Defence options put Romania in the hot seat

Romania is reconsidering a planned €4.5bn jet fighter order to secure funds for other defence needs and please both the US and its European strategic partners, FT’s Thomas Escritt reports from Bucharest.

The former communist country (i.e. Romania), which belongs to the European Union and NATO and hosts a small US base, is under pressure to choose between US and European defence companies for the fighter contract - and to find money for helicopters and other equipment needed to support its contingents in Iraq and Afghanistan.

Last year, the country's National Defence Council authorised spending up to €4.5bn ($7bn, £3.5bn) on 48 fighters to replace its ageing fleet of Mig-21s, which will no longer be airworthy after 2011. Officials say three companies - Lockheed Martin of the US, Sweden's Gripen and the Eurofighter consortium - will be invited to place bids later this year, with a final decision not expected until after general elections, which are likely to take place in November.

But some defence officials say Romania no longer needs four squadrons of fighters. Officials are now looking at spending half the money on equipment such as helicopters, armoured personnel carriers and drones.

"We aren't so rich as to be able to buy everything our armed forces might need," Corneliu Dobritoiu, Romania's secretary of state for defence policy, said. There was a need to be selective, he said, adding that approximately half the budget available for fighter procurement could be spent on equipment to provide greater protection to soldiers in the field.

At the heart of the debate is a division between the country's government and president over Romania's strategic needs. Traian Basescu, an Atlanticist by temperament, is believed to favour the US contractor, while the government, led by Calin Popescu Tariceanu, is inclined towards Europe.

Sorin Ionita, research director at the Romanian Academic Society, a think-tank, said: "The president leans further in one direction, while the prime minister leans in the other direction. It's partly the result of their job descriptions: the president is responsible for foreign policy and security, where the government is in charge of domestic policy, 75 per cent of which is about European issues."

Mr Dobritoiu agreed that keeping both Romania's strategic partners happy would be a priority when the decision was taken. "We need to open ourselves in a balanced way to the two major markets . . . to cover the modernisation needs of the Romanian armed forces in a way to maximise its operational returns at the most costeffective prices in a way that pleases everybody.

"We need to make sure we can interoperate both with NATO and the EU."

Interoperability and training costs are a concern for the Romanian defence establishment, which would like to upgrade to the US-made Joint Strike Fighter. Similarities between the F-16 and JSF would mean less money would need to be spent on retraining and new weapons systems, while opting for the cheaper option of refurbished F-16s now would make it easier for the armed forces to secure a budget to upgrade to a more up-to-date aircraft later.

Lockheed Martin appears confident of its chances. Romanian law requires that military contractors offer industrial offsets of 80 per cent. In spite of this, when the US Department of Defense in April notified Congress of the possible sale of 48 F-16s to Romania for $4.5bn, it stated that the deal made no provision for offsets.

Gripen, which would charge less than €3bn for 48 fighters, is prepared to offer 100 per cent industrial offset. Eurofighter is also understood to be prepared to offer offsets for the refurbished Italian air force Eurofighters it proposes to provide.

Officials at the defence ministry are working on a proposal to buy two squadrons of refurbished Lockheed Martin F-16s. That would leave slightly more than €2bn for other battlefield support equipment that would be more useful in theatres such as Iraq and Afghanistan. These contracts could be awarded to European contractors.

Source: The Financial Times Limited, Jul 2, 2008

World Bank: Romanian economy to grow more than 7 pct in 2008, slightly overheated

The Romanian gross domestic product (GDP) will grow more than 7% in 2008, with the Romanian economy being slightly overheated, the Bucharest-based World Bank officials recently said.

"Romania is slightly overheating and I think we’re going to have more than 7% growth, notably due to the domestic demand, meaning consumption and due to the investments in some sectors, like construction", senior economist with the Romanian-based World Bank Office, Catalin Pauna told Rompres.

Romania posted record economic growth in the first quarter-year, at 8.2%. Such growth exceeded the economic analysts’ expectations and the estimations made by Economy and Finances Minister Varujan Vosganian. According to him, this year’s forecast economic growth put at 6.5% might be revised upwards by about 1% point provided a favourable farming year is maintained and also taking into account the advance recorded in the first quarter.
The Romanian economy expanded by 6% last year.

Pauna unveiled on June 25 the most recent regular economic report on the EU 10 (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia), which examines the economic developments of these states in 2007 and launches predictions for 2008.

With respect to Romania, the World Bank officials say the economy might slow down its growth pace after mid-year compared to Q1, particularly amid calmed positive evolution of the exports and a possible slowdown in the construction sector.

The authors of the report say the main risk facing the region’s economies is the inflation, which has risen significantly amid constant increase in the prices for foodstuffs and energy on a global level.

Source: 'Financiarul.ro'

President, parliamentary parties met at Cotroceni Palace on price rise issue

Romania’s President Traian Basescu yesterday invited the parliamentary political parties to discuss price increases for energy and foodstuff. “Foodstuff and electricity price rises reported at the European level particularly influence the people of less developed EU member states, Romania included,” President Traian Basescu stated in the beginning of the talks.

“As you have seen when reading the conclusions of the latest European Council meeting, one of the main conclusions was that we have structural problems, at a European level,” the President told the delegates. Mr. Basescu asked the politicians to responsibly act when dealing with providing solutions aimed to ease the social impact of growing prices. He also added that the EU member states show restrain in adopting demagogic and populist solutions.

The conclusion of the talks was that the Government will have to come up with a set of actions to help the most vulnerable social categories to cope with the prices increase in food and utilities: natural gas, electricity, thermal power. Parties also argue that Romania needs a coherent energy strategy, in order to reduce its dependence on massive imports, by means of saving energy (e.g. through the thermo-insulation of buildings, etc.) and by means of developing renewable energy resources. Parties also agreed that agriculture needs more support, in order for Romania to turn from a farm product importer into an exporter.

PD-L: Actions to help vulnerable social categories

The Democratic-Liberal Party (PD-L) President Emil Boc stated after the consultations that, further to the proposals made by political parties, the conclusion was reached that the Government must come up with a set of measures for the underprivileged categories, which should be presented to political parties.

The PD-L leader stated that, through concrete measures, his party will try to support those vulnerable social categories, which will most likely be affected by the rise in electricity and natural gas prices. The actions requested by PD-L include the increase of the minimal guaranteed income, so as to make up for the negative effects of the food price increase, the granting of electricity and heating aid to vulnerable social categories, the increase of the whole-economy minimum wages, an increase in pension benefits and the award of direct aid to the low-income categories.

PSD suggests changes in gas, electricity supply structure

The Social-Democrat Party (PSD) and the Conservative Party (PC) presented to the Head of State a “National Pact for Energy and Food,” with 10 proposition, one of the most important of which has to do with changes in the structure of electricity and natural gas supplies to households. The authors suggest that a larger share of the domestically-produced natural gas and electricity should be supplied to households, as these products are cheaper than the imported ones.

The two parties also requested an increase of the minimum wages by the end of this year, modifications in the pension taxation basis, reduction of the excises on diesel, direct payment of RON 1,500 to each farmer, etc. PSD Vice-President Ilie Sarbu also urged a review of relations with the Russian Federation, from which Romania imports most of the natural gas, and adoption of more pragmatic criteria as regards the relationship between the two states.

UDMR: Economizing, the best prices cut-offs

The Ethnic Hungarians’ Democratic Union (UDMR) MP Erdely Istvan has stated in turn that UDMR supports the idea of creating an aid system that would cover the difference between the foodstuff price hike and the family budgets. ‘However this difference would not be considered a source of income,’ Istvan stated. ‘In the energy domain we consider that the best method to reduce the price is to economize, so we propose the drawing up of programs to cutback the thermal energy use, by financing or co-financing thermal rehabilitation works,’ the UDMR MP added.

PRM: “No solidarity with those that robbed this country”

“In principle I agree with a national solidarity, solidarity with the needy people of this country, but what solidarity could the ‘Greater Romania’ Party (PRM) have with those that robbed this country?” Corneliu Vadim Tudor stated at the end of the Cotroceni meeting. “PRM proposed and will propose: sacking the ‘Romanian – Magyar Government’ and put a national unity government in place,” the PRM hard-line nationalist president stated. He also asked for the cancellation of Petrom’s and BNR’s ‘fraudulent privatisations’, privatisations of what he dubbed ‘the crown jewels’, for the creation of a national union government, for the cancellation of the flat tax ‘that has caused annual damages of EUR 1 bln’ and for the elaboration of a national renewal strategy for agriculture and for rural development.

PNL: “The Government responsibly tackles the fight against inflation”

The National Liberals (PNL), represented during the consultations by the Minister of Economy and Finances Varujan Vosganian and the Labor Minister Paul Pacuraru, opined that the political parties should reconsider their proposals, taking into account the need to maintain the annual inflation target. Labelling most of the proposals as ‘contradictory and populist,’ Vosganian has stated that the Government aims to control the inflation and the budget deficit and consequently to avoid any side-slipping that would endanger those two targets. “The Government responsibly tackles the fight against inflation and wants to use the budget to stop it, not to fuel it,” Vosganian stated.

In his turn, the Labour Minister Paul Pacuraru mentioned that the Government intends to re-introduce the ‘minimal consumer basket’ in order to have a clear image on the population’s monthly needs.

PM ruled out minimum wages increase

Following a Cabinet meeting today, Romanian Prime Minister Tariceanu said the Government is ready to provide a social solidarity fund meant to help the poor in coping with bigger prices. On another hand, Mr. Tariceanu said he rules out a minimum wages increase – as the country’s economy failed to meet the inflation target so far and as the unions previously agreed upon increasing wages as long as the inflation stays low.

Romania Report

NATO will not get involved in Transdniester conflict

Romania's President Traian Basescu (L) shakes hands with NATO Secretary General Jaap de Hoop Scheffer after a meeting at NATO headquarters in Brussels June 30, 2008. REUTERS

Brussels, June 30, 2008 - The Secretary General of the North-Atlantic Alliance Jaap de Hoop Scheffer said on Monday that NATO does not want to play a role in the Trasndniester issue. The NATO official told a joint press point with Romanian President Traian Basescu that the Republic of Moldova is doing progress in the Partnership for Peace framework and that NATO is in permanent contact with the authorities in Chisinau.

”Yet, NATO does not play, nor does it seek to play any role over the Transdniester issue” Scheffer said in the joint statement.

In his turn, President Traian Basescu outlined that the North-Atlantic Alliance does not get involved in the Chisinau‘s issue over Transdniester, as the Republic of Moldova is a’ neutral country’. ‘We have not discussed this topic, since, according to its Constitution, Republic of Moldova is a neutral country. Period,’ Basescu said.

The Romanian President was yesterday on a one-day visit to Brussels, at the headquarters of the North-Atlantic Alliance. The Romanian head of state discussed with the Secretary General the decisions adopted by allies at the NATO Bucharest Summit, and the stage of their implementation.

The two officials have also discussed the agenda of the next NATO summit in Strasbourg and Kehl next spring to mark the 60th anniversary of the founding of the North-Atlantic Alliance. President Basescu was also due to attend during the evening a conference organized at the Cercle Royal Gaulois by the Konrad Adenauer Foundation, where he will deliver a speech.

Romania Report