, 2008 can be taken for granted. Chances for accession already in 2007 seem to have improved in the last couple of weeks; in contrast to our assessment of mid-March we see the odds of early accession now at 65:35. The European Council will probably decide on the matter in June.
Postponement of accession to 2008 would probably not have major repercussions. A precondition, however, is the determined continuation of stability and reform policies.