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Insolvent Town Exposes Gulf Between EU Dreams And Reality

posted 2 Sep 2013, 05:22 by Mpelembe   [ updated 2 Sep 2013, 05:22 ]

The first Romanian town to file insolvency paints a grim picture of a country where hundreds municipalities struggle to support themselves despite availability of European Union funds.

 ANINOASA, ROMANIA (AUGUST 8, 2013) (REUTERS) -  Children in the small Romanian town of Aninoasa play on the abandoned grounds of a former coal mine, once the town's main source of employment, now a mixture of ruined buildings and a grazing ground for goats.

The town of 4,800 has lost half its population in the last 20 years and large parts of it still lack basic services like sewage and gas.

Like elsewhere in the mountainous Jiu valley, once home to a strong coal mining industry, the mine closed in 2006 and nothing has replaced the jobs it offered since.

"It is mostly pensioners now, 80 per cent," said Petru Fer, an 81-year-old former miner with a gentle smile.

"The others are young people who finished different schools and stay at home as they don't have a place to work."

With local taxpayer money dried up and shoddy management, the town hall piled up unpaid debts and earlier this year Aninoasa became the first Romanian town to file insolvency.

There is some concern in European Union that Romania and neighbouring Bulgaria were allowed into the bloc too soon. They remain its poorest states, with per capita income less than half the EU average and are struggling to use non-refundable structural funds to catch up.

Aninoasa is just one of the many Romanian towns that are poor, lacking jobs and mismanaged by local authorities, despite six years of the EU's reforming influence and to the despair of bureaucrats in Brussels.

The EU has set aside 20 billion euros in non-refundable development funds for Romania to build roads, sewage and central heating in its impoverished regions during 2007-2013. The country has so far secured only a fifth of those funds, whereas other emerging EU states like Poland have made good use of Brussels cash.

Roughly one in two mayors that have tapped EU funds for projects were penalised later for various irregularities, according to the think tank Institute for Public Policies.

In Romania, before a project using EU structural funds can start off, it needs to be audited by the state.

"Corrections" or changes in the project resulting in cutting of funds usually follow.

"There is a reluctance to talk about European money, given that it is not simple to obtain them, it is not simple to implement projects and then before they start off they are also amended (by the authorities), which usually reduces the budget," said Elena Iorga, a public administration expert at the institute.

A study by the Institute for Public Policies showed that hundreds of towns across Romania cannot cover their running costs with their own revenue, nor do they cooperate to find solutions for similar problems.

Instead of improving tax collection, which is at 70 percent overall, they appeal to the government for additional funds from the state budget or turn to private loans instead of securing EU funds. Corruption and cronyism add to the problem.

The National Integrity Agency, an anti-corruption watchdog set up after Romania joined the EU, has found that 193 mayors, deputy mayors, local and county councilmen had conflicts of interest, forged statements or acquired unjustifiable income since the mid-2012 local election.

Another study of 2,856 local and county councilmen from all political parties showed that almost half of them or their wives owned private firms and service providers, many of which had been awarded public contracts.

Romania ranks 116 out of 144 countries in a World Economic Forum competitiveness report, far behind neighbours Bulgaria, the Czech RepublicHungary and Poland.

Local administration is highly segmented. The country of 20 million has roughly 3,200 cities, towns and villages whereas it's regional peer Poland, has 2,800 at double the population.

"Every four years, during every term we get members of parliament whose sole legislative initiative is to create a new village or to raise a village's status to town, I cannot comment on why this is happening," Iorga said.

In Aninoasa, a new administration was elected in mid-2012 and soon realised that annual revenues of 4.2 million Lei ($1.26 million) cannot match the towns roughly 6 million Lei debt.

In effect, public lighting was cut off for a few months last year and only came back on before Christmas.

Infrastructure remains underdeveloped, with many gravel roads and no central heating in many parts of town.

"Our mayor likes to joke there are only two important towns in insolvency in the world, one inAmerica (Detroit) and one in Europe (Aninoasa)," said deputy mayor Adrian Albescu.

"For the past year we have done nothing else but pay debts," Albesu added, pointing the finger of blame at the town's former administration.

The town hall owes money to 70 firms and service providers. Most of the debts were amassed under former mayor Ilie Botgros, who lost the election after 21 years in power. The bulk of the debt stems from a loan worth $1.05 million. The new mayor filed a criminal complaint against Botgros, and an investigation is ongoing but no charges have yet been made.

Botgros, who is still a local councilman and plans to run for mayor again in the next election, said he has used the giant loan to pay off previous investments, including work on a bridge and a gas pipeline in the northern part of the town.

"Do you really think that after 20 years in office I went crazy or started stealing money or something?," Botgros said, adding that everything he did was in the interest of the local community.

Officials are now working with a court-appointed administrator to draft a strategy for Aninoasa. Albescu said the town would benefit if its status were lowered to village, with lower taxes and incentives for starting up businesses.