By John W. Miller
June 28, 2006
The Wall Street Journal

Around Christmas 2004, human-rights lawyer Monica Macovei got a call from Romania’s new president, Traian Basescu.

How would she like to be justice minister? he asked.

The soft-spoken Ms. Macovei took the job, even though she didn’t belong to any political party. “There was no call in me to go into politics,” she says. “But it was a chance to put into practice what I’d been preaching.”

The appointment has become a symbolic turning point for this sprawling, mostly rural country of 22.3 million, which looks almost certain to enter the European Union in January, some 16 years after the death of communist dictator Nicolae Ceausescu. A European Commission report published May 16 said the country was close to meeting EU standards in most areas. Many analysts interpreted that as a green light for joining in 2007.

Two years ago, Romania was considered a laggard in the race with Balkan neighbor Bulgaria to get ready for EU accession. Now, thanks in part to Ms. Macovei’s efforts, Romania has leaped ahead. “It was very clever of the president to appoint her,” Timo Summa, one of the European Commission’s top negotiators in Brussels, says of Ms. Macovei. “She came with no burdens.” Other EU officials echo his thoughts.

As Ms. Macovei has gone about the business of fighting corruption and earning plaudits from people such as Mr. Summa, Romania has leaped ahead in other areas. The real-estate market, supported by growth in the banking sector, is booming. Foreign investment has overtaken that of Hungary and Bulgaria. The Bucharest Stock Exchange is still small, but market capitalization is expected to triple to €40 billion, or about $50 billion, in the five years after the country joins the EU, as investment banks start buying into what has been a small market. The changes are an example of how the EU can wield “soft power,” using the attraction of EU membership to get countries to change.

Much of Romania still seems frozen in a time warp – poor, rural and stuck with ancient ways. In some parts of the country, people still don’t have phone lines, and some in the Roma, or Gypsy, communities remain illiterate.

Income inequality still runs deep, especially in small towns. Silvia Pop lives with her young daughter on less than €100 a month in Sinnicoara, a village just east of Cluj, a city of 340,000 in central Romania. “It doesn’t feel like there are more opportunities than 10 years ago,” she says.

It is easy to miss pockets of poverty if one sticks to booming urban centers such as Bucharest, Cluj or Timisoara, which are fueling the country’s economic growth. The European Commission forecasts GDP will expand 5.5% this year and 5.1% in 2007, up from 4.1% in 2005.

The talk of Bucharest is the real-estate market. In interviews, more than a dozen politicians and business people all said that, given a million euros to invest, they would spend it on land. Prices in the capital have doubled in the past 18 months.

Lending to private consumers and businesses has risen nearly 40% during the past year. After selling off one of the two remaining state-owned banks, the government will own less than 10% of banking-sector assets.

Since 2000, Romania has attracted €15.4 billion in foreign direct investment, compared with €13.6 billion for Hungary and €9.6 billion for Bulgaria, according to a study by Bank Austria.

The key to prosperity in Romania will be implementing Western standards of transparency – and getting rid of corruption. Bribery and graft have deep roots in Romania. Enter the justice minister.

Ms. Macovei, 47, forged her beliefs in a long legal career. Despite opposition from other politicians, who she says rarely invite her to party meetings, she has pushed through enough legislation to get noticed.

A law was passed forcing all public officials to disclose all their assets, and she appointed an anticorruption prosecutor. She budgeted €18 million to put computers into courtrooms and made courts assign cases randomly. Political parties were forced to publish details of campaign contributions. She barred police from taking cash.

On June 5, former Deputy Prime Minister George Copos was indicted for tax evasion in a real-estate deal.

Such cases are an encouragement to people like Vlad Milev, an investment analyst for Metzler/Payden LLC, a Los Angeles mutual-fund company that manages €200 million invested in stocks in Eastern Europe. “We’ve shied away from Romania because it was one of the worst communist dictatorships and has lacked a good business culture,” he says. “But not they’re bringing to justice people seen as untouchable.”