Prerevolutionary situation in Romania.
That is what mass media around the world are writing about. What is it? Just another “sensation”? Or maybe there is a crisis in one more EU state? Masterforex-V Academy experts suppose that in order to answer the question it is necessary to define the notions, and the answer will become obvious for everyone.
The term “revolutionary situation” was introduced by Vladimir Lenin in 1915 for defining specific conditions which may cause revolution in a certain country. It implies 3 criteria describing “the sharp intensification of needs and activity” of the masses when the common people don’t want and the elite cannot live as earlier any more. The revolutionary situation may grow into a revolution (as in Kyrgyzstan in 2010) or end up with major reforms (for example, revolutionary situation in Russia in 1859-61 ended up in the abolition of serfdom).
Very often political scientists abuse the term. That is why they replaced it with another one… “prerevolutionary situation”, not distinguishing between the really dangerous situations with revolutionary preconditions and the situations where there are no such preconditions (as it was in 2008 in Ireland - no social unrest etc.)
There is no revolutionary situation even in Greece as the second component is missing, i.e. the authorities can handle the disorder while the police and army do not take the side of the demonstrators.
Unfortunately there is a revolutionary situation in Romania, Masterforex-V Academy experts say. The situation in Romania is much worse than in Greece as in Romania the police joined the people in the protests against the president, government and parliament. The current unrest in Romania can be compared to the “revolutionary situation” in Romania in 1989, when the communist regime of Chaushesku was literary wiped out of the political arena.
The current situation is worse than in 1989. All the Romanian politicians share the opinion that Romania is suffering the most severe crisis over the last 60 years. Yet Romania is not just a country in the South-Eastern Europe with 22-million population. It ‘s been a member of the EU since 2007 and NATO since 2004. That is why any instability in the country instantly affects the mentioned institutions (the EU and NATO). For the EU Romania is:
· exporter of crude oil, natural gas, gold, silver, manganese ore, wheat, corn and potatoes
· transit to Moldova, Turkey, and the Middle East
· country which has been cited by the EU and NATO (together with Poland) as an example for other countries of Eastern Europe
· contender for entering the “Eurozone”
So, it appears that the European integration is not a guarantee against economic problems. Romania just widened the list of Europe’s “sick” economies, pushing aside Greece, Portugal and Spain.
What are the symptoms of the Romanian crisis? Masterforex-V Academy experts have found out the following ones:
1. Huge budget deficit. At the beginning of 2010 Romania was on the threshold of default as the budget deficit was nearing 9.1% of the GDP. In order to make up for the big gap it was necessary to borrow 11B euro. So the authorities had to introduce austerity measures. Another loan was borrowed from the IMF, which allowed the country to reduce the budget deficit to 6.8% of the GDP. Yet, in order to call in the credit the government needed to get extra 8.4B euro. In late 2010 after the IMF lent Romania more money the budget deficit was equal to 23.3B lei (while the critical level was 28.2B). The Romanian Prime Minister Emil Boc feels optimistic about it. However, most common Romanians disagree with him. Experts give pessimistic forecasts as well, saying that despite getting another loan from the IMF to the sum of 20B euro, the authorities have failed to cover the budget deficit.
2. Rapidly growing huge public debt. In 2001 Romania owed just 2.6B euro. At the beginning of this year its public debt was equal to 78B euro. Plus 20B euro borrowed from the IMF in 2010. Consequently, within a year Romania increased its sovereign debt by 32.5% while the volume of direct investments gained only 14% (investments in companies’ authorized capital was increased by 10%). All other funds were simply wasted. So now Romania has hard time paying its sovereign debt. In 2004-2009 it spent 150-450 million euro per year while this year it has already paid 788 million euro. Yet the hardest times are still ahead. Until now Romania has been paying only the interests. Starting from 2013 it will have to pay the debts themselves: in 2013 - 5,2B euro, in 2014 –4,3B more (if there is no new loans).
3. Record-breaking decline of the GDP (by 7%). Quarterly pace of declineis over 2%. Before that the GDP showed stable growth. Starting from 2001 it was 5-7% a year.
4. Reduction of direct investments in the basic capital (by 27%). Since Romania joined the EU in 2007 only 560 million euro (out of the promised 5B) of direct investments has been allocated for the Romanian economy.
5. Rapid increase in the unemployment. In mid 2010 the amount of the unemployed reached 760.000 (almost 18% of the employed population of the country). 285.000 of them lost their jobs within the first 3 months of the year. The IMF urges the Romanian government to reduce the amount of employees of government-financed organizations down to 1 million 290 thousand people. It means that in the short run over 50.000 people will lose their jobs. By now the government has left many qualified workers unprovided for. Among them are 20.000 transport workers, 15.000 teachers, 9.000 physicians and 22.000 clerks of different levels.
6. Inflation growth. In the 1st quarter of 2010 it was equal to 5%, which is the highest value in the EU.
7. Sharp devaluation of the national currency due to the debt payments and the reduction of currency earnings.
8. Austerity measures. An obligatory condition for getting a loan from the IMF. The measures imply:
· Increasing the VAT from 19% to 25%
· Increasing the single tax from 16% to 20%
· Reducing the salaries of public employees by 25% ( in 2010 - 5% more)
· Reducing the pensions by 15%
· Reducing the social-benefit payments (unemployment benefits, child benefits etc.)
· Increasing the retirement age for both men and women up to 65 years.
According to Emil Boc’s estimations, the austerity measures will allow Romania to save over 30B euro a year.
What consequences of the crisis is Romania going to face?
First of all, it is political instability. Over the last 1.5 years the parliamentary opposition has raised 5 times the question about distrusting the government. Those who oppose the current policies need only few votes to topple the current government (219 votes against the required 235). As a result Romania faces social unrest, involving even police. In October there were over 80.000 demonstrators involved in the protests.
So now there is hardly anyone who will dare make any clear forecast about the situation in the country. At least it is known that:
· The president Basescu is trusted by 9.8% of the population while Boc’s degree of confidence is 6.9%.
· The next presidential elections will be held in 2012 so until then the current situation is under the risk of getting worse
The Romanians are uncertain about their future. Over the 3 years of the EU membership they have turned from euro-optimists into euro-skeptics. The amount of those dissatisfied with the policies that are pursued by the EU and international financial institutions towards Romania is growing every day. Some politicians even suggest restoring the monarchy as they believe that the king will be able to provide the people with confidence, solidarity and power they need.
So the EU is trying to keep Romania away from being fully integrated into it. In particular, in October 2010 Pierre Lellouche, Secretary of State for Foreign Trade under the French Minister of Economy, announced that France insisted that the decision on whether to accept Bulgaria and Romania into the Schengen area is made not until summer 2011. In the meantime, EURUSD stays flat.
EURUSD chart:
According to experts from the Department of studying Masterofrex-V trading system, during the last week the common European currency formed bullish wave a(C ) of level MN (downward movement). At this point the price is developing wave b(C ) MN. A prolonged downtrend down to 1.33 is not excluded. On coming out of the MF sloping channel defending the long-term uptrend (1,1876-1,42811) and forming a D1 FZR, the further decline of EURUSD with testing the bullish MF pivot is highly probable.
In order to estimate the situation in a more objective way Market Leader invites you to take part in the following survey:
Will the revolutionary situation in Romania grow into mass unrest and disorder?
· Yes, it will. The situation of 1989 will recur.
· No, it won’t. The EU will rescue Romania as it is currently rescuing Greece.
· There is no revolutionary situation in Romania. The unrest will be settled down.
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