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| THE IMPACT OF THE CRISIS ON EUROPEAN FINANCES 17/02/2010 |
| (2010-02-17) |
| Last updated: 2010-02-18 13:19 EET |
 Romania’s budget deficit last year amounted to 7.2% of the GDP, which is within the 7.3% target agreed with the International Monetary Fund. The 2010 budget provides for a 5.9% budget deficit. The council of EU finance ministers called on Romania and the 2 other community states who benefited from an extension, namely Malta and Lithuania, to take measures to adjust their deficits by the 16th of August 2010. EU officials approved this extension because the aforementioned states were hit harder than expected by recession.
The toughest penalties applied as part of the excessive deficit procedure are fines for euro-zone states and the blocking of structural funds for non-euro countries. The excessive deficit procedure was initiated for 20 of the European Union’s 27 member states. Greece is by far the hardest hit by the economic and financial crisis. In 2009, its budget deficit reached 12.7% of the GDP. Greece’s situation is the biggest test for the euro zone since it was first created in 1999. The European Commission said it would closely monitor Greece to make sure it keeps its commitments.
In a June report, the Commission will assess Greece’s chances of reducing its deficit level for this year to 7.8% of the GDP. The thought that Greece may fail to achieve this has prompted EU leaders to consider a rescue package. The Maastricht Treaty has a provision that prevents European states from taking on other countries’ debts. Other provisions of the treaty may, however, allow for assistance to be granted to countries in need. The crisis facing Greece has considerably affected the euro exchange rate. Since the beginning of the year, the euro has depreciated by over 5% against the dollar.
Greece’s economy accounts for only 3% of the euro zone GDP, but the single European currency has been affected by fears that Greece’s problems might engulf other countries, given that Spain and Portugal are also showing worrying signs. The press in Bucharest writes that if Greece does not recover, Europe’s economies may face a genuine earthquake.
In that event, Bulgaria, Romania and Turkey will suffer the most, as 28% of the assets held by Greek banks are located in Bulgaria and 27% in Romania. Analysts with Morgan Stanley believe there’s not much Romania can do to avoid catching the Greek disease. They say the best thing is for Greece to receive a vaccine from the European Union in the form of financial assistance, to stop this disease from spreading further.
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