Is Romania the EU's New Squeaky Wheel?

By 2020, the EU will be a thriving, successful coalition of member states. More of its citizens will be educated, fewer will live below the poverty line, and most will be employed.

At least, that's the goal of Europe 2020, the plan for cohesiveness and prosperity which also includes limits on greenhouse-gas emissions and targets for investment in research and development. The plan is concise, ambitious, and optimistic.

But with massive stumbling blocks in Romania, including very public governmental corruption, levels of energy consumption that are among the highest in the union, and a lack of a national strategy for innovation, Europe 2020 is facing an uphill battle.

Not the only problem child
Although a member of the European Union since 2007, Romania hasn't adopted the euro, nor is it part of the Schengen open-border zone. It plans to adopt in 2015, while Schengen dreams are repeatedly dashed by other member states with concerns about Romania's political instability.

Surely there's not only one member state posing challenges to the EU's overarching plan. One only has to look at Greece's contentious elections in May and June, when one of the driving questions was whether or not Greece would leave the euro and go back to the drachma. And Greek and Romanian banks are heavily intertwined, with the National Bank of Greece (NYSE: NBG  ) front and center throughout Romania.

But Romania has its own issues, including its inclusion on the EU's list of "catching-up group" of member states -- a special-needs category it shares with Bulgaria, Czech Republic, Poland, Hungary, Slovakia, Lithuania, and Latvia.

Now you build it. Now you don't.
According to a recent report from Reuters, the EU Commission is withholding 500 million euros intended to reimburse Romania for infrastructure and environmental projects because "it had identified serious problems in the country's anti-corruption procedures." The commission is also blocking future funds until concerns can be addressed.

Romania has received 1.8 billion euros in EU development aid to date, and nearly 22%, or 400 million euro, may have to be paid back this year. Officials say that if the struggling country doesn't take steps to resolve its problems within the next two months, all funds could be suspended.

Romania is hardly the only country to be plagued with corruption and scandal. A study by a Sofia-based nonprofit organization found that Bulgarians regularly indulge in corruption; the country's rate of corruption is nearly triple the EU's average. (The study found that Romania, Lithuania, and Slovakia had even higher rates of corruption.)

But to reach the ambitious goals of Europe 2020, the EU has called for more involvement of local and regional authorities and more financial investment.

Shine on, you crazy diamond
It's a call that major corporations are heeding. Alternative energy, one of the key areas identified by the Europe 2020 plans and an area of Romanian weakness, could become the country's strength. Samsung reportedly has plans to build two major photovoltaic parks south of Bucharest. GE (NYSE: GE  ) recently shipped a 2.5-megawatt wind turbine to Romania for an offshore farm. And CEZ, the largest utility company in the Czech Republic, is set to invest $502 million in Romania this year.

Energy isn't the only industry looking up in Romania. International Automotive Components  dedicated a new manufacturing plant in Bals this week to support Ford Motor Company's (NYSE: F  ) plant in nearby Craiova.

The Foolish bottom line
Overlooked by many global investors and often shunned by its sister states, Romania has the potential to be the next energy frontier. But between now and its possible adoption of the euro in 2015, there's one energy stock that's set to explode. Check out "The One Energy Stock You Must Own Before 2014." Download a copy on us; it's free for Fools.

Molly McCluskey previously lived in Athens and owns shares of National Bank of Greece. Follow her travel and finance tweets on Twitter at @MollyEMcCluskey.

The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy.
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  • Report this Comment On December 06, 2012, at 12:32 PM, XMFAlaska wrote:

    Correction: The wind farm is onshore. The article says it's offshore. My apologies.

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