Romania’s Economic Ascent: A Success Story at Risk?

Back in 2007, when Romania joined the European Union, it ranked last in GDP per capita based on purchasing power among EU member states. Fast forward to today, Romania has overtaken Hungary, Bulgaria, Greece, and several other neighbors. This remarkable economic rally raises an important question: How did Romania achieve such growth despite poor governance, lack of infrastructure investments, inefficient public services, persistent corruption, and a deeply bureaucratic administration?

The answer lies in two pivotal fiscal reforms ignited this economic boom:

·?????? The 2005 Flat Tax Reform – Simplifying the taxation system with a 16% flat tax on corporate and personal income attracted investment and encouraged entrepreneurship.

·??????The 2015 Fiscal Code Reform – Further streamlined taxation, reducing the VAT and easing tax burdens for SMEs, stimulating business expansion.

The image below perfectly illustrates the parabolic rise Romania's GDP has had starting with the adoption of the two key reforms

These measures created a business-friendly environment that fueled the growth of one of Europe’s most dynamic SME sectors—primarily family-owned businesses—while simultaneously attracting large-scale foreign direct investments. The rapid economic expansion boosted government revenues, enhancing Romania’s credibility among international creditors eager to finance the country’s deficit.

However, the government did not capitalize on this fiscal windfall through strategic investments. Instead, public spending exploded, primarily targeting consumption rather than long-term infrastructure or productivity-enhancing projects. Then came the perfect storm:

?? COVID-19 – The economy shut down for nearly two years, prompting massive government spending on subsidies and grants to prevent collapse.

??Monetary Expansion – Unprecedented money printing fueled inflation.

??Interest Rate Hikes – In response to inflation, central banks raised interest rates, slowing down economic growth.

??The Energy Crisis – The European energy crunch further pressured costs for businesses and households.

??Chaotic Electoral Spending in 2024 – Politicians engaged in reckless fiscal policies to secure votes.

The result? Romania ended 2024 with an 8.7% budget deficit and a meager 1% economic growth rate.

Now, to cover for past fiscal mistakes, the government is dismantling the very tax system that made Romania competitive. Higher taxes, excessive interventionism, and unpredictable policies threaten to suffocate the private sector—the very engine of Romania’s success.

Romania is fighting fire with fire—solving interventionist-induced problems with even more interventionism. If this trend continues, we risk eroding our hard-earned economic edge and reversing decades of progress.

The lesson? Economic success comes not from government intervention, but from allowing businesses to thrive. Let’s not forget what made Romania’s growth story possible in the first place.

Despite these challenges, Romania retains several powerful competitive advantages that, if leveraged properly, could drive sustained growth in the coming decades.

Energy Independence and Export Potential

Romania is set to become Europe’s largest gas producer following the finalization of the Neptun Deep project. (I am not sure if we truly recognize the immense meaning of this aspect). This will allow the country to:

??Cover its internal gas consumption.

??Attract industries that require large quantities of gas (chemicals, fertilizers, manufacturing).

??Export surplus gas, strengthening its regional economic influence.

Additionally, massive investments in electricity production capacity are positioning Romania as a self-sufficient energy hub, reducing dependence on external sources and stabilizing long-term energy costs.

A Historic Leap in Infrastructure Development For decades, Romania’s economic potential has been hindered by underdeveloped infrastructure. However, unprecedented EU funding and Romania’s Schengen accession are finally unlocking long-overdue projects:

• The A1 Bucharest-Sibiu Highway – Will enable direct transit from Constan?a Port to the Western border with Hungary, further solidifying Romania’s strategic position as a key EU logistics hub.
• The A7 Moldova Highway – Will ignite economic growth in Moldova, one of Romania’s historically underdeveloped regions, while also providing a vital corridor for Ukrainian reconstruction efforts.
• The A0 Bucharest Highway – Will support Bucharest’s continued economic expansion, improving mobility around the country’s most important business hub.

With these projects, Romania is finally catching up with Western Europe’s infrastructure standards, unlocking new investment and trade opportunities.

• One of Europe’s Safest Countries As many Western European nations face increasing instability and security concerns, Romania remains one of the safest countries in the world. This social stability is an often-overlooked economic asset, providing a favorable environment for businesses, investors, and families alike.
• The Reversal of Brain Drain For the first time in decades, 2024 saw more Romanians returning home than leaving the country. This signals a turning point in the brain drain phenomenon that has long plagued Romania. If this trend continues, Romania could benefit from an influx of skilled professionals and entrepreneurs eager to build their futures at home.

Romania’s Hidden Gems: Tourism and Financial Markets

• Tourism Potential – With stunning mountains, Black Sea beaches, medieval castles, and unique cultural experiences, Romania has the potential to be one of Europe’s top tourism destinations—if properly developed.
• Financial Markets – Romania’s stock market and financial sector remain underdeveloped, but with increased capital market participation this could become a major growth driver. The development of capital markets is thus essential for the future development of the Romanian Economy. From Venture Capital and Private Equity funding, up to increased liquidity on the local stock exchange, Romania’s successful SME’s need to go to the next level. They need investments, they need corporate governance and the scrutiny of financial markets. This will take them to the next level. And they will take Romania’s economy to the next level.