HOME, SWEET HOME?

BALKAN MIGRATION, THE EU & LIBERAL SOLUTIONS

Patrick Basham

A Democracy Institute Economic Risk Series Paper

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INTRODUCTION
In the flat world of maps, sharp lines show where one country ends and another begins. The real world is more fluid. Peoples do not have borders the way that parcels of land do. They seep from place to place; they wander; they migrate.1

for the least-skilled, but only by a small amount.2

Only six years ago, the number of migrants in the world, both legal and illegal, was thought to total approximately 200 million.3 Putting the continued growth of migration into perspective, The Economist more recently notes that, The world has some 215m first-generation migrants, 40 percent more than in 1990. If migrants were a nation, they would be the world's fifthlargest, a bit more numerous than Brazilians.4 The fact that the scale of migration has increased should not, but often does, overwhelm its many benefits.

W
native-born.

hy do individuals migrate from one country Simply to put,

another?

migration makes migrants better off. If it did not, they would go home. What of the European Union countries that receive immigrants? They, too, have benefited from past immigration. To date, immigrants have typically filled niches in the labour market that complement rather than displace the

The economic case for migration is similar to that for free trade. Trade benefits countries by letting workers specialise in activities in which they are relatively more

For most citizens of the wealthier EU countries, immigration has meant slightly higher wages, as fresh brains with new ideas make local firms more productive.

productive, raising output. The larger marketplace created by trade spreads the fixed costs of innovation more thinly,
2

Arguably, it may have dragged down wages

The Economist, Migration and business: Weaving the world together, 19 November 2011.

See the discussion in Paul Collier, Exodus: How Migration is Changing Our World New York: Oxford University Press USA, 2013, Chapter 4. 3 Cited in The Economist, Special report: Migration Open up, 3 January 2008. 4 The Economist, Migration and business: Weaving the world together, 19 November 2011.

encouraging the development of new goods and ideas. Free trades upsides outweigh its costs, leaving a surplus large enough to compensate the economic losers.5 That is why, as Robert Guest explains, As a tool for spreading wealth, open borders make foreign aid look like a childs lemonade stand.6

Undoubtedly, migration is a good thing. But, it is also problematic, and increasingly so. Hence, the political salience of the migration issue is growing rapidly.

Therefore, while the free movement of labour across member countries borders is a fundamental principle of the EU, anyone glancing recently at the front pages of Western European newspapers will be in no

Most important among the non-economic benefits of migration are the following: the speeding of the flow of information across international borders; the fostering of trust; and the creation of connections, especially personal ties, that help people with good ideas collaborate with each other. Thanks to advances in technology and

doubt regarding the pressing need to address the migration problem within and across the EU.

It is to the economics of the migration problem that we first turn our attention.

THE ECONOMIC PROBLEM

transportation, todays migrants may move back and forth between countries. As described by The Economist, [t]heir

ceaseless circulation spreads ideas and expertise as the bodys blood spreads oxygen and glucose.7
5

T
8

he most recent empirical study shows that the fiscal impact of migration is broadly neutral.8

Research published by the Organization for Economic Cooperation and Development (OECD) in the International Migration Outlook examines the fiscal impact of immigrants (defined as the foreign-born) in
See the discussion in The Economist, Immigration and the public finances: Boon or burden? 15 June 2013.

The Economist, Free exchange: Border follies, 17 November 2012. 6 Robert Guest, Borderless Economics: Chinese Sea Turtles, Indian Fridges and the New Fruits of Global Capitalism, New York: Palgrave Macmillan, 2011. 7 The Economist, Migration and business: Weaving the world together, 19 November 2011.

27 rich countries. The study draws on household-survey data to make detailed comparisons of immigrants and the nativeborn in terms of their net direct

younger than 35), they usually generate higher schooling costs, but lower medical costs, than the native-born.

contribution to the public purse, that is, the difference between what they pay in direct taxes and social security contributions, and what they receive in benefits.

Synthesising

both

direct

and

indirect

contributions, the OECD finds that migrants have a positive impact on national budgets, contributing an average of 0.3 percent of Gross Domestic Product (GDP) (see Table 1

The study finds that migrants net direct contribution to national treasuries is

below). The OECDs overall conclusion is that migration is neither a significant gain nor drain for the public purse.

positive, with the very notable exception of Germany. However, the OECD finds that immigrants net direct contribution is smaller than that of the native-born, although this difference results from

Table 1. Net Fiscal Impact of Immigrants, 2007-2009, % of GDP.

migrants paying less in tax because they experience lower levels of lower

employment, especially among women.

In terms of their indirect contribution, on the revenue side of the fiscal equation immigrants also pay consumption and sales taxes. On the expenditure side, they use taxpayer-funded services, such as health care and education. As migrants are generally younger than the native-born population (more than three-quarters of recent Eastern European arrivals are

Sari Pekkala Kerr and William Kerrs fiscal research sometimes found use that social immigrants services may more

Nevertheless, there exists widespread and growing popular concern over the economic cost of migration, especially from Eastern Europe, to host countries. Specifically, rapid influxes of immigrants are popularly

intensely than natives. However, some newcomers contribute more in tax than they receive in services, offsetting much of the drag from those who are net recipients of public benefits.9

believed to have led to pressure on housing and schools, downward pressure on wages, and friction with local populations.

More

specifically,

new study

European claims

Such

beliefs

are

reinforced

by

the

Commission-sponsored

perception that migration levels have grown significantly in recent years and by the expectation actual fear, in some quarters they shall continue to do so.

Romanians and Bulgarians moving to the United Kingdom are a net benefit to the British economy.10 The study finds that immigrants to Britain from other EU countries pay far more in tax than they receive in benefits. The report argues that, They [migrants] help the host countrys economy to function better because they help to tackle skills shortages and labour market bottlenecks.

CURRENT TRENDS

hat is todays reality? And, what may one reasonably expect to happen to

migration levels over the next few years?

Sari Pekkala Kerr and William Kerr, Economic impacts of immigration: a survey, Finnish Economic Papers, spring 2011. 10 Reported in Bruno Waterfield and James Kirkup, Bulgarian and Romanian migrants will help economy, Daily Telegraph, 25 November 2013. See, too, more generally, Francesco D'Amuri and Giovanni Peri, "Immigration, jobs and employment protection: evidence from Europe before and during the Great Recession", NBER Working Paper No 17139, June 2011.

Two years ago, Eurostat documented the tens of millions of EU citizens now living in other member states, especially Germany, Spain, and the UK (see Figure 1 below).

Figure 1. EU States with Largest Populations Born in another EU Member State, 2011.

of 2012, and 29,202 from Bulgaria, up 1.4 percent.12

During this year, it also became apparent that, first, migration to the UK continues to increase; second, official UK government figures grossly underestimate the level of inward migration; and, third, migration over the past decade far exceeded government forecasts.

In the year to June 2012, immigration to the UK was estimated at 515,000 while emigration was estimated at 352,000. The Migration to Germany, for example, British government aims to reduce annual net migration (the difference between the two figures), which is skewed towards Eastern Europeans, from the hundreds of thousands down to the tens of thousands by 2015.

increased by 15 percent from mid-2011 to mid-2012. It is astonishing how astonishing it still is that they are coming,11 observes Holger Kolb from the Expert Council of German Foundations on Integration and Migration. In the first six months of this year, Romania and Bulgaria were the second and third main sources of

New Office for National Statistics (ONS) data, however, reveals an increase in net UK migration to 182,000.13 Migration from

immigrants to Germany behind Poland. There were 66,904 new arrivals from Romania, up 12.4 percent on the first half

12

11

Quoted in The Economist, EU migration to Germany: Sprechen sie job? 16 February 2013.

David Charter, Mayors beg Merkel for Roma aid, The Times 25 November 2013. 13 See Christopher Hope, Migration target may not be met, Cameron admits, Daily Telegraph 3 December 2013, and Daily Telegraph, Immigration target drifts further away, 29 November 2013.

EU countries rose from 72,000 in the previous year to 106,000. Migration from non-EU countries fell from 172,000 to 140,000.

immigrants coming into the UK each year.14

In 2004, the British government erroneously predicted that no more than 13,000

Specifically, UK government figures show that the number of people from Bulgaria and Romania being granted permanent right to reside in the UK is rising fast, even as the numbers from other countries fall. Some 1,067 Bulgarians were granted residency last year, up from 13 in 2011. For Romanians, the total rose from 24 to 1,110.

immigrants would come every year from Poland and Hungary to work in Britain as part of the previous EU expansion. In fact, hundreds of thousands of people from Poland and seven other former communist countries arrived. At its peak three years ago, net migration reached close to a quarter of a million.15 Figures from the ONSs Labour Force Survey show that there

The

British

parliaments Select Committee

Public has

were 683,000 workers from Poland and the other 2004 EU accession states in the UK at the end of June 2013.

Administration

revealed that, although the ONS, which produces the governments migration

estimates, attempts to produce informative statistics, the lack of methodological rigour contained in the research survey upon which official figures are based is not fit for the purposes to which it is put and ministers must find new ways to gather information. Committee chairman Bernard Jenkin explains that, [T]here is no attempt

The rise suggests that many EU citizens have been coming to Britain as a result of economic difficulties, especially in Eastern Europe. Billions of euros have been transferred from Europes richest countries to its poorest regions, but many eastern

14

to count people as they enter or leave the UK[The] government merely estimates [emphasis added] that there are 500,000

Channel 4 News, UK migration figures based on random interviews, 28 July 2013. 15 Daily Telegraph, Labour got immigration wrong, 13 November 2013. See, too, Channel 4 News, Ed Miliband: Labour was wrong on immigration, 22 June 2012.

Europeans still live in serious poverty.16 Therefore, perhaps unsurprisingly, another recent EU study found that 600,000 unemployed EU migrants are living in Britain, which constitutes a dramatic 42 percent rise in only five years.

between 1997 and 2005, while the gainers may have outnumbered the losers and the gains may have been positive on average, the losers tend to have been lower down the wage distribution than the gainers.18

PUBLIC OPINION
The EU commissioner for employment and welfares 291-page report, published last month, is the first concrete assessment of the impact of migration from

predominantly Eastern European countries. It finds the number of EU migrants coming to Britain without a job increased by 73 per cent in the three years to 2011 and that the current annual cost to the countrys statefunded health service, for example, of unemployed EU migrants is 1.8 billion.17

here is no doubt that the citizens of wealthier EU countries are fearful that Eastern Europeans will move

westward en masse after 1 January 2014, when all EU countries are obliged to open their labour markets fully to Bulgarians and Romanians. At present, under temporary controls imposed in 2007 when the two countries joined the EU, Romanians and Bulgarians can only come to work in Britain, for instance, if an employer has backed a visa, if they are self-employed, or come on a temporary basis to fill fruit-picking jobs or other agricultural work for which there is a labour shortage.

Furthermore, in a recent research paper, economists from University Colleges Centre for Research and Analysis of Migration found that, while immigration can

contribute to the growth of average wages, it also holds back the wages of the least well paid. The researchers concluded that
16

A recent opinion poll found that the introduction of restrictions on EU migrants

The EU earmarked 19.7.billion for Romania from 2007 to 2013 and 6.9 billion for Bulgaria. 17 Robert Mendick and Claire Duffin, True scale of European immigration, Sunday Telegraph 12 October 2013.

18

Christian Dustmann, et al. The effect of immigration along the distribution of wages, Review of Economic Studies May 2012.

10

rights is backed by 83 percent of Britons, 73 percent of Germans and 72 percent of French respondents.19 Germans are most concerned about an influx of Bulgarians, as that Balkan nations economy is most closely connected to Germanys. The social balance and social peace is extremely endangered, says a recent internal paper of the German Association of Cities, reported by the newspaper, Der Spiegel. They are especially worried about so-called poverty migration and the influx of Roma, as they often end up living in desolate conditions in houses only fit for demolition, the document says.20

many neighbourhoods feel completely overwhelmed by Eastern Europeans.

Britons are especially worried that the Romanians Romanians are have coming, although

disproportionately

migrated to Spain, France, and Italy by the millions, in fact rather than Britain because of linguistic proximity.

Public opinion polls reflect a long standing aversion to immigration. A recent opinion poll showed that more than half of British voters do not want people from Bulgaria and Romania to have full employment rights. A poll by Channel Five television

Sixteen German mayors have written to Chancellor Angela Merkel warning that they cannot cope with the current influx of Bulgarians appealing emergency immigration and for aid are Romanians millions when lifted of and euros are in on

showed that 47 percent said people from the two countries should have no rights to work, to settle, and to claim benefits.

A just-released early December 2013 poll conducted by Opinium Research found 64 percent of Britons agreeing that EU immigration to the UK has a negative impact, with only 14 percent saying it was positive. Thirty-eight percent oppose the

restrictions next

month.21

According to these local political leaders,

19

Robert Mendick, Daily Telegraph 19 October 2013. 20 The Economist, EU and migration: The next wave? 9 February 2013. 21 David Charter, Mayors beg Merkel for Roma aid, The Times 25 November 2013.

free movement within the EU of workers

11

and citizens with only 24 percent in favour.22

was out of work or being paid less due to foreign workers.23

Hence,

British

Prime

Minister

David

Camerons plan, against vociferous EU Commission opposition, to double the time limit (currently three months) that EU nationals have to wait before becoming eligible to claim welfare.

A COMING TSUNAMI?

ust 2,000 Romanian and Bulgarians worked in Britain in 1997, which jumped to 29,000 a decade later when

the two countries joined the EU. The Oxford Universitys Migration Observatory points out that in the government-run citizenship survey for 2009 to 2010, over 75 percent of respondents said immigration should be either reduced a lot (over 50 percent) or reduced a little, and that, in a 2007 Ipsos-MORI poll, 76 percent had agreed that immigration should be either much tougher (64 percent) or stopped altogether (12 percent). Migrant workers from Romania and number of Romanians and Bulgarians working in Britain rose by more than a quarter in just three months from the spring to the summer of this year, according to data that provides the first evidence of an influx of migrants from the two countries, even before border controls are lifted.

Bulgaria numbered 141,000 at the end of A summer opinion poll found 60 percent felt immigration had more disadvantages than advantages for Britain, with 36 per cent saying that they or a family member June, a rise of nearly 26 per cent on the 112,000 recorded at the end of March. The figure was up 35 per cent year-on-year. ONS data shows that 37,000 additional Romanian and Bulgarian workers arrived

22

Reported in Dominic Kennedy, Public turning against EU migrants, The Times 2 December 2013.

23

Daily Telegraph, What we think about immigration, 2 September 2013.

12

between June 2012 and the same time this year.24

concern regarding a migrant wave from Romania to Britain.25 Bulgarian ambassador Konstantin Dimitrov says the number of

Britains

employment

marketplace

is

Bulgarians who come to the UK each year will not change when the restrictions are lifted.26 Ambassador Dimitrov and his Romanian diplomatic counterpart told

attractive in no small part to Romanian and Bulgarian workers because wages are far higher than at home. Bulgarias minimum wage is 73p an hour and in Romania it is 79p, while in Britain it will rise to 6.31 for over-21s later this year. GDP per capita in 2010 was 3,929 in Bulgaria the poorest country in the EU and 4,682 in Romania, compared with 22,426 in Britain.

British parliamentarians earlier this year that they expected 35,000 more migrants collectively from their two countries to arrive in the UK in 2014.

In striking contrast, Douglas Carswell, the outspoken Eurosceptic UK Conservative

Revealingly,

perhaps,

the

British

parliamentarian, foresees a tsunami of economic refugees fleeing the Eurozone crisis to try to find jobs here [in the UK].27 Migration Watchs Alp Mehmet estimates that 50,000 Bulgarians and Romanians will arrive in the UK annually for the next five years.28

government has not attempted to estimate the number of Bulgarians and Romanians who will come to the UK next year. Others are not so reticent.

For example, Romanias Foreign Minister, Titus Corlatean, recently told Britains Channel 5 News he did not expect a flood of migrants from his country to come to Britain after 1 January. Most recently, Romanian Prime Minister Victor Ponta said research shows there is no reason for

25

24

David Barrett, New wave of immigrants begins, Daily Telegraph 14 August 2013.

Quoted in Associated Press, Romanian PM calls on Britain not to discriminate, 30 November 2013. 26 Quoted in Daily Telegraph, 25 November 2013. 27 Quoted in Robert Mendick and Claire Duffin, True scale of European immigration, Sunday Telegraph 12 October 2013. 28 Interview with BBC London television, 3 December 2013.

13

Tens of thousands of Bulgarians are expected to leave their country

Whose forecast is the most accurate? This papers unexpected finding is that the most alarming of the forecasts summarised above is actually insufficiently alarmist.

permanently with a view to settling in Britain, according to a summer survey carried out for the European Parliament. The survey by pollsters Afis found that 400,000 people more than 5 per cent of the population indicated they would leave the country in the next two years, with UK the destination of choice for nearly a quarter of the would-be migrants.

Based

upon

data

produced

by

the

Democracy

Institutes

proprietary

econometric migration model, this paper projects that combined Bulgarian and Romanian migration to the UK, for example, will significantly surpass current estimates.

Previously, Spain, Greece, and Italy had been Bulgarians top venues for migration because of the language similarities. Now, Britain and Germany are preferred. Our model projects that, over the next five years, at least 385,000 migrants will move from Bulgaria and Romania for an annual average of 77,000 additional migrants. If the same percentage is repeated from January 2014, it is estimated that 80,000 Bulgarians will arrive in Britain over the next two years.29 An earlier BBC poll of Bulgarians and Romanians found 1 per cent of Romanians and 4 per cent of Bulgarians said they were looking for work in the UK. Those percentages convert to a total of 350,000 potential job-seekers.30
29

Specifically,

Bulgarian

migration

will

average approximately 44,000 annually; Romanian approximately migration 33,000 will average Such

annually.

astonishing figures naturally lead to an analysis, first, of how this situation has come to pass and, second, how it may be remedied.

Martin Banks, Tens of thousands of Bulgarians will head to Britain says European survey, Daily Telegraph 29 July 2013. 30 BBC television poll, reported in Daily Telegraph, The Romanians are coming, 23 April 2013.

14

WHO IS TO BLAME?

respective economic policies with EU immigration policy.

igrants, neither individually nor collectively, are to blame for todays and tomorrows

Simply put, individual governments not individual migrants are to blame for the mess that so many Europeans think migration policy is in.

migration-related crises. Migrants sensibly and correctly act in their own individual self-interest, as they respond to the economic incentives provided by host countries and the economic disincentives provided by their native countries.

Destination states are both victims of their own successes and of their own failures. For example, prosperous societies will always be attractive to members of less prosperous societies. Such is the inevitable economic pull, that some members of those less prosperous societies will cross borders into their richer regional and continental

The EU is also not directly to blame for the migration crisis. The EU continues to uphold an important economic principle: the free movement of labour within and across the borders of its member states. Without question, a single economic market works best when its workers are mobile.31

neighbours regardless of the legality or illegality of their movements.

Over decades, rising prosperity encouraged the vast majority of national governments to build ever-larger, more expensive, and more unaffordable welfare states. Cradleto-grave social democracy may not be the rhetorical rallying call of governments led by centre-right parties. In practice,

The political and economic downsides of migration are not labour mobilitys Achilles heel; rather, they are a testament to the inability of the governments of numerous EU member states to synchronise their

however, overwhelmingly it remains their

31

Buttonwood, European migration: Willkommen, Pablo, The Economist, 4 March 2013.

modus operandi, too.

15

Consequently,

these

nations

are

do. Through work, they swiftly integrate into society.32

increasingly attractive to two types of migrants: a larger, better-educated, betterskilled group, which is comprised of those who plan to improve their family incomes through better-paid employment in a richer EU nation; and a smaller, but not

The UK is, perhaps, the best example of the self-inflicted economic migrant own goal. The size and scope of the British welfare state has grown enormously over the past few decades. In 1963, public spending totalled only 12 billion. Today, public spending is pushing 700 billion almost half of UK GDP 58 times the nominal amount that the government spent 50 years ago. And, the past decade opened the fiscal spigot even further: inflation-adjusted

insignificant, uneducated, unskilled group, which is comprised increasingly of those who avail themselves of the smorgasbord of government-provided benefits available to those living in some, if not all, of the wealthier EU nations.

Oxford University economist Paul Collier is undoubtedly correct that there is a tension between mass immigration and the welfare state. A rich country that invited all and sundry to live off the host state would not stay rich for long. Immigrants assimilate better in America than in most European countries in part because welfare is less generous there. In parts of Europe, it is possible for able-bodied newcomers to subsist on government handouts, which infuriates the native-born. In America, by and large, immigrants have to work, so they

public

spending

jumped

53

percent

between 2000 and 2010. The previous Labour government increased public

spending from 309 billion in 1997 to 647 billion by 2010, an increase from 40 to 52 percent of GDP.

In this new era of alleged austerity, the British welfare state nevertheless continues to get larger, not smaller. For example, projected spending on welfare benefits

32

Paul Collier, Exodus: How Migration is Changing Our World New York: Oxford University Press USA, 2013: 76-77.

16

from 2012 to 2016 rose by 6.4 billion between autumn 2012 and spring 2013.33

Less than two weeks ago, UK minister Michael Gove told BBC television that new migrants to the UK should not be allowed to

British taxpayers fund a free-at-the-pointof-use-and-service countrys provides welfare state. The

take advantage of the UKs generous benefits system.34 The seemingly

universal income

benefits support,

system subsidised

insurmountable problem for Mr Gove and Prime Minister Cameron is that European law requires that all EU citizens in a member country must have the same rights, so it is illegal to stop migrants from

housing, medical care through the National Health Service, and the state pension.

The British system makes it easier than most other countries to claim benefits. This is because British benefits are based on means-testing rather than on the recipient having made previous national insurance contributions. Estonia, Germany, Finland, Ireland and the UK are the only EU states that provide the unemployed with noncontributory cash payments. In other words, only in those five countries may one receive income support without having paid into the system. Conversely, France only pays benefits to those who have financially contributed in the past. Furthermore, when receiving income support, a claimants nationality is not even recorded in the British unemployment benefits system.

the rest of the EU claiming the same as British citizens.

Therefore, the problem is not European law; the problem is the UKs overgenerosity towards its own citizens, a largesse it is required to extend to all residents, native and immigrant alike.

Another contributor to a perverse set of financial incentives is the UKs

comparatively high minimum wage. It is not coincidental that, after then-Prime Minister Tony Blairs Labour government introduced a minimum wage in the late 1990s, net migration increased by 2.2 million. Rather, Britains minimum wage contributed to its
34

33

Daily Telegraph, Mitigating migration, 25 March 2013.

Tom Rawle, Michael Gove: New immigrants can't 'take advantage' of our 'generous' benefits system, Sunday Express 24 November 2013.

17

attractiveness as a destination nation for migrants.

burden upon taxpayers and businesses, free job-creating entrepreneurs from job-costing regulations, and attract external capital

CONCLUSION A LIBERAL SOLUTION

It would be much better to make the home countries more attractive so people do not have to search for a better life somewhere else.35

investment.

In summary, the fiscal burden associated with current welfare statism must be reduced in order that residents may enjoy access to a reasonable, high quality, affordable menu of benefits and services that no longer incentivises segments of

f political opposition to, and a popular backlash against, migrants living in destination states is to be reduced to a

respective external populations to migrate solely or largely to enjoy destination nations largesse.

tolerable minimum, change is necessary. The substantive changes required, however, are to be found not in Brussels, but rather in the capitals of those respective EU states that currently specialise in either the importation or exportation of people. However, defenders of the contemporary What, specifically, is to be done? welfare state appear oblivious to the political reality that, as Alberto Alesina and Both migrant-importing and -exporting states need to adopt policy instruments that reduce government debt, reduce the foster states his Harvard University colleagues explain, when a society becomes too culturally heterogeneous, its people may be unwilling to continue to pay for a generous welfare Continued mass immigration clearly and obviously threatens the cultural cohesion of rich countries. That is not necessarily and not always a negative outcome.

economic
35

growth,

Soeren Link, the mayor of Duisburg, Germany, quoted in David Charter, Mayors beg Merkel for Roma aid, The Times 25 November 2013.

18

state.36 Simply put, popular support for economic redistribution dwindles if

to Jeffrey Franks, a recent IMF mission chief for Romania, the country stands a very good chance of being able to grow more quickly than the EU average in the coming years, which will help it catch up with living standards in the richer member countries.37

taxpayers think the direct beneficiaries either are or will be people unlike themselves.

Similar to Bulgaria, Romania has a falling population as a result of emigration. Such a demographic manpower- and brain-drain is unsustainable if either country is to have a better economic future.

Romanias transition to a resilient marketoriented economy would be facilitated by openness to global commerce and efficient business regulations that promote

The sad truth is that, if young Romanians and Bulgarians continue to flee their homelands in existing numbers let alone in those approaching the forecasts

entrepreneurial dynamism. Nonetheless, perceived corruption, exacerbated by a relatively inefficient judicial system,

undermines the foundations of economic freedom and undercuts the prospects for dynamic long-term economic expansion.

contained in this paper both countries shall be witness to figurative zombie towns.

Similarly, the poor economic situation in Also like her Balkan neighbour, Romania exemplifies an Eastern European country that can do so much better in the future than she has in the past. Although it is one of the poorer countries in the EU, according
36

Bulgaria is compounded by an extremely high level of corruption in this EU member state. Bulgaria, with just over seven million people, remains easily the poorest country and one of the most corrupt among the EUs member states.

See Alberto Alesina, et al. Public goods and ethnic divisions, Quarterly Journal of Economics 114 (1999): 1243-1284, and Alesina, et al. Why Doesnt the US Have a EuropeanStyle Welfare State? Harvard Institute of Economic Research Working Papers No 1933.

37

Quoted in IMF Survey Magazine, Romania poised for growth, 5 March 2011.

19

According to the IMF, Romania has a number of strengths on which she could capitalise, including a large domestic

transparency. Therefore, extra focus and thought must also be given to attracting more global investment.

market, a diversified economic base, and a linguistically skilled yet inexpensive labour force.38 In that vein, the privatisation of state-owned enterprises is essential to the realisation of Romanias economic growth and subsequent employment potential. To date, Romanias notable comparative advantages have been the least developed by the global investment community among countries in the region. The global financial crisis hit investment in Romania very hard and investment inflows remain weak.40 Nevertheless, domestic investment is Romania ranks just 10th in Europe and only 4th in Central and Eastern Europe (CEE) as the number of jobs created as a result of foreign investment projects carried out in the country in 2012, according to a study by Ernst & Young. Last year, Romania was Disturbingly, the chances for foreign home to a mere 7,114 jobs generated by foreign investment. Due to the low level of investment inflows to the country, the positive impact on Romanias economic performance has been limited.

simply too low to support long-term growth.39 Around the world, emerging markets are experiencing a surge in capital flows. Yet, Romania is not benefiting as much as its emerging market peers.

investment to grow over the next few years are slim, Economist Intelligence Unit

analysts have claimed. The EIUs view is echoed by the Heritage Foundation, which warns that global investment is

encouraged officially but discouraged in practice by regulatory and a inconsistency, lack of

Over the past two decades, the potential advantages investment for were attracting foreign by

unpredictability,
38

overshadowed

Andrew MacDowall, Romanias new IMF agreement, Financial Times 1 August 2013. 39 Leyla Cheamil, Romanias economic prospects, Radio Romnia Internaional 22 July 2013.

negative elements, such as mistakes made

40

Actmedia.eu, Romania's economic outlook, subject of debate at Economist Conferences on Thursday, 25 November 2011.

20

in conducting reforms, legislative and institutional instability, and bureaucratic corruption, all of which provoked mistrust with the global investment community.

The solution to the EUs migration problem is not the figurative or literal erection of fences between European neighbours. The solution will not be found in additional laws, new regulations, or increased government

According to Marinescus research, the most frequently cited reason for the low level of external investment in Romania is the dazzling and contradictory legislative and institutional framework, which has been subject to many changes.

spending.

Instead, the solution may be found in the domestic adoption of the very economic principles that were the catalyst for the successful common trading community that eventually morphed into the modern-day EU: a financially solvent, lightly regulated economic marketplace open to internal and external competition and investment

Consequently, global investors generally have adopted a wait-and-see approach, especially as property rights have not been well-defined.

fostering consumer choice among its As the problem for Romania is less its cultural characteristics and more its political ones, a concerted effort to increase transparency and to engage in a more effective fight against corruption would increase confidence among global investors in the Romanian marketplace. If the likes of Romania pursue an economic path befitting a would-be Balkan tiger, the outcome will be an economic win-win, that is, for themselves and for those host nations currently grappling with the thorny, yet solvable, issue of intra-EU migration. residents and fiscal responsibility among the members of its political class.

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