Economic Policy Responsibility Condition for Sustainable Growth Cosmin MARINESCU Presidential Advisor Departament of Economic and Social Policies

 The current context of the Romanian economy, one linked to the 3 post- stages: post-transition, post-accession and post-crisis.  In the current context, a new model of economic development would have the chance to integrate these three specific issues: 1. The issue of property rights and market economy - which is specific to transition. 2. The issue of institutional change harmonisation – which is specific to EU accession. 3. The issue of unsustainable growth and financial irresponsibility – so obvious in the context of the recent economic and financial crisis. 2 The three post-stages: post-transition, post-accession and post-crisis

 A new model of economic development must leave behind at least some illusions: 1. The illusion that prosperity can be built on deficit, public debt or artificial boost of consumption. 2. The illusion that financial and monetary policies can indefinitely replace real, structural reforms. 3. The illusion that once prosperity is obtained, it will not be lost.  The recent crisis has revealed this painful truth. 3 The three post-stages: post-transition, post-accession and post-crisis

 In 2016, Romania will be on the EU’s podium of economic growth, with a rate of over 4%.  The economic growth rate is mainly a consumption based growth, because in the first months of this year consumption has increased by almost 20% over the same period of last year.  To be sustainable, not to be short-lived, consumption growth should be based on a sustainable improvement in terms of productivity and income.  We must not be satisfied with just the quantitative side of economic growth, but also look at the qualitative side. 4 How Sustainable is the Present Economic Growth?

 The fiscal consolidation of last years has recently been reversed, as the budget balance recorded a substantial deviation, both in nominal and structural terms.  This situation is, once again, confirmation that without a strong political and governmental will, fiscal consolidation cannot withstand the political cycles.  We must not forget the lessons of the recent crisis, especially because investors’ confidence is still fragile and economies are still vulnerable.  We must not neglect what the deficit means to the quality of economic governance: the deficits are the bill by which the government transfers, in the future, the real cost of present benefits. 5 What about the Quality of Economic Growth? Structural Deficit and the Fiscal Framework

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 Consumption is our first source of economic growth, and this is mainly because of a VAT reduction of about 7 percentage points from the average rate of  In the context of a huge lack of public investment, we also need to increase state’s administrative capacity.  We need to implement more major infrastructure projects – as this seems to be the Achilles heel of our economy.  In the coming years, it is essential to strengthen our external competitiveness: we need to increase the exports contribution to GDP. 7 What about the Quality of Economic Growth? Contribution to GDP growth: the Boost of Consumption

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 Romania needs a good long-term economic vision, doubled by responsibility of economic policy makers.  We must strengthen the trust in our institutions and economic policies.  A sign of responsibility for Romania's development is to escape the trap of pro-cyclical policies, for good.  We need a realistic governance that goes beyond the short term and the quantitative side, for the long term and qualitative side. 9 Economic Responsibility: How can we get back on track for a sustainable growth?

 Consistent structural reforms, especially in SOE’s sector;  Transparency and fiscal simplification;  Removal of political ties to public funds;  Reducing bureaucracy and increasing economic freedom;  In essence:  A profound rethinking of the relationship between state and citizen. 10 Economic Responsibility: How can we get back on track for a sustainable growth?