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Possible EU crisis repercussions on the construction companies

For Romania as well, the last part of October has represented a period defined by fears related to the possible start of a new recession wave, due to the sovereign debt crisis of certain Euro zone countries, as well as the worsening of certain macroeconomic indicators, although part of the available statistic data indicates a slight progress as against the situation having defined the first eight months of last year. At an international level, although it did not generate the current crisis from Greece, Italy, Spain or Portugal (to only mention a few of the countries affected by the extremely high level of debiting and uncontrolled deficits), Romania was invited, on 23 October 2011, along with other EU-27 members not belonging to the Euro zone, "to bring proof of solidarity and join the common economic recovery efforts". Thus, according to most analysts, within the various summit meetings, the European leaders’ effort to include non-euro countries in the discussions on the current financial difficulties is very obvious and disturbing for the member states not having generated the respective problems, but which are invited to put an end, by any means whatsoever, to the destruction process defining the cohesion between the Euro zone countries and the rest of the European Union.
 
During the European council held on 23 October 2011, the impossibility to identify a viable solution to safeguard Greece and the other affected countries generated tension among the European decision makers, who repeatedly pointed out that "the participation of all 27 member states to the joint European effort represents an important component". Since on this occasion as well the EU leaders (Germany and France) failed to reach an agreement on a final operation plan for the European Financial Stability Facility - EFSF, they also reacted negatively to Great Britain’s proposal, according to which "the unique market’s benefits should be similar and stay the same for all the 27 EU member states, even if some of them will not participate in the new economic measures imposed by Brussels". The London government’s position indicates a clear delimitation from the Euro zone specific issues and, as the United Kingdom is not part of the monetary convention of the 17 EU member-states, but represents one of the main factors contributing to the EU general consolidated budget, it is unlikely that they accept a direct participation in EFSF. On the other hand, Italy was compelled to implement tough austerity measures, the German chancellor peremptorily asking the Rome officials to "do all that is necessary to undertake their responsibilities". At the end of the summit, the European Commission president, José Manuel Durão Barroso, stated that "there should be no separation between the Euro zone and the rest of the EU, precisely in order to keep the entire community strong and allow the application of extensive measures for Euro area coherence improvement". The policy applied by the Brussels authorities is not encouraging for our country - and implicitly for local constructions companies - at least considering the fact that the European Commission’s previous plan, proposing a co-funding level reduction, was deferred with no deadline. As it is well known, sustaining investments made from the state budget and local budgets, for projects approved by the European Union and co-financed by means of structural funds would have represented a positive premise for developing the activity of companies operating on the national construction market. In this sense, the application of a plan drawn up by European Commission high officials, providing a potential national co-funding drop from 15% to 5% (for Romania and five other member states), in view of facilitating access to structural and cohesion funds, would have been extremely positive. According to the EU representatives, if this project - drawn up by the European Commission president and the commissioner for regional policy, Johannes Hahn - is approved by the European Parliament, the co-funding to be ensured by Greece, Ireland, Portugal, Hungary, Latvia and Romania could be reduced by almost EUR three billion in the next three years. The European officials were hoping on a much higher impact on that date, by unlocking EUR tens of billion worth of funds that these states are entitled to, but were unable to access. The respective amounts could be used, as they are at the moment, for modernizing and expanding the road, airport infrastructure and other similar projects. The reluctance to adopting the new measures is not however negligible, considering that the prospect of the new tough austerity measures is threatening the entire community area. Thus, several EU commission specialists involved in evaluating the regional development programs point out that "the proposal will be blocked by the states carefully monitoring the EU budget, such as Germany and Great Britain, even if this implies no new costs for them, as the unspent funds will be reimbursed to the main countries creating structural funds". Although the European Commission’s communication direction confirmed the existence of a project which "should have contributed to re-launching the economies facing great difficulties at the EU level, by reducing the co-funding contribution of six states in a period in which national budgets face considerable pressures and an increase of the EU contribution by up to 95% of a total investment project", it is however in an incipient implementation stage, for the time being. "The acceleration of structural funds accessing, along with the financial assistance programs, brings proof of the European Commission’s commitment to stimulate the prosperity and competitiveness of the countries seriously affected by the financial crisis, thus contributing to a sort of a «Marshall Plan» for economic recovery. This decision will inject essential funds into the national economies, reducing the need to co-fund projects from national budgets. I hereby invite the European Parliament and the European Council to urgently approve the proposed plan, in order for the funds to reach their beneficiaries in the first part of 2012", the European Commission president stated at that moment - the same official who, along with other decision makers from Brussels, currently try to imposed financial contributions to EFSF from all the 27 member states, based on the so-called "principle of solidarity". However, it is well known that the term "solidarity" in relation to the problems generated by recession, has recently been applied in our country as well, with negative consequences on internal consumption in general and on construction sector companies, in particular.
The rejection rate of EU-financed projects represents a double threat for Romania
Back to the possible adoption of certain member states’ co-funding level reduction, which might be decided as a subsequent "bonus" for an imminent financial contribution, the maximum forecast impact of the new measures was estimated by the European Commission as totalling over EUR 2.88 billion. For Greece, the co-funding reduction measure will generate savings of EUR 879 million, for Romania EUR 714 million, while Portugal will save EUR 629 million, Hungary 308 million, Latvia EUR 255 million and Ireland EUR 98 million. According to some British analysts, involved in evaluating the six targeted countries’ absorption rate, "Romania only drew 3% of the approximately EUR 30 billion funds available for agriculture and development in the community block current seven-year budget plan carried out until 2013". The impossibility to ensure co-funding from the state budget or local budgets represents the reason most frequently invoked by central authorities to justify the lack of performance related to structural funds accessing, but EU officials point out the fact that the main negative factors are represented by corruption and administrative flaws. According to the European Commission members, the potential EU contribution increase should be accompanied by granting priority to projects focused on economic growth and job generation, creating enterprise centres or developing investments in the transport infrastructure.
 
Article published in the November/December 2011 issue of the AGENDA CONSTRUCTIILOR Magazine. For detailed information click here!

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