Why has Romania-Europe's growth champion in the past two decades- exhibited persistently high poverty levels compared to its East European peers who joined the European Union? While poverty declined in Romania since EU membership (the $6.85 a day category declined from 27.8 percent in 2015 to 10.7 percent in 2020) it remains the highest in the EU and almost twice as high as in Poland. The population at risk of poverty in 2023 was 32 percent, the highest in Europe and far above Hungary (20 percent). Next to high growth cities like Cluj and Bucharest lie rural areas where 61 percent of people in “occupied but not employed” status are at risk of poverty (versus 30 percent in Poland and 22% EU average). Tragically, 1.5 million Romanians earn less than 5 euro a day and make up half of this category of poverty for all of the EU. Extreme poverty figures, albeit on a steep decline, have been far above CEE states for decades and remain comparable to those of low-income countries in Latin America. In comparative terms, Romania stands out on poverty, material deprivation and severe material deprivation.
This presentation revisits Romania’s outlier trajectory through the lens of political economy, arguing that poverty outcomes result from the interaction between three key factors: (1) the complex legacy of late Romanian state socialism—an egalitarian social structure undermined by chronic macroeconomic austerity and a fragile growth model; (2) the social dislocation triggered by eclectic reforms lacking income-support mechanisms in the early transition period (1990–1996), ; and (3) the subsequent entrenchment of disembedded neoliberalism, characterized by residual welfare systems and regressively regulated labor market after 1996. EU integration eventually fostered a stronger, less regressive growth model, with FDI-led exportist reindustrialization, the expansion of domestic demand and mass migration significantly reducing some metrics of poverty. Nonetheless, systemic drivers of poverty remain entrenched. Despite notable advances in median and medium-income growth, as well as in household consumption growth, Romania’s political economy continues to be marked by fragile safety nets and a state apparatus too fiscally constrained—and politically reluctant—to recalibrate its policy regime to effectively tackle mass poverty.
