Transatlantic Politics

Corruption is still a big problem in most Eastern European countries, even after they joined the EU. The biggest failure, on the EU side, was to take for granted that once these countries adopt the EU legislation, their judicial systems will function exactly like in Western Europe. But in a Communist regime, the judiciary is a mere political tool. And by keeping all those judges and prosecutors who were trained in Communist times and have a distorted view of the rule of law, these countries cannot function properly.

A survey made amongst Romanian judges showed that most of them don’t consider corruption as being a serious crime. "It’s not like you kill someone. And how can I sentence someone to many years of prison for corruption, when I have to bribe myself nurses and doctors if I go to the hospital", said a judge as quoted by a German expert who ran the survey.

The Economist writes a sharp analysis on how the crackdown on corruption in Eastern Europe has eroded after the countries joined the EU.

For corrupt officials in central and eastern Europe, life has seldom been better. Joining the European Union has produced temptingly large puddles of public money to steal. And the region’s anti-corruption outfits are proving toothless, sidelined or simply embattled.

The biggest problems are in Romania and Bulgaria, the EU’s two newest members, whose apparent inability (or disinclination) to deal with high-level corruption has led to increasingly acerbic public warnings from Brussels. But other countries have done badly too.

Barely three months after it joined the EU in 2007, the Romanian government fired Monica Macovei, a doughty justice minister who had attacked corruption head-on. Her successor tried to fire the anti-corruption prosecutor for investigating his political sponsors. The incumbent is a former lawyer for Russia’s Gazprom. Procedural snags have held up all high-level corruption cases. Investigation of former ministers now requires parliamentary approval, sending every case back to square one. Although Romania comes out lowest in the EU in the rankings by Transparency International, a lobby group, the government seems determined to attack its critics rather than corruption.

(…)

As its economic competitiveness erodes, eastern Europe can ill afford bad government. Voters are generally disillusioned with post-communist politics. Yet from the Baltic to the Balkans, even politicians facing the most startling accusations of corruption seem not to suffer at the polls. A bit like Italy, really.

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Amazing how neither John McCain, Barack Obama, nor Hillary Clinton seem to grasp the world outside of our borders and how our currency problems are a sympton of HUGE underlying problems with not only the U.S. Dollar but the U.S. economy in general.  On paper, the U.S. is bankrupt.  Such problems lead to (amongst other things) inflation across the board.

An open letter from Ron Paul:

America became the greatest, most prosperous nation in history through low taxes, constitutionally limited government, personal freedom and a belief in sound money. I decided to run for president because I am deeply concerned that the conservative movement has drifted away from these principles that we once so fiercely defended. Deficits have exploded, entitlements are out of control and our personal liberties are threatened like never before.

The current state of our economy drives home the hard truth that living beyond our means has caught up to us. Oil is over $100 a barrel, the housing market is in sharp decline and the dollar is in a free fall.

The national debt now stands in excess of $9 trillion, more than $30,000 per person. The total future debt obligations of the United States, including entitlements, are estimated at around $59 trillion, which equates to over $500,000 per household. Social Security and Medicare will likely consume the entire federal budget by 2040, threatening the average American with an impossible tax burden.

As I said this past November to Federal Reserve Chairman Ben Bernanke, "We’re indeed between a rock and a hard place, and we don’t talk about how we got here; we talk about how we are going to patch it up." The "solutions" proposed so far–stimulus packages, bailouts and interest rate cuts–just amount to printing more money, which will lead to greater currency devaluation, contribute to the rising costs of living, and further squeeze the middle class and our senior citizens.

This is the first time in over 100 years that monetary policy is being discussed in earnest during a presidential campaign. Money is the lifeblood of any economy, and control over a nation’s currency means control over its economic well-being. Fed bankers quite literally determine the value of our money by controlling the supply of dollars and establishing interest rates. Their actions can make you richer or poorer overnight, in terms of the value of your savings and the buying power of your paycheck. For over 30 years, I have been urging all Americans to educate themselves about monetary policy in order to better understand how a small group of unelected individuals at the Fed and the Treasury Department wield tremendous power over our lives.

In order to immediately strengthen the economy and lay the groundwork for continued prosperity, I have proposed a four-part plan that involves lower taxes, less spending, a sound monetary policy and regulatory reform.

We can take several immediate steps to reform our archaic tax system and give Americans back the fruits of their labor. I will work to make the Bush tax cuts permanent, including a repeal of the estate tax, and I will fight to end taxes on Social Security benefits and income derived from tips. I also believe that if we are to truly address the housing crisis, we will end taxes on forgiven mortgage debt, which is considered "income."

The most permanent tax reform we can undertake, though, is to end the income tax and abolish the IRS. We could remove the entire personal income tax-funded portion of the budget and the federal government would still receive roughly the same revenues that it did during the Clinton years. And we could do this without even touching Social Security and Medicare.

The key to tax reform lies in spending reform. It’s time to cut back on our trillion-dollar overseas budget and use that money to secure the programs Washington has forced so many citizens to depend on. By doing this, we can let younger generations opt out of these programs and save for their own retirements and health care needs. As president, I will also veto any unbalanced budget and demand that Congress address wasteful spending.

Lower taxes and less government spending will put more money in your pocket. A sound monetary policy will increase the value of that money and drive down the costs of living.

Immediate monetary reform can be achieved by requiring transparency at the Fed. All Federal Reserve meetings should be televised just like the proceedings of Congress, and they should once again make all information on the money supply available. I also favor legalizing competing currencies. History is replete with examples of the inevitable failure of paper money systems, from our own founding days, to inter-war Germany, to the monetary crisis of 1970s Latin America.

However, I believe that for our economy to be secure in the long term, Congress must reassert its authority and end the unconstitutional Federal Reserve.

Finally, we must be willing to undertake regulatory reform. It would serve us well to revisit the myriad federal regulations that have stymied the innovative spirit of the American people.

One of the most damaging regulations imposed on the American people is the Sarbanes-Oxley Act. A survey by Financial Executives International put the average cost of compliance with Sarbanes-Oxley at $4.4 million, while the American Economics Association estimates the Act could cost American companies as much as $35 billion. A study by the prestigious Wharton Business School found that the number of American companies delisting from public stock exchanges nearly tripled the year after Sarbanes-Oxley became law. One of the best things Congress could do for the American economy is to repeal this damaging legislation.

According to David Walker, former head of the U.S. Government Accountability Office, "We are mortgaging the future of our children and grandchildren at record rates, and that is not only an issue of fiscal irresponsibility, it’s an issue of immorality."

Unless we embrace fundamental reforms, we will be caught in a financial storm that will humble this great country as no foreign enemy ever could. However, we can find safe harbor in our ideals. Reclaiming our historic legacy of principled commitment to liberty will, once again, unleash the innovative spirit that propelled our nation to heights of prosperity never before achieved in human history.

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In Romania, EU's newest member state, if you want to get a public tender fixed, the minister might ask you for some euros. Also some sausages and plum brandy, writes The Economist.

Just weeks ago, the agriculture minister Decebal Traian Remes was shown on public television in what appeared to be the act of taking an envelope with 15.000 euros. His middleman, also a former minister, was then videotaped going to Remes' house with boxes of sausages and gallons of plum brandy. The tape included phone recordings in which Remes was asking the bribe-giver, a local businessman, about the exact registration numbers of the tenders he wanted to secure for himself.

Within two days of the tape being shown, Remes was asked by the Premier to resign. The moment couldn't have been worse for Romania:  The European Commission is threatening to cut 25% of the agricultural subsidies worth 100 million euros if the Government doesn't set up a functioning and transparent agency for distributing said funds to Romanian peasants.

As for the fate of Mr. Remes and a handful of other former and present ministers suspected of corruption (including the current Justice Minister!), things look brighter than could be reasonably expected in any other European country.  An “emergency ordinance” was recently passed by the Romanian government; an extraordinary legal procedure usually concerning urgent matters that enables the government to enact decrees without the usual parliamentary procedures.  As a result of this ordinance, the government dissolved the commission which conveniently happened to be in the process of lifting the ministers' immunity, which would have enabled prosecutors to actually investigate all of this purported corruption. The new commission is unlikely to resume activity this year, since there are ongoing appeals against the ordinance.

These delays to corruption trials are, unfortunately, not the first or only instance of such "politicking". Since Romania became an EU member on January 1^st,  the political class has been  working on all levels to restore the privileges and impunity mechanisms it lost during the accession process. Changing the rules during the game seems to be the motto of the current administration. All sorts of legal exceptions, new amendments and bills are meant to undo what the former Justice minister Monica Macovei, broadly appreciated as a true reformist, succeeded in instituting. Unfortunately for Romania, Macovei was replaced during a government reshuffle in April.

 
Public perception of corruption is high: according to the last Transparency International corruption index, Romania is perceived as the most corrupt country within the EU.

The current Justice Minister Tudor Chiuariu, a former lawyer of a prominent regional party-boss of the governing Liberal Party, blames it on the prosecutors. In Chiuariu's eyes, it's not the MPs who change the laws during the game who are to blame, not the Government who sometimes rules by decree, nor the judges who are by large majority inherited from the Communist era, when they served as a mere branch of the political police. No, in Justice Minister Chiuariu's eyes, this latest bout of corruption is the fault of the prosecutors!  Unlike in East Germany, when upon reunification, all judges were evaluated and further employed only if it was certain that they would not act upon political commands, in Romania judges were automatically “recycled” by the post-Communists.

For Chiuariu, the activities of the Anticorruption Department, although praised in the EU Commission’s reports, are just “political commands”. Just days after his appointment earlier this spring, Chiuariu asked for one of the top prosecutors to be replaced – the head of the department dealing with top-level politicians. Even after the Superior Council of Magistrates audited the activity of that prosecutor and found that there are no grounds for him to be dismissed, Chiuariu persisted and asked the president to replace him, only to be refused again. If Chiuariu's (and Romania's) history is any indication, Chiuariu's next step will probably be a draft amendment in order to limit the presidential powers in this regard so that Chiuariu can expel those prosecutors he deems dangerous.

On the EU side, the Commission has some leverage left – the so-called “EU Cooperation & Verification Mechanism” for Justice and Home Affairs - is a unique post-accession monitoring program for Romania and Bulgaria that was designed & instituted in order to ensure the proper functioning of the rule of law and help these two country's fight against corruption. If the progress is unsatisfactory, the Commission can apply a safeguard clause that would block any Romanian verdicts from being legally binding in the EU.

If the Romanian justice system continues its current trend, the EU might very soon have to deal with a failure on the scale of the failure of the EU Constitution in 2005:  Romania would become the first EU member state with a dysfunctional rule of law and unchecked corruption. Such a scenario would be a disaster for both the EU & Romania. 

 This should at least be a lesson for the next EU candidates in line: No EU accession without a real reform of the political class and judicial system.

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The Eastern European countries are engaging in what seems to be a race to the bottom in the implementation of a flat tax policy & rate. Trying to attract ore foreign investments than its neighboring country Romania, who adopted the flat tax at a rate of 16% in 2005, Bulgaria now announced it will introduce a flat tax of 10% in January 2008, the lowest rate so far. But other Eastern European countries are contemplating the idea of adopting this fiscal policy, and one has to wonder how low they can go with the taxation bar. For instance, the Czech Prime Minister announced in March that a 15% flat tax is "certain" to be introduced next year.

Implemented correctly, the flat tax policy has proved to be successful, at least in the Baltic states (which had higher rates though, between 24%-26%) when combined with strong emphasis on collecting the taxes and cutting red tape. In Romania, though, the policy is a mixed bag, the current Liberal minority government being backed by the Socialists in Parliament, has recently adopted a new pensions law that will most probably increase the social contributions and other hidden taxes. Cutting red tape has not been a priority so far, and foreign investors, although drawn by the new EU country, complain about the lack of transparency, bureaucracy and lingering corruption.

In the same race to the bottom spirit of Bulgaria, the Balkan country of Macedonia lowered its flat tax from 12% to 10% this year, claiming it's a "new business heaven in Europe". According to the Index of Economic Freedom,

"Macedonia is ranked 32nd out of 41 countries in the European region, and its overall score is lower than the regional average. Macedonia faces many challenges, including weak freedom from government, investment freedom, property rights, and freedom from corruption. Government expenditures are high, although state-owned businesses do not account for a significant portion of total revenue. The court system is prone to corruption, political interference, and inefficiency, partially as a result of the country's political turmoil."

Macedonia's agressive PR campaign might be thus a slight overstatement, though perfectly understandable as it is coming from a country that wants to join the EU and become more prosperous. Still, just by lowering the taxation bar and failing on deeper economic and political reforms doesn't do the trick.  Not in the long run.

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There is something about the Baltic states… something refreshing, inspiring and courageous.

Their recent history after the breakup of the Soviet Union is an economic success story with double-digit GDP growth rates. Estonia is the most high-tech society in Europe - with e-government & online voting - having earned the nickname "E-stonia".

Yet listening to the their three foreign ministers speaking about the 85 years of US-Baltic relations at the Heritage Foundation last Thursday, some differences do become obvious. Especially concerning their relationship with Russia.

The most pro-Russian stance was the Lithuanian one. Foreign Minister Petras Vaitiekunas, with a strong Russian accent, underlined several times that "Russia is not the USSR anymore, it differs profoundly" when the discussions were becoming too critical of Moscow. He also spoke of a "political brand of the three Baltic states", a brand that was not reflected in their very different views on Russia.

"We need Russia, so in our relationship, patience is the word" - Petras Vaitiekunas, Lithuanian Foreign Minister

Trying to strike a balance, the Latvian Foreign Minister Artis Pabriks first payed his tribute to the role of the US in the Baltic states' quest for freedom:

"All our achievements, in our economies, but also on a personal and professional level, could not have been accomplished if we weren't free countries. During the Soviet occupation, we used every opportunity to listen to Radio Free Europe, despite the Russian scrambling, and we really believed that one day we will be free countries." 

But talking about the Latvian relationship to Russia, Pabriks said that "this relationship shouldn't be a prisoner of the past".

Latvia just recently ratified a border-treaty with Russia, and the Foreign Minister proudly announced that his Russian counterpart Sergei Lavrov promised to visit Riga, Latvia's capital, soon.  Of the three Baltic states, Latvia should be considered the occupier of the middle ground with respect to how they view Russia.

A tougher stance came from Urmas Paet, the Estonian Foreign Minister, who was much more outspoken and than his Slavic counterparts.

"Russia is building up its foreign policy through confrontation with the US & EU, and through confrontations with its neighbors and the new democracies surrounding it." 

The recent row with Russia over the displacement of a Soviet statue and the following cyber-attacks against Estonian websites prompted the government in Tallinn, Estonia's capital, to take a firm stance against the Kremlin: Estonia successfully pushed to expand NATO powers onto the Internet.

"We experienced three weeks of cyber attacks, with 400 times greater traffic than normal, aimed to completely paralyze our country. The Internet has become the battlefield of the 21st century. It is possible to inflict serious damage in highly digitalized societies, just like a regular attack on conventional infrastructures", explained Paet.

The Estonian Foreign Minister requested that a "legal definition of cyber warefare" be formulated as soon as possible and announced the upcoming opening of a "cyber defense center" in Tallinn. 

Daniel Fried, Assistant Secretary of State for European and Eurasian Affairs,  confirmed the fact that "NATO is already working on the technical cooperation"  regarding  "these unconventional threats: Using energy for political aims, cyber attacks or financial pressure", obviously alluding to Russia's new power policies.

"Russia's policy is to surround these countries, to encircle them. The EU is very many things, but certainly not a conquering imperialist force. And isn't it in Russia's best interest to be surrounded by democracies? Russia should have learned from its experience that it is not democracies who pose a threat, but totalitarian regimes and dictatorships." - Daniel Fried, Assistant Secretary of State

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