Essay about Romania in recession

Submitted By Gina-Puhace
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Pages: 9
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Countries in the European Economic Community (EEC) have suffered in the recession. Select one of the EEC countries and imagine you were the Prime Minister of that country. Write an essay in three parts:
(A) history of the current economic crisis in that country;
(B) the current tourist economic situation and
(C) what you would do in the future to activate tourism if you remained as Prime Minister.
You should use relevant economic ideas to develop your arguments clearly and logically.
1 Understanding: the underlying causes of the recession
25
2 Understanding of the current situation with regard to tourism supply and demand
25
3 Your ideas for regenerating the tourism industry
30
4 Spelling, grammar, presentation
10
5 Correct referencing (using Harvard)
10

When inflation started to rise by more than 10 %, in the 1970’s, the Americans have been declared public enemy number one. Although it is well known that the prices are going up over time, most people do not know too much about forces that are behind this phenomenon. Inflation is defined as a sustained increase, over time, in the prices of goods and services and is measured as an annual increase in percent. As the inflation rate increases, each monetary unit will buy a smaller quantity of goods and services. Actual value of coins will never stay constant. It is established by the purchasing power, on how many goods and services can be purchased. When inflation rises, the purchasing power decreases. If, for example, the inflation rate is 5% per year, a product that costs 100 lei, over one year will cost 105 lei (Boboc, 2013).

The Euro zone recession started in year 2008 and it has had a severe impact on the tourism industry for central and east-European countries; Poland, Slovakia, and Romania being the most affected ones. Romania’s economy is categorised as an upper-middle wages market that is currently developing. “Is the 17th largest in the EU by GDP and the 13th largest based on purchasing power parity“(Wikipedia, 2014).

In 2009 Romania’s president, publicly announced that the country was officially in recession. After 9 years of consecutive growth, the GDP dropped to -6.4% in the first trimester of 2009, due to bad performance of industry, quality of service, lending, and domestic consumption. The economic decline headed towards government tightening fiscal policies, drop in production, and reduce in spending and wages, and negative revenue to the state’s budget. Romania had to focus more on the economic growth than on curbing inflation, resulting diminishes in the interest rate by the central bank.
In 2009, Romania borrowed 20 bn. euro from International Monetary Fund, EU, World Bank and other international financial organisations, paying back an annual interest rate of 3.5%. In return, Romania had to reduce spending and wages. Some of the impacts being: 25% cut in the government civil servants earnings, thousands of people left without jobs and the VAT increased by 5% to 24%.
Recession is caused by decline in production, investment, business, and the economic activity of a country.
It is represented through a decrease of GDP, population income, number of paid jobs, industrial production, and retail, and wholesale (Wikipedia, 2014). With recession reducing disposable income, people were forced to reduce spending, especially for travel. The most impacted segment for Romania’s tourism was outbound tourism. The tourists reduced their spending by 30% from 460 million euro in 2008 to 310 million euro 2011. Domestic tourism had been affected at the same time by 11%, from 1.01 bn. euro in 2008 to 900 euro 2011. Same study showed that the tourism industry contributes with approximately six bn. euro to Romania’s GDP. Although comparing to other countries, this is still a small contribution. Tourism is one of the most profitable businesses worldwide, that does not pollute, creates jobs, and generates foreign currency. The revenue that tourism industry generates has
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