CNBC Comment: Romania risk hinges on euro fine print

COUNTRIES once fell over each other to gain membership of the exclusive Eurozone club. But following four bailouts, the rich crowd now looks more like a liability.

Romanian Prime Minister Victor Ponta’s face twisted into a wry smile when I asked him if he is waiting to see how the Eurozone appears in several years’ time before embracing the common currency. Romania was scheduled to adopt the euro in 2012, then in 2015. Now it is anyone’s guess. “We want to be prepared and competitive when we join the eurozone. I think 2018 to 2020 is a realistic target. We are following, in a cautious way, Poland, which is much more advanced than Romania in structural reforms,” said Ponta.

Ponta also has his fingers crossed that the Eurozone’s medicine takes hold by the end of this decade. “We are expecting to see that all the measures have been taken to strengthen the Eurozone and make it strong again, including all the regulation.”

But by box ticking Eurozone requirements, Romania gains the additional benefit of stilling investor fear that surfaced in 2009, when the country took an EU and IMF loan. The precautionary facility remains in place as a lifeline. But now Romania is making progress on growth, inflation, deficits, corruption safeguards, and asset sales targets to cross the bar to entry. Last week, it listed state gas group Romgaz on the London Stock Exchange.

The IPO happened in a week that coincided with the Fed’s Janet Yellen convincing investors that the window remains open for risk-on investments. And Romania is making the most of improved sentiment. “Right now with all our government bonds, the over-subscriptions are five times more,” said Ponta. Romania had a taste of success pre-crisis, and it’s a sensation it’s keen to savour again. Growth forecasts for this year have been upgraded from 1.6 per cent to 1.9 per cent. Now 2.2 per cent is on the cards, according to Romania’s government. But the IMF is less optimistic on the region. It believes deleveraging by foreign-owned banks will not allow grey clouds over central and eastern Europe to lift in the foreseeable future. “They are going to face a slower rate of growth, although still larger than the average we see in Western Europe. They have to stay as competitive as their peers and make sure that the business environment is sufficiently attractive to be part of the supply chain of Western Europe,” said Reza Moghadam, head of the European Department at the IMF.

It leaves investors seeking the thrill of higher returns in Bucharest to wade carefully through the fine print.

Karen Tso is an anchor for Squawk Box Europe on CNBC. @cnbckaren