Comparative Study On Financial And Administrative Decentralization In European Countries

ISSN 2066-575X

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THE ANNALS OF THE "ŞTEFAN CEL MARE" UNIVERSITY OF SUCEAVA. FASCICLE OF THE FACULTY OF ECONOMICS AND PUBLIC ADMINISTRATION VOLUME 10, NO. 1(11), 2010

Editura UniversităŃii “Ştefan cel Mare” din Suceava

The Annals of The "Ştefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration

Vol. 10, No. 1(11), 2010

EDITORIAL BOARD: Editor-in-chief: Carmen NĂSTASE General editorial secretary: Adrian Liviu SCUTARIU Editors: Elena HLACIUC, Carmen CHAŞOVSCHI, Mariana LUPAN, Ovidiu Florin HURJUI SCIENTIFIC COMMITTEE: Angela ALBU, „Ştefan cel Mare” University of Suceava, Romania Paolo ANDREI, University of Parma, Italy Stefano AZZALI, University of Parma, Italiy George P. BABU, University of Southern Mississippi, USA Christian BAUMGARTNER, International Friends of Nature, Austria Grigore BELOSTECINIC, ASEM, Chi şinău, Republic of Moldova Ionel BOSTAN, „Alexandru Ioan Cuza” University of Iaşi, Romania Aurel BURCIU, „Ştefan cel Mare” University of Suceava, Romania Gheorghe CÂRSTEA, Academy of Economic Studies, Bucharest , Romania Slobodan CEROVIC, Singidunum University, Belgrade, Serbia Simion CERTAN, State University of Chişinău, Republic of Moldova Carmen CHAŞOVSCHI, „Ştefan cel Mare” University of Suceava, Romania Liliana ELMAZI, Tirana University, Albania Cristian Valentin HAPENCIUC, „Ştefan cel Mare” University of Suceava, Romania Elena HLACIUC, „Ştefan cel Mare” University of Suceava, Romania Elena IFTIME, „Ştefan cel Mare” University of Suceava, Romania Marian JALENCU, State University of Chişinău, Republic of Moldova Miika KAJANUS, Savonia University of Applied Sciences, Iisalmi, Finland Stefanos KARAGIANNIS, Institute of Tourism Research, Athens, Greece Maria MUREŞAN, Academy of Economic Studies, Bucuresti, Romania Carmen NĂSTASE, „Ştefan cel Mare” University of Suceava, Romania Alexandru NEDELEA, „Ştefan cel Mare” University of Suceava, Romania Ion PÂRłACHI, ASEM, Chişinău, Republic of Moldova Rusalim PETRIŞ, „Ştefan cel Mare” University of Suceava, Romania Abraham PIZAM, University of Central Florida, Orlando, Florida Ion POHOAłĂ, „Alexandru Ioan Cuza” University of Iaşi, Romania Gabriela PRELIPCEAN, „Ştefan cel Mare” University of Suceava, Romania Gheorghe SANDU, „Ştefan cel Mare” University of Suceava, Romania Petru SANDU, Elizabethtown College, Pennsylvania, USA Pavlo SHYLEPNYTSYI, Bucovina State Academy of Finance, Chernivtsi, Ukraine Doru TILIUłE, „Ştefan cel Mare” University of Suceava, Romania Ion TORONCIUC, National University Yuri Fedcovici, Chernivtsi, Ukraine Viorel łURCANU, ASEM, Chişinău, Republic of Moldova Diego VARELA PEDREIRA, University of A Coruna, Spain Răzvan VIORESCU, „Ştefan cel Mare” University of Suceava, Romania Valeriy YEVDOKYMENKO, National University Yuri Fedcovici, Chernivtsi, Ukraine

Text review: Alina HODOROABĂ, Adrian Liviu SCUTARIU. Cover design: Adrian Liviu SCUTARIU Contact: Faculty of Economics and Public Administration „Ştefan cel Mare” University of Suceava Str. UniversităŃii nr. 13, Corp H, Camera H108 720229 SUCEAVA, ROMANIA Phone: (+40) 230 216147 int. 294 E-mail: [email protected] Journal web site: www.seap.usv.ro/annals Faculty web site: www.seap.usv.ro University web site: www.usv.ro

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CONTENT

SECTION 1 ECONOMY, TRADE, SERVICES ..........................................................................................................................7 SPECIFIC PUBLIC RELATIONS TOOLS USED IN ONLINE COMMUNICATIONINS BY TOURISM COMPANIES ............................................................................................................................................................ 9 Associate Professor Ph.D. Nicoleta-Rossela DUMITRU Romanian American University, Bucharest, Romania Associate Professor Ph.D. Costel-IliuŃă NEGRICEA Romanian American University, Bucharest, Romania Assistant Professor Ph.D. Manuela-Rodica GOGONEA Academy of Economic Studies, Bucharest, Romania THE FINANCIAL CRISIS IMPACT ON THE DEGREE OF ECONOMIC INTEGRATION IN THE EU COUNTRIES........................................................................................................................................................... 19 Professor Ph.D. Nicolae DARDAC Academy of Economic Studies, Faculty of Finance, Insurance, Banks and Stock Exchange, Bucharest, Romania Assistant Ph.D. Student Iustina Alina BOITAN Academy of Economic Studies, Faculty of Finance, Insurance, Banks and Stock Exchange, Centre of Financial-Monetary Research CEFIMO, Bucharest, Romania THE THEORETICAL ASPECTS OF INTEGRATION PROCESSES ON THE REGIONAL LEVEL................ 27 Ihor YASKAL Chernivtsi Yuriy Fed’kovich National University, Ukraine Associate Professor Ph.D. Alexandru NEDELEA Stefan cel Mare University of Suceava, Romania DOES THE ALBANIAN PENSION SYSTEM WORK? ........................................................................................ 35 Ph.D. Edlira LUCI Ph.D. Dorina KRIPA University of Tirana, Albania PESTICIDES POLLUTION OF FOOD - RISKS AND IMPLICATIONS FOR CONSUMER PROTECTION.... 46 Lecturer Ph.D. Corina ENE Petroleum-Gas University of Ploieşti, Romania THE CONSUMER ROLE IN HIGHER EDUCATION.......................................................................................... 56 Ph.D. Student Maria-Lavinia POPESCU Faculty of Economics Science and Business Administration, „Babeş-Bolyai” University, Cluj-Napoca, Romania SECTION 2 MANAGEMENT AND BUSINESS ADMINISTRATION................................................................................66 FDI DEVELOPMENTS IN THE ROMANIAN ECONOMY ................................................................................. 67 Professor Ph.D. Maria MUREŞAN Academy of Economic Studies, Bucharest, Romania Lecturer Ph.D. Oana CHINDRIŞ-VĂSIOIU Ecological University of Bucharest, Romania VALUES: LINKING HOSFTEDE’S CULTURAL DIMENSIONS TO ADRIAN-PAUL ILIESCU’S “RIGHT” & “LEFT” INTERPRETATIONS FROM POPPER’S “OPEN SOCIETY”PERSPECTIVE .................................... 74 Professor Ph.D. Carmen-Aida HUłU „Gheorghe Asachi” Technical University of Iaşi, Faculty of Textiles-Leather and Industrial Management Associated Assitant Dorina łICU “Alexandru Ioan Cuza” University of Iaşi, Faculty of Philosophy and Social-Politic Sciences CONTEMPORARY MANAGEMENT ASPECTS OF THE COMPANIES WITH INTERNATIONAL ACTIVITY. 82 Lecturer Ph.D. Sebastian ENE Lecturer Ph.D. Mihaela IONECI Constantin Brâncoveanu University, Piteşti, Romania EMPIRICAL REFLECTIONS REGARDING THE BENEFITS OF THE HUMAN CAPITAL ........................... 88 Assistant Ph. D. Candidate Simona BUTA Lecturer Ph. D. Rozalia KICSI Assistant Ph. D. Candidate Angela –Nicoleta COZORICI “Stefan cel Mare” University of Suceava, Romania

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DETERMINANTS OF CUSTOMER RELATIONSHIP MANAGEMENT (CRM): A CONCEPTUAL ANALYSIS . 95 Assistant Professor Mohammed ALAMGIR Department of Marketing Studies & International Marketing, University of Chittagong, Bangladesh Lecturer Tasnuba NASIR Faculty of Business Administration, University of Science and Technology Chittagong (USTC), Chittagong, Bangladesh Mohammad SHAMSUDDOHA Department of Marketing Studies and International Marketing, University of Chittagong, Bangladesh HOW TRACTORS TRADERS SEE THE ROMANIAN QUALITY MANAGEMENT SYSTEM .......................102 Assistant. Ph.D. Ramona Ioana TIPA Ştefan cel Mare University of Suceava, Romania SECTION 3 ACCOUNTING - FINANCES.............................................................................................................................109 REFLECTING THE COMPLIANCE AND PERFORMANCE DEGREE IN THE SPECIAL REPORTS OF THE EUROPEAN COURT OF ACCOUNTS.................................................................................................................110 Professor Ph.D. Ionel BOSTAN Professor Ph.D. Elena HLACIUC Lecturer Ph.D. Student Eugenia IANCU Lecturer Ph.D. Student Gabriela NEMłOI Ştefan cel Mare University of Suceava, Romania TAX TREATMENT OF NON-TRANSFERS ........................................................................................................117 Professor Ph.D. Lucia PALIU-POPA “Constantin Brâncuşi” University, Târgu Jiu, Romania AGGREGATE DIMENSIONS USED IN CARRYING OUT THE FINANCIAL BALANCE OF THE ECONOMIC ENTITY IN FINANCIAL VISION ..................................................................................................125 Associate Professor Ph.D. Diana-Mihaela POCIOVALIŞTEANU University Constantin Brâncuşi of Tg-Jiu, Romania Lecturer Ph.D. Camelia Cătălina MIHALCIUC University Ştefan cel Mare of Suceava, Romania Lecturer Ph.D. Student Anişoara Niculina APETRI University Ştefan cel Mare of Suceava, Romania DEPLOYMENT APPROACHES OF THE INTANGIBLE ASSETS UNDER THE FORM OF INTELLECTUAL CAPITAL WITHIN THE ACCOUNTANCY PROCEDURES OF A COMMERCIAL COMPANY ...................135 Professor PhD. Iuliana GEORGESCU University "Alexandru Ioan Cuza" , Iaşi, Romania Assistant Ph.D. Student Irina CHIRITA University „Stefan cel Mare”, Suceava, Romania VALUE ADDED REPORTING: A CASE STUDY OF ABANS LISTED MANUFACTURING COMPANY LIMITED IN SRI LANKA.....................................................................................................................................142 Arumugam SUBRAMANIYAM Balasundaram NIMALATHASAN University of Jaffna, Jaffna, Thriunelvely, Jaffna, Sri Lanka ANALYSIS OF CONTEMPORARY ROMANIAN PUBLIC DEBT.....................................................................148 Flavia BARNA Ovidiu MURA West University of Timişoara FAIR VALUE - THE UMBRELLA OF THE VALUATION BASES USED IN ACCOUNTING .........................155 Lecturer Ph.D. Diana COZMA IGHIAN University of North, Baia Mare, Romania Lecturer Ph.D. Cristina Silvia NISTOR Babes-Bolyai University, Cluj Napoca, Romania THE INTERNAL CONTROL SYSTEM OF THE CREDIT INSTITUTIONS .....................................................163 Lecturer Ph.D. Student Mariana VLAD Associate Professor Ph.D. Mihaela TULVINSCHI „Ştefan cel Mare” University of Suceava, Romania THE INFLUENCE OF THE FISCAL POLICY AND THE AUTOMATIC STABILIZERS ON THE ECONOMY ..170 Lecturer Ph.D. Irina-Ştefana CIBOTARIU Stefan cel Mare University of Suceava, Romania Ph.D. Mirela MATEI Petroleum-Gas University of Ploiesti, Romania 4

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SECTION 4 STATISTICS, DATA PROCESSING (INFORMATICS) AND MATHEMATICS .......................................176 STATIONARY AND NON-STATIONARY TIME SERIES..................................................................................177 Associate Professor Ph.D. Elisabeta R. ROŞCA University „Ştefan cel Mare” of Suceava, Romania DEVELOPING WEB APPLICATIONS USING THE MDA PARADIGM...........................................................187 Lecturer Ph.D. Mihai-Constantin AVORNICULUI “Babeş–Bolyai”University Cluj-Napoca, Romania CONSIDERATIONS ON INTERPRETATION OF SAME CASES IN CONNECTION WITH ARTICLE 10 OF PATENT LAW NO. 64/1991 ..................................................................................................................................194 Eng. Ph.D. Sudent Tiberiu-Octavian CUJBĂ “Ştefan cel Mare” University of Suceava, Romania SECTION 5 LAW AND PUBLIC ADMINISTRATION........................................................................................................200 THE LOCAL BUDGET, SUPPORT FOR SUSTAINABLE DEVELOPMENT – CASE STUDY: THE LOCAL BUDGET OF THE MUNICIPALITY OF PLOIESTI ...........................................................................................201 Senior lecturer dr. Cornel Constantin LAZĂR Lecturer dr. Mirela LAZĂR Faculty of Economic Sciences, Petroleum-Gas University of Ploieşti, Romania COMPARATIVE STUDY ON FINANCIAL AND ADMINISTRATIVE DECENTRALIZATION IN EUROPEAN COUNTRIES..........................................................................................................................................................210 Lecturer Ph.D. Ana-Maria BERCU Assistant Ph.D. Student Mihai-Bogdan PETRISOR Alexandru Ioan Cuza University of Iasi, Romania LOCAL PUBLIC ADMINISTRATION PRINCIPLES IN ROMANIA-A CRITICAL POINT OF VIEW ...........220 PhD. Leonina-Emilia SUCIU Professor PhD. Ioan LAZAR Babes-Bolyai University of Cluj-Napoca, Romania UNITY AND DIVERSITY IN THE ROMANIAN LAW CONCERNING THE ADMINISTRATIVE AND TERRITORIAL ORGANIZATION IN THE INTERWAR PERIOD ...................................................................229 Lecturer Ph.D. Candidate Marilena-Oana NEDELEA „Ştefan cel Mare” University of Suceava, Romania COMMON FOREIGN AND SECURITY POLICY AS ENVISAGED IN THE LISBON TREATY.....................237 Asistant Eugenia Gabriela LEUCIUC Professor Ph.D. Elena IFTIME “Stefan cel Mare” University of Suceava, Romania CHANGES IN THE STRUCTURE OF ROMANIAN LOCAL BUDGETS ..........................................................243 Lecturer Ph.D. Student Cristinel ICHIM “Ştefan cel Mare” University of Suceava, Romania EVALUATION MODEL OF THE REAL CONVERGENCE OF THE CENTRAL AND EAST EUROPEAN STATES IN RELATION TO EMU........................................................................................................................249 Lecturer Ph.D. Vasile-Liviu ICHIM “Stefan Lupascu” Institute of European Studies - Iasi, Romania DECENTRALISATION AND SUBSIDIARITY IN THE MANAGEMENT OF LOCAL PUBLIC ADMINISTRATION .............................................................................................................................................255 Lecturer Ph.D. Student Irina BILOUSEAC Assistant Petronela ZAHARIA ,,Ştefan cel Mare” University of Suceava, Romania THE ROLE OF FINANCIAL RESOURCES FROM THE STRUCTURAL AND COHESION FUNDS IN THE STRENGTHENING OF THE ADMINISTRATIVE-TERRITORIAL UNITS AUTONOMY ..............................262 Assistant Ph. D. Student Elena RUSU (CHELARU) “Al. I. Cuza” University of Iaşi, Romania CONSIDERATIONS CONCERNING THE COMPLEX CHARACTERISTICS OF VOLUNTARY MANSLAUGHTER - ART. 178 (3) ROMANIAN CRIMINAL CODE .................................................................272 Research Assistant Ana PIRLAC University “Stefan cel Mare” Suceava, Romania

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THE ASSESSMENT OF THE SOCIAL DANGER OF THE CONCRETE ACT. THE RENUNCIATION TO APPLY A PUNITIVE SANCTION ........................................................................................................................279 Doctor of Law Daniela Iuliana LĂMĂŞANU Associate lecturer at the "Stefan cel Mare" University of Suceava, Romania Prosecutor - Legal Department, Prosecutor of the Court of Appeal Suceava, Romania INSTRUCTIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES ......................................................286

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SPECIFIC PUBLIC RELATIONS TOOLS USED IN ONLINE COMMUNICATIONINS BY TOURISM COMPANIES Associate Professor Ph.D. Nicoleta-Rossela DUMITRU Romanian American University, Bucharest, Romania [email protected] Associate Professor Ph.D. Costel-IliuŃă NEGRICEA Romanian American University, Bucharest, Romania [email protected] Assistant Professor Ph.D. Manuela-Rodica GOGONEA Academy of Economic Studies, Bucharest, Romania [email protected] Abstract: The creation and development of the Internet have determined global changes in all social fields, including communications and public relations. Thus, the traditional Public Relations tools and strategies have been adapted in view of new benefits regarding maintenance of contact with the tourism companies’ public. This workpaper is intended to determine the extent of PR tools and methods utilisation, based on a research developed within several Romanian hotel units. In this context, the application of the structural method has generated results that create encouraging online communications perspectives, taking into account the use of specific public relations tools. Keywords: tourism, online public relations, Internet, website, e-mail. JEL Classification: M30, M31, M37, M39

1. INTRODUCTION As an integral part of everyday life, communication has become a major factor for society and individual; thus, the success depends to a great extent on the ability to communicate. For a modern organisation, communication represents an essential component of marketing activities, due to the ever more dynamic environment where it functions (increased exigency of customers, competitors’ strong moves, etc.). This fact determines the organisations in any field, including tourism, to pay higher attention to marketing communication, as a set of signals sent by the company to its (internal or external) public, to the purpose of influencing its attitude and behaviour. Thus, (Tran V., 2002, pg. 7) communication is defined as a "process by which an emittent transmits information to a receiver by means of a channel, aiming at producing specific effects on the receiver”. In other words, each communication process has a specific structure, based on a specific relation developed by the trinomial emittent-message-receiver. A transfer takes place between the emittent and the receiver; the message transmission is performed based on a specific code. While the message is chareacterised by coherence, fluency, clarity, and is determined by space, time and emittent’s state of mind, the code is fixed, invariable, abstract, reduced to a small number of signs. Within the complex environment where the companies function, one can speak about a communication marketing, which is exclusively informational, apparently, taking into consideration the importance and value of information nowadays. Actually, this market is a combination of two components: information and interest. In this interest context and from the marketing point of view, communication has to lead to action taking and decision making, regarding the procurement or nonprocurement of a (tourism) product. After a review of Internet communication effects on all activity fields (including tourism), this work emphasises the PR role in the organisation’s communication activity. In the end, before the start-up of the research, the authors remind the main PR methods and tools at the disposal of the tourism companies. 9

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The research referred to in the work used the enquiry as a research method, and the questionnaire as a tool. The sample consisted of 87 Romanian hotel units, located in the main tourist areas of the country. The conclusions, based on the information collected, referred to the initial assumptions, confirming or invalidating them. 2. INTERNET COMMUNICATION TENDENCIES Under the influence of border opening and, partially, border elimination (Nistoreanu P., ), initiated in the last years, one can notice a process of market internationalisation, followed by an increased competitiveness and a stronger need to offer and receive information. At the same time, a process of market internationalisation and globalisation of company activity is under development, which implicitly changes communication’s coordinates. This new position is supported by Internet communication; the research carried out within the big companies shows an increase of activity dimensions within the network: more news „is consumed”, more electronic mail messages are transmitted, more articles and reports are elaborated, more financial transactions are concluded, more sites are visited and more sales take place. Thus, the Internet shows the tendency to take over part of communication load, but at a different dimensions and by different means. Within these new Internet communication tendencies, the barriers of distance or language disappear, and so do the obstacles determined by the interference of intermediate agents, influenced by sets of rules and subjective thinking; therefore, the communication becomes direct and leads to a personalised relation (exchanges of texts, images, messages, etc . take place rapidly). A remarkable advantage of Internet communication is visual communication, which allows transmission of a wide range of messages; the images are meant to strengthen and stabilise the message, facilitate understanding, decoding and reception of the message by a wide range of means. To this effect, one can notice several advantages of visual presentations: catch the attention, look good,, improve perception, eliminate the monotony of texts, strengthen the verbal message, allow the pointing out of differences , etc. Referring particularly to the tourism field in Romania, we found out that the increase of Internet utilisation, which was 33% in 2007, reaches 32%, in 2009, and the number of the people that check the Internet before leaving on holidays has grown considerably. In June 2005, the first three Romanian tourism portals showed jointly little over 463.000 unique visitors, according to statistics displayed by Trafic.ro (site that analyses the Internet sites from visitors point of view). In the same period of 2009, the number of visits almost doubled, reaching 866.000 for the three tourism sites: www.infoturism.ro, www.romaniantourism.ro, www.infotravelromania.ro. Other tourism sites that are worth mentioning: www.hartionline.ro, www.rotravel.ro, etc. There are plenty of tourism units (agencies, hotels, restaurants, etc) that have their own site (Eximtur, Marshal agency, etc) or are linked to a portal specialised in accommodation offers (www.cazare.ro, ,www.pensiunituristice.ro) or provision of tourism information (www.iTurism.ro). There is also the Ministry’s official site (www.mdrt.ro.) which focuses less on offers, reservations, and more on the news section, that is useful to the people directly involved in the Romanian tourism activity (press releases, amendments of regulations, various notices, etc.). More than that, an on-line poll carried out by SMART-financial (electronic financial newspaper) on a sample of 412 persons, revealed that, in their preference ranking, TV advertising is overcome by Internet advertising, (table 1).

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Table 1. – Results of SMART-financial on-line poll Promotion means Internet TV advertising Direct Marketing Advertising publications

Percentage

Promotion means

Indoor advertising 36% 28% Outdoor advertising 12% on-line advertising 6% Radio Source: www.bizwords.ro, 2008

Percentage 6% 4% 5% 3%

One can notice the high percentage, over 50%, scored by the Internet, on-line advertising and direct marketing, in general. 3. PR STRATEGIC ROLE IN TOURISM Generator of considerable public incomes, tourism is one of the most important economy sectors; it has had the most rapid development within the national economy, provisions for 2020 indicating approx. 1.760 mil.Tourists (Piovesan L, 2005). Globalisation, the creation of new destinations and the new technologies have modified the competitive environment of the countries; at present, the most powerful tourism promotion tool is represented by the image (of the country, region or tourism product). If we refer to the international level, the strategies for image building or tourism promotion are the following: creation of a new tourism image, re-positioning of a traditional tourism destination, creation of awareness in a competitive framework, brand creation, etc. In this context, the investment in public relations by elaboration of communication strategies emphasises the PR (public relations) contribution to tourism development. The PR activities are long term processes and have in view the assembly of direct contacts maintained by the tourism company with the customers, the managers of other companies, the opinion leaders, the representatives of public power, mass media, etc. , that creates confidence in the company and a favourable opinion for it and its products. The most common PR techniques are the following: (table 2) Table 2– Presentation of public relations techniques PR techniques

Activities The tourism organisation regularly informs the consumers and the public on the launch of a new product, opening of a new destination, News dissemination development of marketing events, etc. Communication within internal or external events, focused on Speeches performances of the tourism company. Drawing the public attention on the tourism organisation’s offer. Special events Written, audio- visual or electronic documents, that provide „technical”, financial or commercial information, and also contribute to creation of a Identification materials specific image of the company. The tourism company gets involved into social or charitable activities. Social activities The tourism company supports (financially also) social and humanitarian Sponsorship causes (cultural, sports, religious activities, etc.). Source: Marketing turistic, page. 376, by V. Balaure, I. Cătoiu, C. Vegheş,

In case of well-known destinations, the tourism promotion is planned and financed by collaboration and public-private partnership. This guarantees and brings more promotion resources, that may be allocated by a long term strategy and a marketing and communication process where the objectives and targets are well defined. With respect to Romania’s promotion as a tourism destination on the external markets, here is the budget allocated, according to the strategy, for the main promotion activities, on the three groups of tourism markets (see the table below). Thus, in Europe, the PR activity ranks on the IIIrd place (after exhibitions and advertising), while on the other two continents it ranks the first. 11

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Table 3 - Budget allocated for Romania’s promotion Promotion activities

Europe

North America

- bill. lei SouthEast Asia 3 2 3 2 2 3 1 2 18

Public relations 15 5 Special events 10 4 Tourism exhibitions 40 1 E-Marketing/Internet 5 5 Direct marketing 15 5 Advertising 20 4 Sales promotion 2 1 Other promotion activities 3 2 Total by market groups 110 27 Overall Total 155 Source : Strategia pentru relansarea turismului românesc, ANT, 2006, pg. 93

The public-private partnership in tourism promotion is a crucial aspect; as most of the tourism companies are small and tend to establish short term objectives and take individual decisions , while the goal should be an overall approach of tourism. This is an important issue regarding involvement into promotion activities of promotion and strengthening of collaboration between various actors, so as to insure participation of all parties to the process. The research in the field (Piovesan L, 2005)., emphasises the importance of investment in PR communication strategies that may contribute to tourism development. Thus, in order to increase efficiency of PR activity in promoting a company image, a set of issues should be taken into consideration: - a PR project should take into account all the parties (stakeholders) involved into the tourism field (accommodation units, tourism associations, vocational associations, trade-unions, municipalities, local tourism agencies that work for public institutions, Ministry and/or National Tourism Commission, National Tourism Offices, European Union, etc.). - market research is an essential tool that provides specific information and offers a clear picture of the existing situation ; at the same time, it allows quantity and quality researches in the tourism sector, and investigation of tourism trends in general. - strategic plan: selected PR methods (for communication with mass media, public personalities and customers, product positioning, special events, company identification, etc.). - creation of a monitoring and evaluation system, in order to check fulfilment of performances and objectives 3.1. E-PR – CONCEPT AND ADVANTAGES FOR THE TOURISM COMPANIES With regard to communication and informing, the Internet allows the possibility to reverse the communication roles (emittent – receiver); this fact supports communication and contributes to a better informing and regular updating of the information. The online (e-RP) public relations represent the totality of communication actions oriented to promotion or protection of the tourism organisation or its components (brand, products, website), to the aim of generating a positive interaction/ understanding (perception) of/from the public, by means of the on-line tools. e-RP represents the most recent tool used by the tourism organisation in view of reaching the communication policy objectives.. Here are some of the e-PR advantages (Negricea, 2010): - The tourism organisation may address the target-public directly and interactively – in the online environment, the consumer may be addressed personalised messages, and feedback may be obtained in this process.

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- The public has at its disposal a wide range of informing tools – at any moment, the information launched by the organisation may be evaluated and selected from a multitude of independent sources, by the tourist or other interest groups. - The online environment offers the opportunity to easily develop various PR processes One can easily organise events for a numerous public located in various regions (online conferences, discussion groups, workshops, online workshops, newsletters, etc..) - The public takes a proactive part to the online PR processes – In the online environment, the public of the tourism organisation may share with the interested people its experience or perception concerning the organisation’s activity or products. - Effective management of critical situations– The tourism organisation may use various online tools to release the tension of relations with the target public; these tools allow fast reactions, so that the effect of potential conflicts can be reduced in very short time, with maximum efficiency. - Lower costs than the traditional PR environment. 3.2. ONLINE PR TOOLS Among the services that can be used as communication and informing tools (Negricea, 2010), we would like to mention: - The website: it is a collection of web pages, network services, mainly htlm documents that form a consistent pack offered usually by one server. For an efficient communication and informing, both the design and the software must comply to the requirements of the public (the effective or potential tourist). A website must load rapidly, offer easy access to (regularly updated) information, contain attractive elements for each type of public (occasional visitors, permanent visitors, customers, etc.). A corporate website allows promotion of tourism company values, products and services provided, immediate publication of news, maintenance of a permanent relation with the targeted public; - Electronic mail – this is the most often used and most popular Internet application ; it can be used for sending out press releases (accompanied by the tourism company’s logo or even photos), invitations to events, congratulation messages, etc.; this is a fast, efficient and cheap communication tool. - Forum – it is the place where one can discuss various topics; the discussion groups may address both the tourism company members and the large public; - Banners – posting information about the company on another site (non-competitive), particularly news, information, e-commerce etc.; - Newsletter – may publish a specific topic, may be stored (archived and accessed when needed), the public may subscribe or unsubscribe to this service. 3.3. ONLINE PR TECHNIQUES IN THE TOURISM FIELD Among the most often used techniques of online public relations we mention: - Organisation of online events – supposes the organisation of online workshops, presentations, exhibitions, show and sale, competitions, question and answer sessions with personalities or specialists, supporting of events; - Monitoring of brand related statements – is focused on managing the reputation of the tourism organisation, and all brand related statements. The purpose of this activity is identification and perpetuance of positive elements posted on various websites or identification and management of various negative elements related to the organisation’s brand. (There are online applications that allow the implementation of this PR technique, for instance www.googlealert.com.; by means of this automate tool, the organisation may be daily informed, by email, on the mentions referring to the organisation and also its competitors.); - Management of unfavorable situations – the online environment is a free environment that facilitate transmission of unfavorable information; in view of reducing its impact on the tourist 13

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organisation, the OPR expert has to consider developing actions such as: prompt reactions on the organisation’s website, press releases, transmission of personalised e-mails to opinion-makers, editors of various online and offline publications, main customers and partners. - Other OPR techniques - maintenance of close relationships with the editors of online publications or mass media in general, good relationships with the bloggers, the event sites, sites for opinions and product category ranking, web folders, provision of „white paper” and case studies, maintaining contact with the target public by RSS (Reader Software Services), viral marketing campaigns, newsletters, lobbying, relationships with the Governmental environment and various local communities. The online public relations require permanent attention for observance of each marketing environment component, maintenance of stable relationship with each interest group with which the tourism organisation interacts. A crucial aspect of OPR activity is deontology and professional ethics (etiquette). 4. RESEARCH ON ONLINE COMMUNICATION BASED ON PUBLIC RELATIONS TOOLS USED BY THE TOURISM SERVICE PROVIDERS IN ROMANIA 4.1. PRELIMINARY RESEARCH PHASES The main objective of this study is to determine the extent of e-PR techniques utilisation by the tourism service providers in Romania; we mention that the research took into account only the accommodation units / the hotels that could be contacted by electronic means (Web page, e-mail). The research assumptions were the following: H1:The major part of hotels in Romania develop PR activities. H2: Over 1/3 of hotels’ PR activity develops online. H3: The main tool used by accommodation providers is electronic mail H4: Most hotel owners consider that the online PR activity is efficient. H5: The target public of online PR activity is represented by the tourism agencies. The general collective of the research, which is the people to whom the information shall be extended / generalised, is represented by the accommodation providers in Romania, and the poll unit is, depending on the case, the person assigned to deal with promotion of the company image in every hotel (the person may belong to marketing department, PR, sales department, etc.) The data collection method was the enquiry; the tool was the questionnaire; it was sent by email to the respective company, in attention of the person assigned to deal with the company image. The research was carried out in the period 17 Aug. – 13. Sept. 2009 (we selected the common season for both the mountain units, less affected by seasonality, and the seaside units). The sample size was 87 hotels (of all categories), located in Bucharest, ConstanŃa, Valea Prahovei (Sinaia, Predeal, Buşteni...) and Bucovina. The sample was intended to be larger, the questionnaire was sent out to more hotels, but they didn’t respond, therefore they were not included in the sample . However, we considered that the research is feasible, because, as one can notice, the most important tourism regions are represented in the sample (this was an issue targeted in the beginning of the study). 4.2. RESEARCH RESULTS The first part of the questionnaire was focused mainly on determination of the extent of utilisation of traditional PR techniques in the communication activity of Romania’s hotels. We have to mention that the questions included examples of such techniques (in case the contact person did not have a specific PR background). According to the responses, we reached the conclusion that 89,66% (78 hotel units) use one or several PR techniques (as shown in the table). 14

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10,44%

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include PR activity

do not include PR activity 89,56%

Chart 1. Structure of hotel units by extent of utilisation of PR techniques in the communication activity The chart shows that 89,66% (78 hotel units) of the total hotel units (87 hotel units) apply one or several PR techniques. Important for the research is verifying the hypothesis which says that hotel dimension and category has an impact for PR techniques breakthrough degree in units communication activities. Table 4 –Hotel dimension and category test results for PR techniques breakthrough degree in communication activities Link (relation )Intesity level (Pearson link coefficient and Conjecture characteristics Impact Factors threshold increasing factor compared with 5% signification factor PR techniques breakthrough Hotel dimension C = 0,399 with p = 0,004 < 0,05 degree Hotel categories C = 0,455 with p = 0,031 < 0,05 As conclusion we may see the both factors influence (especially for hotel dimension) for PR technique breakthrough degree. Further on, the research focused on the 78 hotel units that use PR techniques. The next question referred to the rank of online public relations (OPR) within the global PR activity of each hotel. Again, the question included examples of PR activities, in order to obtain realistic data. 54 52 50 48 46 44 Percentage of OPR within PR activities (%)

b etween 20% – 50%

under 20%

47,44

52,56

Chart 2 - The OPR percentage within PR activities Thus, for 41 hotels, the OPR activity represents less than 20%, and the respective hotels represent 52,26% of the total. The option „none” was not introduced, because since the questionnaire was sent by email, we considered that the hotel uses minimum one OPR technique: the electronic mail. Therefore, the responses to this question divided the sample of 78 units into two parts having quite similar values and structures, which is not fully satisfactory for the PR activity of each tourism unit.

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Once we obtained the outline of the PR activity of hotel units in the country, we proceeded to investigate the concrete tools used in OPR . Below one can see the types of responses: Table 5 – Distribution and structure of responses by the OPR tool preferred by the hotel services providers The OPR tool 10,25% Website preferred by Structure 47,44% 11,53% Number the hotel of units units electronic mail (%) services providers Website electronic mail Forum Banner Newsletter Total

37 13 11 9 8 78

47,43 16,66 14,10 11,53 10,25 100

Forum

Banner 14,10%

New sletter

16,66%

Chart 3 The communication research had also in view the efficiency of online PR activity. Table 6 – Distribution and structure of responses concerning the efficiency of PR activity 70,00% 67,94% The efficiency Number Structure of units 60,00% units of PR activity It is efficient

53

It is not efficient

19

no response

6

(%) 67,94

50,00%

40,00% 30,00%

7,69%

10,00% 0,00%

7,69

It is eff icient

Total 78

24,35%

20,00%

24,35

It is not ef ficient

no response

100

Chart 4 Based on the results obtained and chart 4, one can state that more than half of the hotel units (64,94%) consider them efficient, particularly in the context of extended communication and Internet utilisation in all fields. The research attempted also to determine the public targeted by the hotel units within their OPR activities. Table 7 - Distribution of responses by selection of targeted public The public targeted by the hotel units within their OPR activities. tourism agencies Loyal customers Potential customers Other categories

Number units

Structure of units (%)

18

28,20

27

34,61

22

23,07

11

14,12 16

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100 Other categories

tourism

14,12%

agencies 28,20%

Potential

Loyal

customers

customers

23,07%

34,61%

Chart 5 The major part of the tourism units (27 units), representing 34,61% , are oriented toward the loyal customers (both natural persons that visit the hotel and legal persons, institutions that send their employees to the respective units), while only 14,12% of the total target other categories. The research conclusions revealed the following results: H1: The major part of hotels in Romania develop PR activities –confirmed, 89,66% of the hotels have a promotion policy and develop PR activities. H2: Over 1/3 of hotels’ PR activity develops online. – not confirmed, the majority (52,56%) allocated only 20% to online PR. H3: The main tool used by accommodation providers is electronic mail – not confirmed, the website being used by 47, 43% of the units. H4: Most hotel owners consider that the online PR activity is efficient. – confirmed, approx. 70% consider it is worth investing in OPR activities. H5: The target public of online PR activity is represented by the tourism agencies. – not confirmed, the public is represented by the hotel customers, with which, as the hotel management considers, a long term relationship of mutual advantages should be developed, In the end, we have discovered an opening to this type of public communication – the application of PR techniques and tools in the online environment, an environment that incorporates the characteristics of traditional media (TV, radio, newspapers, magazines) and includes, in addition, a set of new features. 5. CONCLUSION The main research results revealed some issues that partially contradicted the initial assumptions. In this context, we can assert that the online environment allows the development of personalised PR campaigns and offers the opportunity to educate the target public and attract it by games and entertainment elements, involve it and change it into a key element of the relationship with the other public categories. Also, one can notice that it decreases dependence on various traditional channels, as the web site becomes one of the main PR tools of the organisation. By means of this tool, the information about the organisation may be easily taken over by other sites. The online environment represents one of the most efficient support media for the PR activities, with impact on consumers and other interest groups, as the elaboration of OPR campaigns requires knowledge about the online tools, the objectives that may be fulfilled by their means, and the features of targeted public and online activities that it carries out.

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BIBLIOGRAPHY: 1. Balaure V., Cătoiu I., Vegheş C, (2005) - Marketing turistic, Uranus printing house, Bucharest 2. Dumitru N.-R., (2008) Promovare turistică – particularităŃi în turismul social, Ed. Universitară, Bucharest 3. Gogonea R.-M., (2006) - Cercetarea statistică în turismul rural, Ed. Universitară, Bucharest 4. Nedelea Al., (2003) - Politici de marketing în turism, Economic printing house, Bucharest 5. Negricea C.-I., (2010) - Proiectarea, dezvoltarea şi implementarea aplicaŃiilor de marketing online în activitatea organizaŃiilor., PhD workpaper, A.S.E. Bucharest, 2010 6. Nistoreanu P., Management în turism servicii, Biblioteca Digitală, ASE, Bucureşti 7. Piovesan S. L., (2005) Turismul: rolul strategic al relaŃiilor publice, www.prawards.ro 8. Tran V., (2002) Teoria comunicării, SNSPA, Communications and Public Relations University “David Ogilvy”, Bucharest, pg. 7 9. www.prawards.ro 10. www.infotravel.ro 11. www.bizwords.ro

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THE FINANCIAL CRISIS IMPACT ON THE DEGREE OF ECONOMIC INTEGRATION IN THE EU COUNTRIES Professor Ph.D. Nicolae DARDAC Academy of Economic Studies, Faculty of Finance, Insurance, Banks and Stock Exchange, Bucharest, Romania [email protected] Assistant Ph.D. Student Iustina Alina BOITAN Academy of Economic Studies, Faculty of Finance, Insurance, Banks and Stock Exchange, Centre of FinancialMonetary Research CEFIMO, Bucharest, Romania [email protected] Abstract Our study aimed to assess the degree of heterogeneity of the macroeconomic framework of the 27 EU member countries, against the background of turmoil manifested in the international financial markets. In this regard, we applied a hierarchical cluster analysis technique, for two moments of time, countries being grouped according to the values recorded by a series of key macroeconomic and financial indicators. In the year 2008 we noticed an increase of the groups’ number and fragmentation, due to the amplification of the economic gap in the pan-European area. Empirical analysis revealed the presence of some outlier countries (Bulgaria, Czech Republic, Cyprus, Romania, Poland, Slovenia, Hungary and Ireland) whose macroeconomic features are the most dissimilar with the other EU Member States. We concluded that the increase in countries heterogeneity, as a result of strong imbalances at national level, has a negative impact on the economic integration process and the achievement of real and monetary convergence. Keywords: economic integration, financial crisis, 27-EU countries, macroeconomic heterogeneity, cluster analysis. JEL Classification: C49, F15, G01

1. INTRODUCTION

The current financial crisis marked the end of a period characterized by pursuit of profit taking and increasing risk. To counteract the spreading of its adverse effects it was necessary the prompt and concerted intervention of central banks and governments, materialized in the taking of urgent measures, designed to restore confidence in international financial system. What in August 2007 seemed to be a problem of sub-prime mortgage market in the U.S., later it turned into a global financial crisis. Financial markets have started to record serious disturbances, threatening the financial institutions’ robustness and their capacity to face the current shocks. Consequences of financial crisis continue to make their presence felt, after two years from the onset, the size of the losses generated being still unknown. Accordingly, we can state that the actual financial crisis has affected, at different magnitudes, all national financial markets, and has propagated, indirectly, into the real economy, too. In Europe, it overlapped the comprehensive economic and financial integration process. The surveys made by several international organizations in tranquil times revealed an incomplete and insufficient degree of integration, particularly in the banking sector of EU countries. Hence, there is room for further integration, especially in terms of market completeness and cross-border activity, in order to ensure lower costs and higher product diversity. The question that arises is: could be still achieved the objective of economic and financial integration of EU countries in the context of the current global crisis? In this respect, our study aims to assess the extent to which financial crisis has contributed to the loss of synchronization of the economic integration process of the 27 EU countries. It is widely accepted that economic integration is a catalyst for sustainable economic growth. Although Balassa has defined five stages of economic integration (free trade area, customs unions, common market, economic union and complete economic union), in reality the border between them is much dimmed. For example, a common market which is allowed the free trading 19

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of goods and services, movements of capital and labor, is not viable in the absence of coordination of economic policies at European level. At present, however, the economies of EU member states are confronted with major distortions and imbalances in terms of the volatility of currency exchange, unemployment, inflation rate, the share of public debt in GDP, the current account deficit, the different pace of GDP growth contraction, indirect taxation etc. In order to cut off the generalized economic slowdown and to restore a stable economic climate, EU member states are implementing a recovery plan designed to coordinate and align their economic policies, towards the achievement of a state of financial stability and economic growth. In this paper, by applying a cluster analysis technique, we intend to detect countries in EU that show similar, homogeneous patterns according to a number of key macroeconomic indicators. Particularly, we want to assess the degree of cross-country economic homogeneity in terms of macroeconomic variables, for two reference time periods: the year 2006, characterized by strong, sustained economic growth, high rates of investments and consumption, increased pace of lending activity, optimistic expectations concerning revenues and standard of living, and 2008 which marked the beginning of a sharp deterioration of both financial and economic environment. Also, we analyze which countries tend to be in the same cluster, displaying common economic features, and how evolves the cluster composition over the two periods considered. The paper was structured as follows: section 2 provides a brief overview on the methodology applied; section 3 depicts the indicators employed in the analysis, the results obtained and their explanation and the last section summarizes the main findings. 2. METHODOLOGY-AN OVERVIEW

Cluster analysis is an unsupervised learning, exploratory technique, that identifies the complex relationships in a given dataset of variables, without imposing any a priori restriction. Consequently, the initial dataset doesn’t need the distinct specification of a target variable (the dependent variable) and respectively, of predictor ones (independent variables). All variables have the same importance, because the analysis’s goal is not to predict a certain value, but instead, to identify the presence of specific patterns or correlations among variables, to include the different variables or cases into more homogenous groups. The entities’ clustering is based exclusively on the similarities identified in the variables’ structure. Yet, the results obtained are valid only for the ex-ante defined sample, they cannot be generalized to the entire sector/economy. According to Romesburg [2004], this technique represents “a mathematical microscope for looking at the relations of similarity among a given set of objects. It cannot be used for making statistical inferences about these relations to a larger population. Any inferences a researcher makes by studying the tree are made by using reasoned analogy rather than by using formal statistical methods”. Cluster analysis focuses on the examination of the interdependencies between variables, its finality consisting in gathering similar entities into more homogenous groups, named clusters. Therefore, when doing a cluster analysis there must be completed several stages: • definition of the research goal, of the assumption to be tested and the selection of the most significant variables. In this respect, Sorensen, Gutierrez [2006] argue that the selection of variables to be included in the cluster analysis is of major importance, since it is the data themselves that structure the results. Leaving out or adding an important variable may hence alter the results significantly. • applying a standardization procedure. Standardization is imposed when the variables are expressed in different units of measure, in order to lower the risk of misrepresentation of the resemblance relationships between the entities in the sample. Therefore, the variables will become dimensionless. Another advantage of the standardization procedure consists in the uniformization of the variables’ influence, by eliminating extreme values, which are susceptible of generating biased results. Failing standardization, if one variable’s values range between a large interval than the other ones, then this particular variable will benefit 20

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•

• •

•

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of a greater importance in establishing the similarities between entities, denaturizing the results. In this study we chose a normal standardization, determined as the ratio of (the current value of a variable – average value) to standard deviation. selecting a clustering procedure. Economic literature has consecrated three main procedures: k-means clustering, hierarchical clustering and two-step clustering. The clustering procedure we chose to implement was the agglomerative hierarchical clustering, because it allows the grouping of resembling countries, without specify ex-ante a preestablished number of clusters. The agglomerative technique places, firstly, each country into a distinct group, then proceeds to the merger, at each step, of the two countries that have the least dissimilarity into successively larger clusters, according to the agglomerative method chosen. selecting an appropriate method for data aggregation. The most frequent applied methods are single linkage (nearest neighbor), complete linkage (furthest neighbor) and average linkage. In this study we have applied, comparatively, all the three methods above mentioned. choosing a unit of measure or an algorithm for the distance/similarity between countries, according to data type (interval, count, binary variables). It is important to mention that, in this case, the distance isn’t measured in physical units, but in terms of resemblance between the intrinsic characteristics of the countries considered. One must compute a resemblance coefficient, whose meaning can be interpreted in terms of a similarity coefficient, or as a dissimilarity coefficient. Therefore, the bigger the similarity coefficient’ value, the more resembling the two countries. Instead, a high value of the dissimilarity coefficient indicates a low resemblance. As a measure for the distance between countries, we have decided to employ the squared Euclidean distance because, in the process of group building, it places greater emphasis on outliers that depict extreme values and is suitable for continuous variables. The studies of Wolfson [2004] and Gutierrez, Sorensen [2006] propose the same approach, too. interpretation of the dendrogram (binary tree) and identification of optimal number of clusters. In practice, it is recommended that the branches of the tree be cut at a level which coincides with a large jump in the clustering levels of two consecutive nodes. The establishment of the correct number of clusters is, however, a subjective process, depending on the analyst’s experience. As Norušis [2008, pp. 364] points out, to find a good cluster solution, one must observe the characteristics of the clusters formed at successive steps and decide when it is achieved an interpretable solution or a solution that has a reasonable number of fairly homogeneous clusters. 3. RESULTS AND INTERPRETATIONS

As stated in the previous sections, the aim of our paper is to evaluate which EU countries depict similar experiences according to the dynamics registered by some business cycle variables. The selected key macroeconomic indicators, which are able to monitor the effects of the financial crisis impact on the economy are:
the reserve assets excluding gold. In line with the 5th edition of the IMF Balance of Payments Manual, this item comprises Special Drawing Rights (SDRs), the reserve position in the Fund, loans to the IMF, deposits with foreign banks, foreign treasury bills, foreign bearer bonds, loans extended to foreign banks and accrued interest;
key interest rates set by central banks in EU 27 to indicate the trend interest rates should follow and signal the monetary policy stance;
the Harmonized Index of Consumer Prices which measures the change in prices of all goods and services purchased by urban consumers (households);
government debt ratios as percent of GDP. Data were collected from the European Commission and were computed as follows: the general government sector comprises the subsectors central government, state government and local government as well as social 21

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security funds. Debt is valued at nominal value, and foreign currency debt is converted into national currency by using year-end market exchange rates;
the unemployment rates;
annual change (%) of real GDP. It is defined by European Commission as the value of all goods and services produced less the value of any goods and services used in their creation;
annual change (%) of industrial production, excluding construction. It is known also as the production index, which is an economic indicator reflecting production and industrial activity;
current account as a percent of GDP which covers all transactions (other than those in financial items) that involve economic values and occur between resident and nonresident entities. In Table 1 we have synthesized the output obtained for the two years considered, under the assumption of three different algorithms for computing the distance between clusters. We have formulated our conclusions keeping in mind the results obtained by applying all three linkage techniques, as they are qualitatively similar and relatively stable. Table 1. Clusters’ membership 2006

Single linkage Malta, Portugal, Cyprus, Spain, Slovenia, Ireland, Greece France, Germany Denmark, Netherlands, United Kingdom, Sweden Luxembourg Italy, Finland, Belgium, Austria Slovakia, Poland Estonia, Latvia, Lithuania

2008

Romania Bulgaria Hungary Czech Republic Single linkage Netherlands, Austria Germany, France, United Kingdom, Luxembourg,Sweden Finland

Greece, Portugal, Malta, Belgium Italy Slovenia Ireland Bulgaria, Lithuania Cyprus Spain, Slovakia Czech Republic Poland

Complete linkage Malta, Portugal, Greece, Cyprus, Spain Germany, Italy, Belgium, France Denmark, Sweden, Netherlands, United Kingdom Ireland,Luxembourg, Slovenia Austria, Finland, Czech Republic Slovakia, Poland Estonia, Latvia, Lithuania Hungary, Romania Bulgaria

Average Linkage Malta, Portugal, Italy, Cyprus, Greece, Belgium, Spain France, Germany Denmark, Sweden, Netherlands, United Kingdom Ireland, Slovenia, Luxembourg Austria, Finland, Czech Republic Slovakia, Poland Estonia, Latvia, Lithuania Romania Bulgaria Hungary

Complete linkage Netherlands, Austria, Denmark Finland, Sweden, Ireland,Luxembourg

Average Linkage Netherlands, Austria, Denmark Finland, Sweden, Ireland, Luxembourg

Germany, France, Italy,United Kingdom Greece, Portugal, Belgium, Malta, Spain, Slovakia Estonia, Latvia, Lithuania Czech Republic, Poland Hungary, Romania Bulgaria Cyprus, Slovenia

Germany, France, Italy,United Kingdom Greece, Portugal, Malta, Belgium

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Estonia, Latvia, Lithuania Czech Republic Hungary Bulgaria Cyprus, Slovenia Poland Spain, Slovakia Romania

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Denmark Estonia Latvia Hungary Romania

According to the empirical results obtained for 2006, we have observed the following clustering patterns: - Malta, Portugal, Greece, Cyprus and Spain have been identified by all the three linkage methods as being characterized by a synchronization of their economic cycles, according to the macroeconomic and financial variables considered. - France and Germany are always in the same cluster. - Denmark, Sweden, Netherlands and United Kingdom form a homogenous and stable cluster. - Ireland, Slovenia and Luxembourg are positioned almost in all cases in the same cluster. - Austria, Finland and Czech Republic are, in most cases, in the same cluster. - Slovakia and Poland is another stable cluster - Estonia, Latvia and Lithuania (the Baltic) are always included in the same cluster. This is not a surprising finding, as it is known that their business cycles are highly correlated and synchronized. - Italy and Belgium are always in the same cluster. - Hungary, Romania and Bulgaria are the outlier countries, meaning that they have particular, atypical economic characteristics, dissimilar to any other EU country. Our findings relative to clusters’ structure are similar with those obtained by Gutierrez and Sorensen [2006], which have applied the same hierarchical clustering technique, but for 11 euro area countries, for the period 1998-2004. This confirms that, in times of financial stability and sustained economic growth, some particular countries display a natural tendency to cluster together, their economic cycles being more synchronized relative to other EU states. Also, according to Crowley’s [2008] findings, the clusters’ structure is influenced by geographical issues. Indeed, most clusters tend to form around neighboring countries, especially euro area member ones, while non-member countries tend to cluster together (such as the Baltic) or to be outliers (Hungary, Romania and Bulgaria). This result is not surprising, being in line with the theory of the optimal currency area, which states that foreign trade within euro area is susceptible of business cycles synchronization between nearby countries. Focusing on the common patterns identified through the three linkage approaches for the year 2008, we have remarked the following clustering of EU countries: - Netherlands, Austria and Denmark are almost always positioned in the same cluster. As in 2006, Netherlands and Denmark share the same cluster. All of them depend heavily on foreign trade with other EU countries (particularly with Germany), exports counting for more than 60%. GDP is expected to fall in 2009 by about 4%, unemployment rate will rise at 4,2% , inflation rate is projected to decrease at around 1%, the budget deficit is expected to range between 2,5 – 3% of GDP and the current account deficit will rise up to 3% of GDP. - Finland, Sweden and Luxembourg compose a new cluster, without having a corresponding in the previous period. These countries are characterized by low inflation rates, of about 1,1%, the fall in GDP growth is projected to overpass 5,3%, the jobless rate was set at over 7% and the budget deficit is expected to be above the three percent limit (3,2 -4%). - Germany, France, Italy and United Kingdom. Germany and France are still in the same cluster, as in 2006. The macroeconomic environment in these countries is characterized by unemployment sharp rise, GDP fall between 3% (France) and 6% (Germany), monetary policy interest rates close to 1%, inflation near zero (Germany, France) or close to 1% (Italy, UK). The budget deficit is expected to increase substantially in 2009 (well above 4%) as the recession hits tax revenues. Public debt will exceed 50% of GDP in 2009 and subsequent years. 23

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Greece, Portugal, Malta and Belgium. This cluster proved to be relatively stable over the two time periods analyzed, Belgium being the country that joined last this group. All of them display similar features of the key macroeconomic indicators. EC has warned them with the opening of the excessive deficit procedure as their budget deficit is well above the imposed limit of 3% of GDP. Real GDP growth is set to contract in 2009 with about 1, 3% in Greece and over 4% in the other three countries. Inflation will be low, ranging between 1, 8% and 3%, but persistently above the euro area average. Jobless rate is expected to reach 78%. Current account deficit contracted to around 7% of GDP. The high public debt and fiscal slippages limit the room for discretionary granting of fiscal stimulus. - Spain and Slovakia seem to share common expectations regarding their economic environment in 2009. The inflation rate will be near 2%, budget deficit will mount to 5% and public debt to 30%, will face a persistent decline of unemployment rate of about 13% and GDP is expected to contract by over 4%. However, in perspective, it is expected that by end-2010 Spain faces a sharp rise of unemployment, up to 20%, meanwhile inflation will fall near zero. - Estonia, Latvia and Lithuania are still in the same cluster, as in 2006. The projections for 2009 indicate similarities relative to their economic evolution: unemployment rate exceeding 10%, GDP fall of over 13%, inflation rate of about 3%, a current account deficit less than 3% and a budget deficit of about 5%. - Bulgaria, Czech Republic, Cyprus, Romania, Poland, Slovenia, Hungary and Ireland are the outlier countries, each having its own cluster. Relative to 2006 we have noted a significant increase in the number of outlier countries, meaning that they recorded a particular evolution of the macroeconomic and financial climate, that makes them dissimilar to any other country in the sample considered. For instance, in Czech Republic the downturn in real GDP was mainly due to the falling of investment activity and recession in major export markets, which overlapped the weak domestic demand. For the current year it is expected that GDP growth decrease by about 4, 1%. The government has adopted anti cyclical measures, by easing fiscal policy. The decline in volatile prices led to a sharp slowdown in inflation in 2008, which is expected to approach zero in 2009. Bulgaria will record a contraction in the GDP growth of 3, 8%. Inflation is projected to reach 3, 5% and the unemployment rate will exceed 7%. If most European countries had been warned by the EC with regard to their excessive budget deficit, this is not the case of Bulgaria, the deficit being expected to rise at 1% of GDP. The major problem for the economy consists in the large current account deficit, which reached 24% of GDP in 2008. Although it is assumed to fall at 13, 3% in 2009 because of a sharp contraction in domestic demand, it is still difficult to be financed, so that it is believed that Bulgaria will require some financial assistance from the IMF and the EU. Hungary is expected to record a sharp fall in real GDP growth in 2009, of about 6, 1%, in the context of the same deep decline of domestic and export demand (exports being the main source of economic growth). Unemployment rate is assumed to reach double-digit figures, inflation is expected to rise as a result of the pro cyclical fiscal policies implemented by government (focusing on indirect taxation by increasing value-added tax and excise tax). The budget deficit is expected to increase in 2009, until the upper limit of 3% of GDP imposed on by European Commission. The current-account deficit is expected to narrow in 2009 at 2, 7% of GDP. The Polish economy, although hit by the crisis, didn’t record a sharp decline of the main macroeconomic variables. GDP growth slowed down only by 0, 2 percentage points, being still positive at year-end, and is expected to fall in 2009 with only 0, 4%. Unemployment rate increased slightly, while investments and export growth recorded a moderate contraction. Until now the recession was relatively moderate because of small trade dependence, moderate indebtedness of the private sector, income tax cuts. The main concern of policy makers is the worsening of budget deficit, which is expected to go well above the ceiling of 3 percent imposed by European Commission. Also, the public debt is expected to rise up to 60% of GDP. 24

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Slovenia’s economy is highly dependent on foreign trade, as it exports about 70 percent of its production, mainly to EU members Germany, Italy, Austria and France. This high level of openness has significantly exposed it to adverse economic conditions in its main trading partners. The GDP is set to fall with 6%, the budget deficit will exceed 4, 8% of GDP and unemployment rate will rise to 6, 2%. Inflation is assumed to reach 0,5%. Ireland is experiencing a severe contraction in the GDP growth, of 9, 8%. According to OECD, the peak wasn’t reached yet, GDP fall being expected to reach 14%. The budget deficit could reach 12% of GDP in 2009 and the unemployment rate is expected to rise at about 12, 2%. Inflation rate is projected to be low, at 1, 7%. Government intends to apply pro cyclical measures, such as substantial public spending cuts, wage lowering and increases in taxation. Cyprus is the only country in the euro zone expecting positive GDP growth in 2009, projections ranging between 0, 3% and 0, 7%. Inflation is forecasted to drop to around 0.9% as the domestic economy, especially tourism and constructions, slowed down. Cyprus continued to have one of the lowest unemployment rates in the EU, of about 4, 7% and a budget deficit of only 0, 8%. Romanian economy is expected to contract in 2009 by over 6%. The high degree of indebtedness of households and private sector and negative expectations concerning the dynamics of unemployment rate and wage policy contributed to a sharp decline in private consumption and investments. Imports severely contracted, which led to a severe adjustment of the current account deficit. Although inflation rate follows a descendent slope, there are still inflationary pressures caused by the depreciation of national currency and the rise of volatile and administered prices. The budget deficit is expected to significantly exceed 3% of GDP, as income collected to budget decreased significantly. Public debt is assumed to rise at 19% of GDP. As a consequence, the government has to adopt pro cyclical measures, consisting in tax rises and employees dismissals, although the economic slowdown has to be counteracted by anti cyclical actions. Relative to clusters’ structure over the two time periods, one can note that, overall, it remained relative stable. The propagation of financial turmoil across EU countries overlapped on the intrinsic vulnerabilities of each country, which contributed to an increase of the heterogeneity of their economic framework and a slowdown of the process of economic integration. 4. CONCLUSIONS

Although the economic and financial crisis has affected both emerging and developed countries, its magnitude and implications on the national economies had been deeply different. Our paper aimed to assess the extent to which the current turbulent context has increased the divergence and heterogeneity between the 27 EU countries, in terms of the dynamics registered by some key macroeconomic variables. A first conclusion is that the foreign trade was one of the transmission channels that linked developed countries, directly affected by the financial crisis, with the small emerging economies, dependent on trade. Another finding suggests that some of the developed countries, where asset prices and financial leverage increased the most, were less affected as they appear to have escaped relatively lightly in terms of GDP loss. This is mainly the case of UK, an important financial center, which has the most diversified credit market in general, and the most complete market for mortgage products, being the only one in Europe that granted subprime loans. Although it was the first European country that declared entering recession, its GDP loss is expected to be of 4, 3% in 2009. At the opposite, Romania, Slovenia, Hungary, Ireland and The Baltic are experiencing a sharp fall in GDP growth. The main observation we can depict, by analyzing countries’ clustering, is that, no matter what method for data aggregation we apply, the latest countries that join the group are always Bulgaria, Hungary, Romania, Poland and the Baltic. The high values of the dissimilarity coefficient indicate a higher degree of heterogeneity between the above mentioned countries and the rest of EU

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countries. They are the most atypical in terms of macroeconomic features, both before and after the crisis onset. In 2008 the generalization of recession throughout European countries has increased the macroeconomic discrepancies, slowing the pan-European economic integration process, fact suggested by a biggest group fragmentation relative to 2006. To conclude with, we appreciate that, because of the financial and economic connections between EU countries, it is obvious that the recovery will be particularly externally driven, that countries cannot action in a separate, independent way. Therefore, stronger economic activity of foreign countries would contribute, firstly, to the recovery of the domestic GDP growth and will propagate through the trade channel to other countries. On the financial side, because of the increasing importance of foreign-owned banks in national banking systems, the restoring of the global market will depend on restoring the confidence, soundness and normal functioning of internal financial markets. REFERENCES 1. Camacho M., Perez-Quiros G., Saiz L. (2005) “Do European business cycles look like one?” Documentos de trabajo no. 0518, Banco de Espana. 2. Capannelli G., Filippini C. (2009) East Asian and European Economic Integration: A Comparative Analysis, Working Paper Series on Regional Economic Integration no. 29 3. Gutierrez J.M.P and C.K. Sorensen, 2006, “Euro area banking sector integration using hierarchical cluster analysis techniques”, ECB Working Paper Series no. 627. 4. Norušis M.J. (2008) “SPSS 17.0 Statistical Procedures Companion”, chapter 16: Cluster Analysis, ISBN-10: 0321621417, Prentice Hall. 5. Patrick M Crowley (2008) “One money, several cycles? Evaluation of European business cycles using model-based cluster analysis”, Bank of Finland Research Discussion Papers, no.3 6. Romesburg C., 2004, “Cluster analysis for researchers” (Lulu Press). 7. Tan P.N., Steinbach M., Kumar V. (2006) “Introduction to Data Mining”, chapter 8: Cluster Analysis: basic concepts and algorithms, Addison-Wesley, ISBN-10: 0321321367. 8. Wolfson M., M. Zagros, P. James, 2004, “Identifying national types: a cluster analysis of politics, economics and conflict”, Journal of Peace Research, vol 41, no. 5, pp.607-623. 9. http://www.statsoft.com/textbook/stcluan.html Cluster analysis”

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THE THEORETICAL ASPECTS OF INTEGRATION PROCESSES ON THE REGIONAL LEVEL Ihor YASKAL Chernivtsi Yuriy Fed’kovich National University, Ukraine [email protected] Associate Professor Ph.D. Alexandru NEDELEA Stefan cel Mare University of Suceava, Romania [email protected]

Abstract In this article theoretical aspects of interregional integration processes are covered. Different approaches are resulted in understanding the essence of integration between separate regions, hierarchical levels of integration, legitimacy use of theories of the international integration is found out at the analysis of regional interrelations. It is offered the authors approach for the allocation of types of integration processes at a level of region. Keywords: interregional integration, regional cooperation, economic relations. JEL Classification: F 15, F 16, F 59

1. INTRODUCTION One of the features of modernity is the growth of interdependence of the economies of different countries, development of integration processes on the micro and macro level, the intense transition of the civilized countries from the closed national economy to the economy open. This trend first (since 1950) was developing in Europe, but then (from 1960) and expanded to other regions. Many countries refuse to voluntarily part of national sovereignty and form merger integration with other countries. The main reason for this process is to improve the economic efficiency of production, and integration itself is primarily economic in nature. Growing interdependence of economies put on the agenda include addressing problems in the world economy and the formation of responses to the challenges of time. Accordingly, the study of mechanisms of integration processes is extremely important today. 2. ECONOMIC VIEWS OF INTERREGIONAL INTEGRATION The study defined the problems on a large number of works. Among the foreign scientists: A. Weber, W. Izard, A. Losh, D. Mid, B. Ohlin, F. Perry, D. Stiglits, J. Tinbergen, J. Tunen, Y. Shishkov. Coverage of issues concerning the processes of economic integration into the global economy and were engaged in domestic economists: O. Amosha, P. Belenkiy, O. Bilorus V. Budkin, V. Heyets, V. Golikov, B. Danilishin, M. Dolishniy , S. Zlupko, M. Kozoriz, Y. Makogon, N. Mikula, A. Mokiy, V. Pila, S. Pisarenko, S. Pirozhkov, P. Romaniuk, W. Sidenko, D. Stechenko, A. Filipenko, V. Chuzhykov, M. Chumachenko and many others. Review sources showed that the attention of scientists focused on various aspects of international integration process, such as: the question of accession to various international and regional organizations (WTO, the EEA) (Baziluyk, 2005), the development of cross-border cooperation (Mikula, 2004), the choice of optimal vector foreign policy [7], the functioning of euroregions [10], creating all sorts of innovative forms of regional development (Stechenko, 2002) and so on. However, still many unresolved issues related to inter-regional integration processes. In our opinion, require further development of theoretical foundations of integration processes between the regions of internal states and different countries. The purpose of the article will study the integration of theoretical plane interconnections between regions of the country and various states. To achieve required: first, to trace the various approaches to understanding the integration process, and secondly, determine the legality of the 27

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using of theories of international integration (trade, competition) to the analysis of interregional interaction in the modern conditions, and, thirdly, suggest ranking interregional integration processes. 3. THE CHARACTERISTICS OF THE ECONOMIC INTEGRATION There are several definitions of integration, those different scientific schools of modern economic thought (market, institutional, structural), generalized by A. Filipenko (Filipenko, 2005). Market comes from a known school postulates that the market is the best regulator of the economy, which can not be replaced by any artificial mechanisms of the state (the principle of laissez faire). The essence of the school market is that in an integrated economic system have made the same conditions for the movement of factors of production, as in the national market environment. In the common economic space of a few countries provided competitive and full freedom of action of market forces. Economic integration in this case is considered so deeper than the freer is the effect of market forces and lower the regulatory impact of state. Another trend of modern economic thought was named institutional. His supporters are trying to find a compromise between market and state regulatory mechanisms of international economic integration. According to representatives of this school, integration is the embodiment of a certain unity of economic and political-legal aspects. Unlike the market school, institutionalists recognize that the integration of national economy can not be achieved just one market methods. In the mid 60’s of XX century some French, English and Italian economists (e.g., P. Streeten) (Streeten, 1964) subjected to criticism neoliberal approaches to economic integration and suggested that other models that had the name “structural school”. The views of representatives of the school significantly different from one another. But is that unites them: first, very critical stance on the traditional theory of international trade, and secondly, the desire to identify the structural aspect of the integration process. Real integration in understanding the structural school – it is something more than just a union of several economies. It is available only at the stage of economic union that is interpenetration of national households, which is an integral part of the process of inevitable change their structure. The main problem of regional integration, as ideologues of the flow, in determining the optimal ratio of national programs of economic policy with the benefits arising from international cooperation. Obviously, the existence range of definitions of integration due primarily historical development of integration processes: the rule of free market concepts to the formation of the institutional infrastructure and partnerships between individual integrated fulfilments. Internationalization of production is the foundation of economic integration. Internationalization of productive forces due primarily into their national borders each country. Analysis of “classic” version of economic integration, especially in the EU, can be noted that economic integration is different from the internationalization of economic life, first, more complicated universal character of international economic relations among developing countries towards the creation of large economic systems in within a specified group of states and, secondly, that these economic relations are regulated by collective supranational bodies. Such an approach to the definition of economic integration allows specific features and characteristics that separate it into the background of other phenomena in the internationalization of economic life. Key among them is the following (Mocherniy et al., 2006). The first, integration is the development of stable, deep connections and division of labour between the national economy, accompanied by mutual adjustment and supplement of certain enterprises, industries, economic regions of different countries, leading to the formation of economic systems, which cover primarily, close the level of economic growth. Secondly, integration – the process is controlled in a sense that it requires conscious, concerted action actors (business associations, regions and states) about the coordination and functioning of relationships in the new created groups. Regulatory function while performing state aids individual countries and international institutions. 28

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The third, special feature of the integration is its regional character, which provides geographic proximity, the presence of common borders and economic relations between the countries that made up for a long historical period. The fourth, the economic integration provides for effective market mechanisms, based on the laws of competition and profit, by which economic and social functions of the state. Functioning market mechanism is possible if there is economic democracy, equality, the availability of different forms of ownership and management of competition and other inherent market categories. In the fifth, in the process of integration taking place deep structural changes in the countries are more efficient economic proportions, leading eventually to higher social productivity. These features of the integration cause it’s flowing at different levels. At the time, academician M. Dolishniy proposed to allocate such hierarchical level of regional integration: - innerregional; - interregional (including at the international level); - international (Dolishniy, 2003). At each level are specific drivers, having specific barriers. Each level requires specific approaches to the regulation of economic interaction. 4. NEED TO STUDY INTER-REGIONAL INTEGRATION In this study we focus on interregional (including the regions of other countries) integration. It was consolidation interregional economic relations on the basis of deepening regional and industry specializations allows the fullest use and disclose internal capacity of territories and ensure full integration of Ukraine’s regions in a single socio-economic complex. Under these conditions, regional economic integration requires the development of actions at the state level that will accelerate regional cooperation, will develop the internal market and competitive position in foreign markets. Find rational ratio required in the regions of economic freedom on the one hand, and “selfsufficiency”, on the other. The principle of deepening inter-regional economic cooperation must implemented as the basis of national competitiveness, which is distributed to markets in goods and services, labour and capital [12]. Obviously, the necessity of deepening inter-regional cooperation at this stage is not controversial. Mechanism of international and interregional links of the region can be described using the theories developed in the scientific literature for the national economy, open up in the world economic space. Interregional economic relations covering virtually all areas of economic activity: bilateral barter between the regions of the country, scientific-technical cooperation, cooperation in finance and credit, investment and innovation, industrial relations of cooperation, redistribution and use of human resources, etc. Foreign economic relations characterize this mechanism as a subsystem of world economic space. These processes are represented in the export and import flows of production, foreign investment, international exchange of information technologies, etc. Theories of interregional exchange are closely intertwined with the theories of international trade, competition and integration. The proximity of these theories depends on similarities of basic concepts, factors, problems, methodology of analysis. It should be noted that the theory of industrial specialization of countries and regions were originally developed in the international economy. So, B. Ohlin, winner of the Nobel Prize, his major work named “Interregional and international trade” (1933), thus emphasizing similarities and differences of both types of trade. Conclusions theories of international specialization can apply for a theoretical justification of interregional exchange and specialization with the appropriate features: - The theory of comparative advantage D. Ricardo explains international and regional specialization of the region on those goods, in the production of the region has comparative advantages, based on a relatively low cost; - Theorem of Heksher-Ohlin-Samuelson groundwork industry specialization based on providing the region-specific and mobile factors of production. This commodity prices and 29

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factoring in conditions of increased openness of countries and regions aligned, approaching world average level; - Under the theory of the life cycle of goods in international and interregional trade in some regions by R. Vernon realizes its comparative and competitive advantages in developing and manufacturing new products (innovative territory), others specialize in the production of traditional, standard products (adaptive territory); - According to the theory of economies of scale by P. Krugman, even in conditions of imperfect (monopolistic) market the region's participation in international and territorial division of labor is winning, which results in improving the structure of consumption, the welfare of the population; - Under the theory of competitive advantage by M. Porter specialization and economic links of the region stipulates competitiveness of firms and determinants of natural and created competitive advantages of the region. International and regional integration, despite the uniting features, and have significant differences. One of the reasons that cause the difference of international and interregional economic relations, as the A. Granberg, is that the interregional division of labour and interregional trade – a process taking place in various parts of a national free trade zone, one customs territory, one monetary system, a national labour market and capital. To interregional trade, as a rule, no administrative, customs, political, linguistic and other barriers that, in varying degrees are in international economic relations (Granberg, 2006). Although, undoubtedly, there may be exceptions. In market conditions made the interregional economic integration is direct economic (industrial, scientific, technical, technological) relations at the level of primary economic activities are growing, provide a gradual unification of regional economies. The point with this is mind: to change the separation syndrome, survival alone must take the principle of expanding inter-regional economic cooperation, which is distributed to markets in goods and services, labour and capital [11]. Obviously, that market conditions regional economic integration based on mutual interest of the market and any region of the isolation is not beneficial, because each of them are interested in the broad market for its products. The logic of the integration process, in our opinion, based on the presence of strong economic connections between economic entities, organizations, etc., As well as the deepening economic relations between the “old” and “new” Europe has become one of the main background for connection new members. 5. ROLE OF REGIONAL COOPERATION FOR THE DEVELOPMENT OF INTERREGIONAL INTEGRATION Along with the study of inter-regional economic integration can not be left outside the purview of the concept of regional economic cooperation. Consideration of regional cooperation is important, especially because cooperation is the main prerequisite for integration. In terms of N. Mikula, interregional cooperation is one of the three components of the international regional cooperation, along with interterritorial and transboundary (Mikula, 2004). Interterritorial cooperation means any mutually agreed-upon activities aimed at initiating relations between territorial communities and authorities of two or more contracting parties (other than relations of transfrontier cooperation between neighbouring governments), including the conclusion of territorial communities and authorities of other cooperation agreements [13]. So interterritorial cooperation is broader concept than the interregional cooperation, and defines the right of territorial authority at any level with the relevant local authorities of other states. In turn, inter-regional cooperation legal framework outlines areas that are on the second after the central level. Apparently, this definition focuses on the relations between regional authorities, the narrow nature of the term.

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Cross-border cooperation is clearly working adjacent territories of neighbouring states, that is crucial is the existence of boundaries between working areas. N. Mikula recognizes that the notion of “interterritorial and interregional” can be used as identical, if you decide on the term “region” (Mikula, 2004). Discussions on this matter does not become quiet and still. Another view: inter-regional economic cooperation is a system of economic relations and interests at the regional level, emerging and developing in the functioning of regional economic systems and due to the territorial division of labour, availability of competitive advantages and natural resources and geopolitical conditions. Regional cooperation in the context of the functioning of the border region of I. Storonyanska considered as a step that precedes the emergence of integration processes. A number of transformational factors that determine the need for internal border region to process of integration in mezolevel: - A production and cooperative connections between the regional economic systems that generates interlocking economic interests; - Unity of transport networks and border crossings, which causes the common tasks of socio-economic infrastructure; - Common problems of nature and environmental protection; - High degree of economic interaction, which predetermines the density of social contacts; - Similarity (perhaps, unity) ethnic and history traditions and religious situations (Storonyanska, 2002). This definition probably needs clarification in the “totality of relations and interests at the regional level”. Therefore we propose to determine the inter-regional cooperation as the totality of relationships between individual actors of regional economy, representing different regions. These actors are regional authorities, companies, organizations, units of large enterprises, small and medium enterprises, etc. Interpretation of regional cooperation as the aggregate relations between subjects, but not the regions, in our opinion, specifies researched phenomenon. 6. INTEGRATION OF COMPANIES - THE BASIS OF INTERREGIONAL ECONOMIC INTEGRATION In the framework of inter-regional integration processes should provide integration of government and at the enterprise level. Also found on the division of real, functional and institutional integration, which are parallel and interrelated (Belozybenko and Usova, 2004). This classification requires a clearer distinction justification. In our view, appropriate to provide institutional and private corporate integration. Institutional type of integration or the integration of regional authorities – a process of interpenetration, merging regional reproductive processes, resulting in converging social, political, institutional structure integrated regions, including regions of different countries. The choice of “institutional type of integration”, argued that the initiators in these cases mostly serve state structures of selected regions. In the case of private-enterprise type of integration or integration at the enterprise level it is on the integration of capital and assets of companies. This distinguished: - Horizontal integration (merger involves companies that operate in one area on one industry market. Thus companies tend to resist the stronger competitors); - Vertical integration (integration of the companies that operate in different fields, but connected between successive stages of production or turnover). As a result, private-enterprise integration is structures based on networks of direct links. This type of integration connections stable compared with the integration of institutional least because they are made by the criterion of economic efficiency. However, this does not preclude state regulation of private-enterprise integration, especially in transition economies. By M. Dolishniy the role of government in shaping and implementing the strategy of regional development in view of permanent impact of the integration processes should increase, not decrease. This enhancement regions in the implementation process of international integration can give positive results for the optimization of conditions of economic cooperation between the 31

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regions, strengthening the role of the state in ensuring political and economic security, plays its guarantor role in resolving contentious issues at the international level, defender domestic markets and producers from unfair competition and expansion of the domestic market space dubious foreign firms that supply low quality products (Dolishniy, 2003). Ask for the conclusion: at least at the legislative level, a major role in deepening inter-regional integration in individual countries should play a government, but if it comes to cross-border cooperation - is the initiative should take the regional participants of economic life. Next stop on interregional integration within one country and integration between regions of different countries. In terms of planned economy in the country existed only high integrated national space. With independence the major share of established economic relations was broken off and relations between Ukrainian regions becomes significantly weaker. One of the main causes of weakening of interregional interaction researchers called a strong influence on the economy of foreign economic relations (Varnaliy, 2007). Import was intensively displacing with the internal market of domestic producers, this also contributed to the reduction of customs tariffs and the abolition of most non-tariff restrictions on imports. Since the Ukrainian export of forest products and dominates the initial stages of production and imports – products of a high degree, the increase in foreign trade unessential influence on the internal cross-industry and interregional industrial relations. At the same time, transition to market relations has allowed avoiding many previous artificial connections (e.g. deliveries between the same ministries, remote from each other by thousands of kilometres), reduced the dependence of consumers from monopoly businesses, has opened opportunities for peripheral regions to work on markets in neighbouring countries, etc. Main positive change is that to operate such an integration factor as the interest of producers and regional authorities in expanding markets. A restoration integration trend is not the “reintegration” in terms of restoration of preexisting economic links that existed in a single economic complex. New regional integration is based on the market efficiency and, moreover, must consider the task of social policy and geostrategic interests. Given the substantial interregional differences, the level of internal integration of domestic economy is far from optimum. 7. EUROREGIONS Regarding the integration processes between regions of different countries (interterritorial and cross-border cooperation), the simplest form of this today is a direct interaction between territorial communities – cities, towns, which are mostly informal in nature and aimed at joint action in case of emergencies. In addition, indicating such forms as [14] 1) agreement on crossborder cooperation (can include the creation of cross-border cooperation, such as Europe, units, etc.) and 2) a euroregions (provides creation of organizational structure and financing system in the form of inter-regional associations, consortia). Highest level of cross-border cooperation has been in the form euroregions. There are six euroregions in Ukraine (on the western border – “Bug”, “Carpathian”, “Lower Danube” and “Upper Prut” in the north-east – “Dnieper” and "Slobozhanshchyna”). However, there are a number of obstacles to the effective functioning of the objects and subjects of the Ukrainian side in the euroregions: - No systematic and prospective approach to the euroregional cooperation; - Low level of involvement of organizations and representatives of the parties to and implement the goals of euroregions; - Lack of training capacity in the regional government, the lack of financial support; - Lack of implementation of appropriate organizational methods, tools, principles, procedures, structures, imperfection of legal mechanism of cooperation (Dolishniy, 2006). The existing division of interregional integration, first, institutional and private-corporate and, secondly, the integration between the regions of the country and different states, defines the 32

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need for completely different in substance and methods of stimulating these processes. These types of integration processes can be combined in one term – spatial integration, stressing its different orientation in time and space, reducing influence of the administrative border between the regions. Certainly, the proposed conceptual apparatus is supplemented by further refinements. Either way, axiomatic, in the opinion of the author, is the assertion that agreements can not be at a sufficient level to deepen the integration processes between business entities. Conversely, relations between enterprises of different countries are arranged mostly in spite of the presence or absence of regulations. 8. CONCLUSIONS Thus, analyzing the theoretical foundations of inter-regional integration processes, come to the following conclusions: 1) Existing of different definitions of integration between regions depends on the historical development of integration processes: the rule of free market concepts to the formation of the institutional infrastructure and partnerships between individual integrated actors; 2) To study the mechanism of international and interregional economic relations of the region appropriate to consider the theoretical achievements, developed for the national economy, open to the world economic space. This is because the theory of interregional exchange is closely intertwined with the theories of international trade, competition and integration and similarities are basic concepts, factors, problems, methodology of analysis; 3) Consider it appropriate to distinguish between the integration of regional authorities and the level of economic entities on the one hand, and on the other hand, integration between the regions of the country and various states. This approach allows developing an adequate logic of management of these processes to meet demands. Given the words, directions for further research, in our opinion, may be to develop tools and methodology of evaluation of integration processes to create ways to improve their effectiveness. REFERENCES: 1. Bazilyuk Y.B. About the priorities of Ukraine in implementing economic integration / Strategic panorama. – 2005. – № 5. 2. Belozubenko V.S, Usova A.S. Modeling of the integration processes in the regions of the world // Scientific works DoNTU. Series: Economic. – 2004. – Vol.87. – p.194–201. 3. Dolishniy M.I. Innerregional and international regional integration in Ukraine: the main purpose and objectives of development / Social-economic research in the transition period. Mechanisms for implementation of regional policy. Collected works. Vol. 2. – Lviv: Institute of Regional Studies NAS of Ukraine. – 2003. – p.8-12. 4. Dolishniy M.I. Regional Policy at the turn of XX-XXI centuries. New priorities. – К.: Naukova dumka, 2006. – 511 p. 5. Economy of Ukraine: a long-term strategy and policy development. For ed. of acad. NAS V.M Heets. – К.: Feniks, 2003. – 1008 p. 6. Filipenko A. Integration prospects of Ukraine: bigravity model // Economy of Ukraine. – 2005. – №6. – P.11-22. 7. Granberg A.G. Basics of the regional economy. – М.: SU HSE, 2006. – 495 p. 8. Mikula N. Interterritorial and transboundary cooperation. – L’viv: ІRR NAS of Ukraine, 2004. – 395 p. 9. Mochernyy S.V., Larina Y.S., Fomishyn S.V. World economy in the context of globalization. – K.: Nika-Tsentr, 2006. – 200 p.

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10. On the way to Europe. Ukrainian European experience. For ed. of S. Maksymenko and I. Studennikova. – K.: Institute of East-West, 2000. – 151 p. 11. President of Ukraine to the Verkhovna Rada of Ukraine on the internal and external situation of Ukraine in 2005. – //http://ru.proua.com/inform/12.html/ 12. Protocol No.2 to the European Outline Convention on Transfrontier Cooperation between territorial communities or authorities on the interterritorial cooperation. 5.05.1998. Strasbourg 13. Regional Development Policy in Ukraine: the characteristics and priorities. Analytical report. For ed. of Z. Varnaliy.– К, 2005. – 62 p. 14. Regional policy and mechanisms for its implementation. For ed. of acad. NAS M.I. Dolishniy. – К.: Naukova dumka, 2003. – 503 p. 15. Stechenko D.M. Innovative forms of regional development– К.: Vishcha shkola, 2002. – 254 p. 16. Storonyanska I.Z. Organizational and economic foundations of interregional cooperation in border regions (for example, the Western region of Ukraine). Abstract Dis. to a scientific degree of candidate of economic science. – L’viv, 2002. – 20 p. 17. Streeten P. Economic Integration. Aspects and Problems. Second Revised and Enlarged Edition. Leyden, 1964. 18. Varnaliy Z.S. Regional policy in Ukraine: new conditions, new requirements / Strategic priorities. – 2007. – №1(2). – p.141-149.

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DOES THE ALBANIAN PENSION SYSTEM WORK? Ph.D. Edlira LUCI University of Tirana, Albania [email protected] Ph.D. Dorina KRIPA University of Tirana, Albania [email protected] Abstract This article analyses the reforms in the pension scheme in Albania during the transition period. An analysis of changes experienced by the performance of the social insurance scheme reveals that, so far, the system is almost entirely dominated by the public scheme “pay as you go”, which for the moment is facing serious challenges. The results of the prognoses show that that these problems will accompany the scheme in the future too. Under these circumstances, it can be inferred that, in addition to the application of parametric modifications to the public scheme in order to strengthen its financial stability, the initiation of a more radical reform in the pension system is becoming crucial. The same conclusion has been reached by many countries which have completed this reform. The paper concludes with some recommendations on how to carry out the reform of the public pension scheme and the proposes the introduction of a multicolumn pension system. Keywords: Pension funds, parametric reforms of pension funds, performance of social security system, dependency ratio. JEL Classification: G230

1. INTRODUCTION AND SUMMARY Social insurance plays a basic role in the social protection scheme of the population. In 2008, 534 thousand pensioners benefited from social insurance. We believe that its role will continue to rise. The benefits offered by social insurance in 2008 were 61.6 billion Lek ($64.8 Billion). This amount is approximately 5.37% of the GDP and 71% of the social protection scheme cost. The benefits are divided as follows: pensions, insurance in case of illness, insurance in case of accident and professional illness, insurance in case of pregnancy or birth, insurance for unemployment payments. Among them, the central position is held by the branch of pensions, which allocates over 97.6% of social insurance benefits. During the past two decades, the public scheme development was conditioned by the problems of transition. In 1991, when Albania began the transition from a centralized economy to a market economy, it inherited a very difficult and problematic economic situation, with: negative growth rates; profound lack of products in the market; rationalization of basic alimentary products; rising inflation; unemployment (at first secret than declared); decline of population income; etc. During the first years of transition the situation deteriorated rapidly. Competition made it impossible for production capacities to continue, since outdated technology was still being used widely. GDP in 1991 was 27% lower compared to the previous year, while in 1992 the decline was even greater, reaching the amount of 33.2%. The economy faced records of hyperinflation. In 1992, inflation reached the rate 237%, accompanied with a fast depreciation of the currency. The budget deficit increased as much as 60% of GDP, and the unemployment rate rose to 27%. The old governance structures were abandoned in a time when market institutions were still inexistent, which caused the situation to worsen. During the period 1991-1994, because of the economic collapse, the active population was employed and the amount of contributors to social insurance was drastically reduced. In 1994, there were only 480,435 contributors to the pension scheme, from 1,451,212 in 1990. In the rural zones, after 1992, the year of definitive closure of agriculture cooperatives, there were only 7.6% of the contributors of 1990. The high level of unemployment, deep social tensions, and syndical pressures forced politicians to legalize a premature pension scheme. This provoked an atypical rise in young pensioners, where a 45-year-old teacher, for example, could benefit from this scheme. 35

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As a result of the serious reduction of contributors and fast increase of beneficiaries of social insurance scheme, dependency rates worsened. The figures changed from 45 beneficiaries per 100 contributors in 1990, to the critical level of 104 beneficiaries per 100 contributors in 1994. The implementation of a new scheme that would prevent the situation to collapse, would deal with emergent problems caused by the serious developments of the period and would resist time as much as possible, was another factor which influenced the scheme reform. The process of pension reform in Albania was achieved in two ways: 1. through reformation of legal framework; 2. through adoption of parametric reformations. During the first years of transition, Law nr. 7703, of 11.05.1993, “Social insurance in the Republic of Albania” was drafted and implemented. The Law aimed the replacement of the old pension scheme, which, in essence, was more a type of social help scheme, with a mandatory public scheme with PAYG benefits. In accordance with market demand, this scheme would be financed through employers and employees’ benefits and would guarantee the fulfillment of social-economic rights in the field of life insurance secured by Law, and reported in International Convents. After the reformed scheme went into effect, it exposed deficiencies in the legal framework and undesirable trends in the adoption of the scheme. In order to avoid these deficiencies and constraints by the deteriorating trends of the financial situation, several partial reforms, for the modification of some parameters of the scheme, were undertaken. The parametric reforms package included reforming the rural scheme; increasing the pension age; raising the minimum wage; increasing the proportion maximum wage/minimum wage; reducing the amount of contributions and unification of pension accorded before 1993 with pensions accorded after 1993. In Albania, unlike most other transition countries, where pension reforms for the restructuring of the existing scheme toward a multicolumn structure, including implementation of obligatory pension schemes with appointed contributions and reservation, the reform didn’t imply the need of setting up a pension pillar based on a funded scheme. Thus, the pension reform process is not finished yet. This article focuses on the reform of the pension system in Albania. It is organized in these sections: Section 2 analyses the existing situation and the reformation of the performance of the public PAYG scheme, which for the moment dominate almost entirely the pension system; Section 3 analyses the situation of supplementary schemes of private pensions and the reasons for their low development; in the last section conclusions and recommendations are provided concerning the necessity of a radical reform in the pension system. 2. THE PERFORMANCE OF THE PENSION PUBLIC SCHEME We will first analyze the development in the public scheme. Thereafter, we will examine developments in private schemes. We will consider two periods in our study: transition period (1994-2008) and prospective period (2004-2075). We will use statistical published data, and data from prognostic studies. 2.1. THE PERFORMANCE OF THE SCHEME DURING TRANSITION 1994-2008 The performance of the scheme during this period can be analyzed in two ways, depending on the year that will be used as reference. We will use as reference-year the year considered as the start of the transition period. There are different opinions regarding this matter, one opinion considers 1990 as the reference year, and another considers 1994. 1990 is the year when the market economy began, while 1994 is the year when the reformed pension scheme started functioning. The conclusions of these two different lines of study differ considerably from each other. According to the first line of study, results show that, during the period 1990-2008, the performance of the scheme did not improve, since the year after year variations contributed only to recover the real pension level of 1990. According to the second line of study, the situation is completely

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different. The result of the performance of the scheme has improved, since the real pension level, during the period 1994-2008, has increased. The difference of two studies is caused by the 1990-1993 period. In these years, because of the deterioration of the macroeconomic situation and decline of the scheme, the real pensions experienced negative effects. During the period 1993-2003, the average pension of the urban scheme, for example, was three times lower compared to that of 1990. Even though, as mentioned above, the transition toward market economy began in 1991, we will use as reference year 1994. We are using this line of study because Law nr. 7703, which reformed the public scheme, went into effect after October 1993. The variations of the main indicators of social insurance scheme during 1994-2008 are shown in table nr. 1, while its analytical indicators are presented in table nr. 2. Table 1. Main indicators of social insurance scheme during 1994-2008 (in million Lek) Indicators

1994

1996

1997

2002

2008

Total revenue

8,610

17,336

17,232

35,045

61,495

Total costs

10,700

17,864

18,534

35,045

62,852

Costs ( % of GDP)

4.04

5.67

5.75

5.61

5.84

Financial deficit of the scheme

2,090

528

1,302

0

1,358

Number of contributors

480,435

432,200

348,038

474,323

718,068

In urban area

438,197

399,637

321,315

347,764

421,032

In rural area

42,328

32,563

26,723

126,559

297,036

Number of beneficiaries

462,765

485,558

494,883

550,451

534,271

In urban area

309,677

322,024

327,211

365,566

374,838

In rural area

153,088

163,534

167,672

184,885

159,433

Source: “Annual Statistical Report of Albanian Social Insurance Institute”

Table 2. Analytical indicators of public scheme during 1994-2008 Indicators

1994

1996

1997

2002

2008

Average real urban pension (in Lek)

204

251

177

289

0.96

1.12

1.42

1.16

0.70

- In urban area

0.71

0.81

1.02

1.04

0.88

- In rural area

3.62

5.02

6.38

1.45

0.54

Rate of population coverage**

14.5

14.8

14.9

17.7

16.6

- In urban area

60.2

51.9

48.6

43.8

44.3

- In rural area

27.3

21.3

16.7

17.7

34.2

Dependency rate*

Replacement Rate***

Source: “Annual Statistical Report of Albanian Social Insurance Institute” Notes: *Dependency rate is calculated by dividing the average number of pensioners (from retirement, invalidity or familiar) with the total number of contributors on the social insurance scheme. **Rate of population coverage is calculated by dividing the number of beneficiaries of the scheme with the total population of the country ***Replacement rate is calculated by dividing average retirement pension with net average wage used to calculate the contribution for social insurance.

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The review of these indicators and macroeconomic indicators of the period 1994-2008, confirms that the performance of the scheme didn’t follow the desirable direction. According to the direction of performance indicators, the entire period can be classified in three phases:  First phase (1994-1996) The macroeconomic parameters were optimistic and the performance of the scheme was improving. During this phase: the scheme cost indicator as a fraction of GDP was rapidly increasing; revenues were increasing faster than costs; the scheme deficit was decreasing. However, this improvement came mainly by scarifying the interests of pensioners, because the replacement rate and the real pension remained low and even decreased during this first phase.  Second phase (1996-2002) This phase started with the problematic events, regarding the year 1997, when the macroeconomic improvements were interrupted because of the bankruptcy of pyramidal firms. But, after the collapse, the macroeconomic situation improved: the annual average increase of GDP was 8% and inflation and unemployment rates decreased. However, the performance of the scheme during this period declined in several directions: costs increased faster than revenues; the rate of replacement fell; real average urban pension increased only by 8.8%; etc. Even though the dependency rate declined slowly, it remained in very high levels for Albania.  Third phase (2002-2008) The economic situation is considered favorable. The inflation rate is stabilized in levels 2-4%. The unemployment rate is declining, even though a slow decline in the growth rate can be noticed. Although the contributors increased by 51.4%, the beneficiaries declined by 3% and the dependency rate of the scheme declined significantly, the performance of the scheme worsened even in this phase and this was reflected in its financial result. From a review of the scheme performance for the period 1994-2008 it can be inferred that some improvements are achieved, but they are almost insignificant. The population coverage from the scheme increased to 2.2%. The costs as a fraction of GDP increased by 1.8%. Revenues increased more than costs, respectively 7.14 times and 5.87 times. The dependency rate declined considerably, by a rate of 27%, or from the level 96 beneficiaries per 100 contributors in 1994 to 70 beneficiaries per 100 contributors in 2008. Even though the dependency rate declined considerably, the financial result of the scheme did not experience these optimistic levels. In fact, the deficit of the scheme decreased only by 732 million Lek, or 1% of scheme costs in 2008. This deviation came because the dependency rate decreased only in the rural scheme, while the dependency rate in the urban scheme increased by 24%. Additionally, in the rural scheme, contributions of farmers are much lower compared to contributions of the self-employed in the urban area. The performance of the urban scheme has relatively worsened compared to the performance of the rural scheme. The dependency rate in the urban scheme increased from 71 beneficiaries per 100 contributors in 1994 to 88 beneficiaries per 100 contributors in 2008, while the same indicators in the rural scheme declined from 362 to 54 beneficiaries per 100 contributors. Comparing the main indicators of the public scheme in Albania with the same indicators in neighboring countries, shows that the situation of the public scheme in Albania is inferior. The revenues of the scheme in relation to GDP are 5.7%, while in neighboring countries this rate is between 8-10%. The dependency rate is at a critical level: 74 beneficiaries per 100 contributors. The difference between minimal pension and maximal pension in Albania is very low. The maximal pension is approximately twice the minimal pension, while in other economies this difference is more than threefold. Moreover, during the period 1994-2002, this difference dropped below the official levels. Because of the unequal indexation of pensions, where increasing minimal pension is the priority, the proportion maximal pension/minimal pension has declined, reaching in 2002 the critical level 1.27 to 1. The public scheme generally offers low benefits compared to the high level of contributions and the benefits in neighboring economies. Even though during the period of 1994-2008 the average nominal pension in the urban scheme increased 3.6 times, this achievement is due to the low level of pension in 1994, which was only half the real pension in 1990. Thus, the increase 38

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compensates only the inflation rate and helps to recover the real pension level of 1990. Additionally, during the 14-year period, the average real pension in the urban scheme, which determines the standard of life of the pensioner, increased insignificantly, only by 10%. This shows that the public scheme for the moment does not have financial capabilities to increase the benefits of the pensioner, which are at very low levels. The average urban pension is 9,831 Lek (72 Euro or $103). The rural pensions are even lower. These low levels of benefits caused the standards of living to decline for pensioners. Moreover, they weakened the relationship that should otherwise exist between contributions and benefits, and encouraged evasion in collecting contributions. Comparing the dynamics of pension and wages, it can be inferred that the increase of pension has always been much slower than the increase of wages. For the period 1993-2002, for example, the average wage increased 3.57 times, while the average real pension increased only 2 times. Thus, the replacement rates gravely worsen in both urban and rural schemes. The replacement rate for the average urban pension declined from 70% in 1990 to 60.2% in 1994 and 48% in 2008. Moreover, the low level of this indicator is in total discordance with the replacement rate of 75%, set by Social Insurance Law. The replacement rates of rural pension have been constantly lower than urban replacement rates. In 1994, the rural rate was 27.3% and it has declined through the years, reaching the level 15.7% in 2000. After that year, because of higher rate of increase of rural pensions compared to minimal wage and contributions, the replacement rate of rural pensions begun rising, but still it remained at very low levels (26.9% in 2006). The dynamics of real pension compared to the analysis of the replacement rate show that the public scheme has not been able to provide an increase of living standards of pensioners and that the current financial stability has been guaranteed by sacrificing the interests of pensioners. The analysis of the performance shows that the public PAYG scheme is constantly facing problems and difficulties in order to guarantee financial stability. 2.2. FACTORS THAT AFFECTED THE ACTUAL PERFORMANCE The economic situation of the country and its developments are the main factors that affected and conditioned the performance of the scheme. Some factors that help to understand the problems and challenges of the reformed public scheme in Albania, after 1993, are: the serious deficiencies inherited from the previous period; the low and instable economic development during the transition period; the high level of unemployment and poverty; the high level of trade deficit with increasing tendency; etc. Since the public PAYG is a non-funded pension scheme, its ability to cover financial obligations for the pensioners depends from the aging structure of the population, previous experience of the scheme, and the macroeconomic performance of the country, especially in terms of employment rate and ability of tax structures to collect contributions. The PAYG scheme would suffer of immaturity or deficiency in financial balance, if the population of the country is old and the economy declines. In these cases, the scheme faces financial difficulties, or inability to pay contributions. In order to achieve financial balance, some extreme action has to be taken: the rate of contributions has to be set at high levels; the pensions should remain unchanged or increase in very low levels; the replacement rate has to decrease; the subventions from the state budged have to increase. These actions were undertaken during the period of reformation of the pension scheme. The public PAYG scheme, in most of European countries and in many other countries, is facing the demographic challenge of population ageing. It has been some time now that the natural population increase has declined, or, even worse, has experienced negative values. Moreover, due to achievements in medicine and improvement of standards of life, the longevity of the population has increased compared to past periods. The combination of these two factors in these countries has caused the problems and challenges related to population aging. This phenomena cause the faster increase of amounts of pensioners compared to contributors, thus worsening the dependency rate of pensions. When the dependency rate reaches its critical levels, the budget of the scheme results in

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deficit and the financial pressure of the public scheme to the state budged becomes serious to the point that the continuity of the PAYG scheme is questioned. In Albania, as in many other countries, the high level of dependency rate in the public scheme is becoming a serious problem. In most other countries, the high level of dependency rate results from population aging. In contrast, Albania is a young country, thus the high level of dependency rate can be explained only partially by the aging population trend. The particularity of the public pension scheme in Albania is that the difference between the dependency rate of pensions (defined as the ratio of beneficiaries to contributors in the scheme) and dependency rate of old population (demographically defined as the ratio of over 65 years old population to working population between 15-64 years old) is very high compared to other countries with an aged population. To identify the factors that affected the high level of dependency rate in the Albanian public scheme, we need to review the relationship between dependency rate of pensions (Nvs) and dependency rate of aged population according to demography (Nvd). Beneficiaries Beneficiaries Population 65 + Population 15 − 64 Nv = = × × Contributors Population 65 + Population 15 − 64 Contributors The equation shows that the dependency rate of pensions depends on three factors: level of aged population covered by the scheme (beneficiaries/population 65+); dependency rate of aged population (Nvd); and level of unemployment (population 15-64/contributors). Since the dependency rate of the aged population (Nvd) is more than 6 times lower than the dependency rate of pensions (Nvs), it is obvious that the factors that affected Nvs are the level of the aged population covered by the scheme and the unemployment rate. These factors depend directly on the conditions of the labor market. The actual situation of the labor market remains distant from normal parameters and is affected by problems and challenges of transition. The entire aged population benefits from the public scheme. Moreover, there was a period of time, where the number of beneficiaries was higher than the number of the aged population that, by Law, could benefit from the scheme. This was also caused by special types of pensions and other factors that affected the scheme, such as: premature pensions; young retirement age of women and employees classified to work in difficult jobs; incomplete procedures of timely elimination of pensions of those who died from the scheme; etc. Even though the entire aged population benefits from the scheme, a large number of working population does not contribute to the public scheme. This is caused by the high rate of unemployment, which for the moment is officially declared 12.8%. But, the actual unemployment rate is even higher, if we consider: the large number unemployed citizens not registered in employment offices; migration tendencies, and the high rate of informality in the economy of the country and especially in the labor market, which also contributes in evasion in collecting contributions for the scheme. Another feature of the public pension scheme in Albania concerns the low level of average income per person of the population. Other countries with aged populations in Western Europe and Japan have relatively high national income, and consequently bigger capabilities to allocate more benefits for the elderly, without reducing investments, which is a main factor of economic growth. However, this is not possible for Albania, where the increase of the dependency rate happens in the conditions of insufficient national revenues to support the needs of the sectors of education, health and infrastructure. Consequently, the state budget does not have the ability to allocate sufficient benefits for the aged population. For the above-mentioned reasons and other reasons related to economic and demographic trends, the level of pension expenditures in Albania, for the moment, is much higher in relation to national income. 2.3 THE PERFORMANCE FOR THE PROSPECTIVE PERIOD 2004-2075 With its importance, the analysis of the current situation of the scheme is only one side of the story. The future performance could be different from the current one, because the problems of 40

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the transition period, which affect the current performance, could be avoided and, therefore, would not affect the scheme in the future. The study of the prospective performance of the scheme is conducted through well-known prognosis techniques. Since the explanation of these methods is not an object of this article, we have reviewed and utilized the results of a study conducted by World Bank (2006) (1), moreover, we have consulted a study of the Albanian Social Insurance Institute (2006) (2). The World Bank study, utilizing the PROST model, makes projections about the population, numbers of contributors and beneficiaries of the system, their annual contributions or benefits, respectively, and the overall financial outcome of the system. Projections depend heavily on assumptions that the demographic and macroeconomic developments would remain constant in the future. Albania is in the position of being a young country with population projected to grow throughout the simulation period. Population growth will, of course, slow down, but will remain positive throughout. Nevertheless, the share of the population above retirement age will rise markedly from the current 11.6 percent to 25 percent in 1975. The dependency rate of old age population (Nvp) will rise commensurately starting from 2012. This indicator, for the entire simulation period, is projected to rise from 20 people over the pension age per 100 people in working age to 45 per 100. This forecast shows that even though Albania is a young country, the public scheme will eventually face the challenges of population aging. In both the rural and urban systems, the system dependency rates initially fall in response to the rising retirement ages. Once the pension age reform is fully implemented, the rates begin to rise again. In the rural system, the rate increase continues until the end of the simulation period, while the urban system sees rates falling slightly after 2050. The prognosis of dependency rate is based on the assumption that the current rural scheme will transform and the farmers will pay all the contribution for the scheme. If this does not happen, then the dependency rate may rise significantly and at the end of simulation period it may reach the critical level of 130 beneficiaries per 100 contributors. The dependency rate has worsened as a result of the low proportion of contributors relative to the working population at just 58%. This will cause the number of elderly with rights to the pension system to start falling after 2050, as the people with incomplete contribution histories begin to retire. Projections show that the scheme will be faced not only with the increase of dependency rate, but also with the increase of aged people that will not benefit from the mandatory scheme. Thus, in the future, the scheme may create a social problem related to the management of the elderly that will not benefit from the mandatory public scheme. These people will represent 40% of people that have reached retirement age. A very important matter in the evaluation of future scheme performance is the forecast related to its financial outcome. The projections for this indicator are prepared in two scenarios: the first scenario relies to the current Law, according to which the pensions are indexed using the customized pensioner price index, while the second scenario implies the replacement of current Law and the indexation of pensions using the average wage variation. The result of prognosis shows that these scenarios affect the financial outcome of the scheme in different ways. According to the first scenario, the financial outcome will eventually improve, making possible also the achievement of the policy for reducing working tax in the future. On the other hand, the replacement rate cannot be politically supported, since beneficiaries and consummation rate would seriously decline. Consequently, along with the reduction of benefits, the motivation to contribute in the public scheme would weaken. According to the second scenario, an opposite situation would arise. The beneficiaries from the pensions indexed using wages are much higher. This is shown through the replacement rate, which remains at the level 40% for the average urban pension at the end of the simulation period. In the meantime, the financial stability of the scheme will weaken. The total deficit of the public scheme at the end of the period will be 0.4% of GDP.

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The simulations of the two scenarios show that during the period the actual public scheme is not capable of guaranteeing the decline of contributions and, in the meantime, the required levels of benefits. When pensions are indexed using inflation, the financial balance stability of the scheme is guaranteed, but the replacement rate and real pension decline. This situation doesn’t motivate the employees to raise contributions. Moreover, it encourages evasion in the scheme affecting the decline of income and its financial instability. If the benefits would be indexed using the wages increase, the existing scheme would guarantee benefits in the base level as defined by International Labor Organization (the average replacement rate of 40%). But, in this case, the scheme will be financially unstable. Under these circumstances, making a middle ground choice between the scenario of indexing using inflation and the scenario of indexing using wage increase would be the more rational choice during the review of the existing PAYG scheme. From the review of the prognosis of variation of main parameters of public scheme for a 70 years period, the prospective period results more problematic than the current period. The public PAYG scheme, for the simulation period, will face the same challenges, problems and difficulties of the current performance. Moreover, in the future, these problems will amplify because of two new factors: population aging and lower possibilities to reduce cost through parametric reforms. The entire analysis of current and prospective performance demonstrates that Albania, like other countries, is facing the crisis of the public PAYG scheme. The challenges of the public scheme have weakened the financial situation, and have even questioned its continuity. Under these circumstances, finding other ways for reforming the pension scheme and implementing a pension system able to face the challenges of the time is becoming a necessity. 3. PRIVATE SUPPLEMENTARY PENSION SCHEME The legal framework for the organization of private supplementary pension schemes was set on 01.06.1995. The Law 7923: “Regarding supplementary pensions and private pension institutions” allowed the implementation of the new voluntary column of private supplementary pensions, which would provide supplementary benefits for the elderly compared to those of public mandatory scheme. Even though the legal framework was implemented in 1995, the first private institution started its activity in 2006, 11 years later. Thus far, there are currently few private schemes and the number of employees registered is very low. Therefore, their position in the life insurance market and pension system is irrelevant. Currently, there are three private institutions, with a limited number of contributors and with a total fund of contribution of 53.2 million Lek. These schemes are functioning as individual and funded account schemes. They consent the temporary unused fund to be invested. The return of the investment portfolio, along with contributions accumulated in individual account of the employee, belongs entirely to the employee who paid for them. In Albania, the financial market is modestly developed and Tirana Stock Exchange has not yet started functioning. Under these circumstances, the possibility for diversifying the investment portfolio of private schemes is very restricted. The funds of private schemes are invested mainly in treasury bills and bank deposits. But, on the other hand, some of the problems of capital market in Albania are expected to be solved after entering Euro zone and joining the European Union. The activity of private pension institutions, for years 2007 and 2008, is displayed in table no. 3. Even though the number of contributors in private pension institutions increased 34.4% in 2008 compared to 2007, it still remains completely irrelevant. It represents only 0.4% of total number of employees or 17.3% of contributors of social insurance supplementary pension scheme.

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Table 3. The activity of private pension institutions during the years 2007 and 2008 Supplementary pension institutions

Number of Contributors

The total amount of contributions (in thousand Lek)

2007

2008

2008/2007

2007

2008

IAPPSH CAPITAL Sigma IPP Total

1,366 631 875 2,872

1,641 1,542 678 3,861

120.1 244,4 78,5 134,4

25,609 2,801 3,727 32,137

33,314 8,278 11,570 53,162

2008 (in % ) 62.66 15.57 21.77 100.0

2008/2007 130.1 295.4 310.4 165.4

There are many reasons that affect the unfavorable situation of the insurance market, professional schemes, and individual accounts of private pensions, however, we believe the most important to be the absence of a complete and complex strategy for the reformation of the pension system in order to implement a multicolumn system; the deficiencies of the Albanian financial system, especially of the capital market, in terms of providing a favorable background for facing the challenge of implementing the multicolumn pension scheme reform; the weak integration of Albanian economy in the global economy; the high level of poverty and low level of wages; the lack of tradition and social awareness of the life insurance market and private insurance scheme; the insufficient attempt of private pension institutions to promote their services; the strong family tradition where children take care of their elder parents; bad experience with the bankruptcy of pyramidal firms; the highly informal labor market: both employers and employees attempt to avoid obligations toward private voluntary schemes and even public mandatory schemes; the absence of law incentives, such as excluding employees’ contributions from income tax and sponsoring employers in private schemes, to motivate savings and employees’ membership in private schemes. In long the run, along with the reform in the current PAYG scheme, the process of liberalization of the pension system is necessary, in order to avoid the monopoly position of the public scheme in the market. This could be achieved through the introduction of second and third pillars in the pension system and implementation of professional schemes and individual pension accounts, based on the experience of many other countries that implemented pension reforms. In the meantime, several immediate steps have to be undertaken. These include the development of capital markets and the introduction of incentives that would stimulate the increase of individual savings for retirement. Furthermore, in order to encourage the development of professional pension schemes, a fraction of the contribution that employers pay for the mandatory scheme should be added in the second column of private professional schemes. Finally, another important incentive would be changing tax policy to exempt savings for retirement from being taxed while taxing the benefits or annuities the moment they are collected. 4. CONCLUSIONS AND RECOMMENDATIONS The review of the pension reforms since 1993 demonstrates that the reform process was problematic. The reforms did not achieve neither the transformation of traditional public PAYG scheme, inherited from the previous period, nor the implementation of a developed multicolumn system. Their main purpose was to strengthen the financial stability of the existing scheme and adaption of the scheme with market economy developments. The analysis shows that during the transition the performance of the public scheme did not change in conformity with the improvements of the macroeconomic situation. The critical level of the dependency rate, which in Albania is not primarily caused by population aging, has weakened the financial balance of the scheme. The situation would be even worse, if the cost increase wasn’t balanced from the implementation of parametric reforms. Those brought some positive effects to the scheme. A very problematic issue is the low level of beneficiaries and the inability of the scheme to provide a relevant increase in the amount of real pension. Voluntary private schemes

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might operate together with public schemes and might contribute to increase pensioners’ benefits. But, their role is entirely irrelevant. The analysis of future performance of the scheme for the simulation period shows that the replacement rate and real pension would considerably decrease, while the financial situation of the scheme would slightly improve. This would occur if we assume that the pension would be indexed using inflation rate and that the existing rural scheme would be transformed. This analysis demonstrates that the financial problems of the public scheme are caused not only by transition difficulties, but also by the characteristics of the PAYG scheme. This complex analysis of current and future situation leads to the conclusion that the current PAYG scheme, even after the reforms, would face serious problems. Some of these problems are:  The very low level of real benefits from pensions and the financial inability of the scheme to permanently guarantee a constant replacement rate at the base level of 40% (appointed by the International Labor Organization).  Current social discrimination within the scheme in terms of over-generosity towards special groups of pensioners, like: farmers in the rural scheme; females in terms of pension age; etc.  Disincentives in the current benefit formula to calculate benefits in relation to the individual savings, which would motivate employees to declare their full wages and raise their insurance period, in order to avoid informality in allocating contributions. Incentives like the application of the very low ratio between minimal and maximal pension (1 to 2) strengthen the allocation capability of the scheme. Additionally, reallocation capability of the scheme together with the current high level of contributions, weakens the relationship between benefits and contributions and stimulates informality. In order to eliminate the current problems of the scheme, the occasional implementation on partial reforms must end. These types of reforms might solve some problems, but, on the other hand, they create more. The design and implementation of a comprehensive reform is necessary. This type of reform would conclude the total transformation of the PAYG scheme and, in the mean time, would conceive a liberalized multicolumn pension system. Obviously, the pension scheme reform includes the rural pension system. The reform of pension system should accomplish two goals: an adjustment of the level of consumption of employees (contributors) during their life cycle, and a reduction of poverty among the elderly. Clearly, these goals cannot be fulfilled using a single instrument, in actuality, different instruments are necessary. The adjustment of consumption rate is increased through the individual account mechanism of each employee. This mechanism ensures the direct relationship between benefits and individual contributions, and it also encourages the increase of financial stability of the scheme. Meanwhile, the reduction of poverty is achieved through the solidarity scheme and benefits’ reallocation. The study of pension reform starts with the identification of possible options of the reform, which focuses on the future of the PAYG scheme. The different options of public scheme reform might be numerous and should be identified on the basis of comparison and test methods, using the well-known actuarial techniques of different option parameters. But they will always remain within the interval of the two options recommended by the World Bank, which serve as boundaries. The first option involves restructuring the current contributory system PAYG, strengthening the incentives to ensure that benefits depend only on contributions, and reducing its allocating characteristics. At the same time, the system would be complemented by a noncontributory basic pension and by a social assistance scheme, which would reduce the poverty within the elderly by reallocation of benefits. Additionally, this option would reduce the informality of the scheme, mainly by encouraging employees to pay contributions. The second option moves in the opposite direction. Recognizing that the current PAYG system needs reformation, it moves further toward redistribution. It abolishes the contributory system, with reduction of poverty as the only purpose. The financing of the scheme will be achieved partially through state budget revenues and partially through contributions. However, these contributions would be small, so that they would not affect the working cost. In order to 44

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achieve the goal of adjustment of consumption rate through the life cycle of employees with high and middle income, the second option should include the columns of mandatory and voluntary pensions. ENDNOTES: 1) Albania: Projections for Social Insurance Sector for the period 2004-2075 (2) Forecast of public pension scheme in Albania and the effects of parametric reforms in its transformation during the period 2004-2050

REFERENCES 1. World Bank, (2009) “Aging Population, Pension Funds, and Financial Markets: Regional Perspectives and Global Challenges for Central, Eastern, and Southern Europe”. 2. World Bank (2006) “Albanian Social Insurance Review”, Report No 37594-AL. 3. World Bank (1998) “Albania: Beyond the Crisis. A Strategy for Recovery”. 4. OECD (1988) “Ageing Populations: Social Policy Implications”. 5. World Bank (1994) “Averting the Old-Age Crisis: Policies to Protect the Old and Promote Growth”. 6. Instituti i Sigurimeve Shoqërore (2009) “Vjetari Statistikor i ISSH” 7. Instituti i Sigurimeve Shoqërore (2006) “Parashikime aktuariale të skemës publike të pensioneve në Shqipëri dhe efektet e reformave parametrike të axhustimit të saj për periudhën 2004-2050” 8. Instituti i Sigurimeve Shoqërore ( 2003) “ Legjislacioni i Sigurimeve Shoqërore”. 9. Instituti i Sigurimeve Shoqërore (2001) “Strategjia e Sigurimeve Shoqërore deri në vitin 2020”. 10. International Monetary Fund (2001) “Financial Sustainability and Reform Options for the Albanian Pension Fund”. 11. Organizata Ndërkombëtare e Punës (2009) “Administrimi i Sigurimeve Shoqërore në Shqipëri”. 12. Borsch-Supan, A. (2003) “What Are NDC Systems? What Do They Bring to Reform Strategies?”. 13. Holzman, R. And Hinz, R. (2005) “Old Age Income Support in the 21 Century: An International Perspective on Pension Systems and Reforms”.

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PESTICIDES POLLUTION OF FOOD - RISKS AND IMPLICATIONS FOR CONSUMER PROTECTION Lecturer Ph.D. Corina ENE Petroleum-Gas University of Ploieşti, Romania [email protected] Abstract: The paper examines the current meanings and implications of pesticide residues in foods for human consumption, suggesting attitudes and courses of action required in this area in order to minimize the negative effects from the consumer protection perspective. The analysis is based on studying the relevant information from various different sources concerning the use of pesticides, the effects of consumption of food contaminated with pesticide residues, the state of the regulations in this area, the attitudes of the various actors, drawing - on this basis – a set of necessary actions to be taken in order to ensure real protection for consumers. The fact that the presence of pesticide residues in food - above the scientifically established limits - is a real danger is already a known fact, unfortunately not sufficiently considered by the legislative decision bodies. Due to the controversial character of data on the impact and effects of pesticide residues that can be found today - in increasingly large quantities - in the food, this field is a delicate one, being subject to changes in vision, keeping up with increasing availability and acceptability of scientific data. The question that arises can be formulated as follows: will we be able to place first the need for food safety and consumer health, by sacrificing economic interests? Keywords: food pollution, pesticide residues, health risks, consumer protection JEL Classification: D18, Q18

INTRODUCTION Food pollution or food contamination is a derivative of ambient pollution, consisting of the introduction of foreign substances in food, while disrupting the ecological balance, to the detriment of health and consumer welfare. In principle, the presence of foreign, undesirable substances appears as a consequence of food pollution (when the substances are introduced intentionally, for a technological purpose, but going beyond permissible limits and becoming hazardous by consumption) and the contamination of food (when their presence is not intentional, but they are accidentally or incidentally occurring in food). Whatever the source of their presence in food may be, pollutants are "tolerable" only because of the inability to avoid them, manifesting different ways of penetration; the most common categories – and having the most harmful impact - include: pesticides, biostimulators and fertilizers used in agriculture and zootechny, carcinogenic hydrocarbons, toxic metals and metalloids. Of particular importance is the chemical contamination and pollution of food, which occurs as a result of occasional or permanent use of chemicals in agriculture, zootechny and veterinary medicine. In this direction, we emphasize the importance of pesticide pollution of food, as a consequence of their use in the fitosanitary or animal health treatment. At present, at the global scale, an increasingly large number of the most frequently purchased food, consumed in their natural form or after processing, are contaminated with considerable doses of pesticide residues (BCERF, 1999a): products of animal origin (meat, fat and organs, ham, milk, milk products, butter, meat, poultry, eggs, fish products), bread and flour products made from wheat and corn, fresh vegetable products (vegetables and fruit), canned products resulting from industrial processing. Residues were found even in dietary products, organic food or children designated food. Generally, pesticides are not found in food at levels that cause acute poisoning, but having regard to their permanent action on the body, they can cause chronic poisoning, with allergic, neurotoxic and teratogenic effects (Banu (coord.), 1982). 46

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A significant number of scientific studies based on laboratory testing of animals (Ames, Gold, 1997) demonstrate the carcinogenicity of a wide range of pesticides, indicating that although some substances had not been used on crops for many years, toxic substances were kept in the soil, the new productions being also compromised. Therefore, of great importance are both the practical measures against their presence in food and establishing allowable daily consumption of pesticides to humans, i.e. maximum residues limits of pesticide residues (BCERF, 1999b). Those are subject to research and regulation for both international (the Codex Alimentarius Commission, 2000, 2002) and regional bodies, which propose and adopt science-based requirements in order to minimize the harmful effects of these substances, in order to achieve effective consumers’ protection. PESTICIDES: CHARACTERISTICS, IMPACT AND RISKS TO CONSUMERS Pesticides represent the generic associated name for chemicals used in fighting different kinds of pests. Since the pesticides currently used do not have an absolute selective action, for chemical substances in this category was also proposed the term "biocides" (Petrescu et al., 2000). Depending on destination, pesticides can be classified into the following categories (Segal et al., 1985): fungicides and bactericides (inorganic, organic) insecticides (organoclorurate, highpersistence: dichlorodiphenyltrichloroethane - DDT, Hexachlorocyclohexane, Oxafen, Aldrin, Dieldrin, Lindane, Endrin; organophosphorous, with high toxicity: Parathion, Dicorvos, tetraethyl pyrophosphate, Tricorfon, Malathion etc..); acaricides; nematocide and soil sterilizers; rodenticides, molluscicides and repellents; herbicides; defoliants and desiccants; growth regulators. Pesticide pollution intensity depends not only on the accessibility of distribution channels, but also on their physico-chemical and toxicological properties. The inherent hazard of pesticides increases alongside with their resistance to physico-chemical action of environmental factors, namely their degree of remanence. Food contamination with pesticides may be direct, through the treatment of vegetable raw materials being consumed directly, or indirect through the residual doses of soil, water, air or the pesticides’ transfer to animals, by animal raw materials through fodder and water. The ways and sources of contamination may be different (occupational, non-occupational, intentional, non-intentional or accidental) (Ibitayo, Monosson, 2007), which leads to the idea that pesticides may simultaneously act as pollutants and contaminants. In the following lines, we address the situation of food pollution by pesticides, hence analyzing their presence as residues in foodstuffs. Unfortunately, the amount applied in agricultural practices is generally greater than required for destructing parasites and pests, causing an overload by voluntary treatment, which generate excessive amounts of residues in food, with all the associated risks. Designated to be used in agriculture to kill pests, pesticides may consequently generate major adverse effects on human health – the human being is also a living system – and on the environment as well. Their inherent toxicity - making them unique among the substances released by humans into the environment - has been repeatedly emphasized by scientists and physicians worldwide. In the U.S., for example, to a great extent, the population has a high concentration of pesticides in the body, as shown in the biomonitoring studies conducted by specialists of the Center for Disease Control and Prevention (EWG, 2009). Pesticides have been associated with a wide range of toxic effects, such as nervous system effects, carcinogenicity (Ames, Gold, 1997), endocrine effects, irritation of the skin, eyes and lungs (EWG, 2009). Symptoms of pesticide contamination may include, according to scientific studies (Ibitayo, Monosson, 2007): headache, weakness, blurred vision, vomiting, irritability, problems concentrating, abdominal pain, immune system suppression, depression, asthma, lower quality semen, blood and liver disease, nerve damage. 47

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The risk increases given that some implications may be hidden and of insidious nature, so that they cannot be linked directly with the real source; moreover, certain symptoms such as nausea, body weakness, sweating condition may be confused with influenza. In addition, the adverse effects of chronic exposure to relatively low levels of pesticides over a long period of time are not always correctly interpreted, being relatively inconspicuous, so that health consequences may be delayed. Besides the negative effects of agricultural pesticides’ active ingredients, some "inert" substances and impurities, such as dioxin, carbon tetrachloride, chloroform may cause serious effects on the liver and nervous system (Ibitayo, Monosson, 2007). Children are considered a major risk category, having their organs and vital systems affected during critical periods of development, which can have both immediate and long term effects, because of the metabolism, physiology and biochemistry being different from adults. Young bodies are less able to metabolize and inactivate toxic substances, consequently they are more vulnerable to the harmful effects of pesticides. The nervous system, the brain, the reproductive organs and endocrine glands may be permanently compromised by exposure to toxic chemicals before birth or during childhood, although adults do not suffer measurable or visible damage. Accordingly, experts consider that reducing exposure to residues for infants and young children is essential to minimize the impact. Several international studies show that there are differences of degree of contamination by country of origin (Eng, 2009). Different categories of vegetables and fruit containing the highest levels of pesticides are (Wallop, 2009): grapes, bananas, spinach, tomatoes, peaches, apricots, apples, pears, vegetable marrows, strawberries, melons, cherries, broccoli, green beans, potatoes; also, meat and derivatives have a high content of residues. Beyond their proven toxic effect, pesticide residues in food generally exert an effect of altering the organoleptic characteristics of food, conferring unpleasant taste. Each year new studies are published on the toxic nature of pesticides on health and environment, even if they are used in quantities previously considered to be "safe" by the industry and regulations. The incidence of pesticide contamination increases due to abusive using, misusing or ignoring safety requirements, especially in developing countries, out of failure to comply with the label instructions, import of banned or restricted pesticides, in the absence of strict regulations and appropriate enforcement of the existing ones (Ibitayo, Monosson, 2007). Ranging outside economic interests governing the field, a series of views belonging to scientists, NGOs, farmers, health and environmental organizations advocate, through a sustained activity, for optimal regulation of pesticides utilization and for finding preferred alternative solutions, in a manner in which care for humans and the environment take priority. In this regard, Pesticides Action Network (PAN) Europe initiatives - that mostly promoted the tightening of pesticides legislation in the European Union (EU) - are significant, bringing together solid, relevant research, representing the interests of parties concerned with eliminating the dependence upon chemical pesticides and with encouraging sustainable farming practices that do not jeopardize human health and the environment. Annual monitoring report prepared in 2008 provides a series of disturbing evidence (PAN Europe, 2008): • 49% of the amount of fruit, vegetables and cereals in the EU contain pesticides at a level of contamination determined to be the highest, representing an increase of 20% over the past 5 years; • 4.7% of fruits, vegetables and cereals contain pesticides at concentrations above the maximum allowed limits, while over 10% contain 4 or more different pesticide residues; • five of the most common pesticides in food sold in the EU are classified as carcinogenic, mutagenic, and toxic to reproductive system or causing hormone disruption; these are: Maneb, Procymidone, Iprodione, Carbendazim, Deltamethrin. Unfortunately for human health and the environment, official actions are too slow, especially since many pesticides have been considered as 'safe' until being banned (e.g. in the US: DDT, Chlordane, Dursban), and lack of action cannot be excusable if public and especially children 48

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health is at stake. Therefore, many steps remain to be imposed and carried out in supporting the consumers, while pesticide manufacturers and farmers often preclude strict application of rules, especially those which require special precautions (as for newborn and children), which are inconvenient to meet (EWG, 2009). But, against the background of the general concerns caused by recent food safety crises, consumers are entitled to wonder whether this level of protection is best for the individual, or is a compromise, in which economic interests prevail. CURRENT ORIENTATIONS IN THE USE OF PESTICIDES. LEGISLATION ON PESTICIDE RESIDUES The global activity of the Codex Alimentarius Commission, together with that of FAO and WHO organizations, provided over time a comprehensive reference point for research and scientific investigation on food, including in the field of pesticide residues and veterinary drugs. Many of these activities are carried out as studies conducted by scientists, laboratories, institutes and universities - in collaboration with the joint committees of experts and consultants FAO / WHO (Codex Alimentarius Commission, 2002). Meeting Joint FAO / WHO Meeting on Pesticide Residues (JMPR) was founded in 1963 following the decision of the FAO Conference, that the Codex Alimentarius Commission should recommend maximum residue limits for pesticides and environmental contaminants in certain foodstuffs, in order to guarantee the safety of products containing such residues. At the same time, it was decided that the JMPR should recommend sampling and analysis methods. MPR members are eminent scientists, working as independent experts in the field of pesticides, chemicals and residues, being summoned on their own behalf and not as government representatives. FAO designated specialists establish maximum residue limits for substances under evaluation, based on experiments conducted worldwide. Experts appointed by WHO conduct toxicological analyses of pesticides and subsequently, the reports resulting from the assessments are to be published and debated. Between JMPR (which produced the latest set of recommendations in 2009) and the Codex Committee on Pesticide Residues (CCPR) there is close cooperation, the latter identifying substances requiring priority assessment. After JMPR evaluation, CCPR discuss the recommended limits and if they are deemed acceptable, they are submitted to the Commission for adoption as Codex "maximum residue limits" (MRL). At present, Codex establishes maximum residue limits for 218 substances from the class of pesticides. Given the need to assess short-term impact of pesticides, JMPR proposed in 1994 the concept of "acute reference dose", meaning an estimate of the quantity of a substance, expressed in terms of body weight, which can be ingested within 24 hours without leading to appreciable effects on consumer health, based on known data at the time of evaluation. An international group of experts associated to JMPR has developed the Guide for establishing the acute reference dose (WHO, 2009), taking into account multiple potential effects, in order to scientifically assess the Codex recommendations. In the light of these recommendations, the world's states formulate their own national requirements, based, unfortunately, not always upon innocuity considerations but also economic needs of producers and traders. Thus, we witness a situation where certain pesticides are accepted in some countries and prohibited in others, while the maximum limits for residues can be different. In the U.S., to regulate food safety, Environmental Protection Agency (EPA) sets levels of tolerance or the maximum legal limits for pesticide residues in food products nationally sold. EPA tolerances are based on a strict set of conditions; experts determine "no observed effect level” (NOEL), setting a safety limit to a level 100 times lower, making it legal residue level. If the maximum possible exposure is below the legal level, the EPA approves the tolerance level (Bessin, 2009).

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Similarly, at European level, the maximum amount of pesticide residues allowed to be ingested by humans is calculated using the no-effect dose assessment. This corresponds to the maximum dose of a substance which produces no effect on the most sensitive animal, subdued to the most severe test. The no-effect dose is measured by short-term studies (lasting between 28 days and 3 months), then supplemented by long-term studies (18 months to 2 years). Acceptable Daily Intake (ADI) for long term exposure is obtained by dividing the no-effect dose by a safety factor (minimum 100), corresponding to the maximum quantity of residues that can be ingested daily by an individual throughout life, without creating health risks. The level of residues likely to be found in foodstuffs is measured experimentally by tests that take account of the use of plant protection products’ recommendations by the manufacturer (dose, number of applications, pause before harvesting). Knowing the ADI, it is possible to determine the maximum residue limit (MRL) legally acceptable in food. However, many experts consider that the duration of studies is too limited to draw the correct conclusions on risk, being necessary to measure the residues likely to be ingested daily by an individual through the food of the "daily consumption basket”. Thus, a first requirement should be that the sum of all residues contained in the "daily basket" does not exceed the acceptable daily intake, but even then the question of cumulative effects in the long run, still remains insufficiently studied. The review of legislation at European level by the entry into force, on 1st September 2008, of the Regulation (EC) no. 396/2005 had become necessary since the set of rules valid before 2008 was too complex; maximum residue limits for some pesticides were fixed either by the Commission or at the Member State level (as they can even choose a higher level) or were not established at all. This diversity of rules created confusion for retailers, importers, and consumers, in terms of food safety. The new rules cover the entire range of agricultural products and feed (European Commission, September 2008), establishing a harmonized set of maximum residue limits for new pesticides, for all pesticides already used in agriculture within and outside the EU, a list of safe pesticides and an overall limit of 0.01 mg/kg applicable for the unlisted ones. The revised legislation is aimed at ensuring safety for all consumers, the responsibility for the safety assessment falling on European Food Safety Authority (EFSA) and being carried on according to pesticide toxicity, maximum permissible levels and prevailing food consumption patterns. Each Member State is required to make annual national monitoring programs to assess the degree of foodstuffs pollution with pesticide residues. Effectiveness and impact of these programs depends on the scope of the allocated resources (for example, in Britain, the cost of developing the annual report amounted to 2.1 million pounds in 2008, funded from taxes applicable for production and distribution of pesticides, besides government funding ) (PRC, 2009). Subsequently, in January 2009, after three years of negotiations, the Framework Directive on the sustainable use of pesticides and the Regulation on the marketing of plant protection products were adopted, through which the EU banned more than 22 active substances (Phillips, 2009), underlying the production of pesticides considered extremely dangerous, highly toxic (carcinogenic, mutagenic, harmful to reproductive, immune and hormonal systems). EFSA will play a major role in developing a positive list containing allowed substances, upon which nationally approved pesticides will be established. Also, new regulations prohibit substances that kill bees (thus undermining the process of pollination of crops), in the context of massive death of bees worldwide, attributed to the toxicity of pesticides. In addition, certain procedures and practices are prohibited or restricted (aerial spraying, use around children's playgrounds, schools, hospitals, public parks). Unfortunately, toxic pesticides will be withdrawn from the market only after trading licenses expiring (Phillips, 2009), which represent, as we believe, a controversial step, because it allows, in this way, the spread of known harmful effects, for economic reasons. In addition, if a

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substance is proven necessary to fight a serious threat to plant health, it may be approved for a period of 5 years even if it does not meet safety criteria. Thus, despite the tightening of EU legislation in this field, this approach proposes a compromise onto consumers’ health, marked by the continued use of hazardous substances, insufficiently studied in terms of effects, but generating productive and commercial advantages. Meanwhile, Member States should develop national action plans with specific targets for reducing the risk and impact of pesticides and encouraging alternatives for pest control and drinking water safety. Although not yet sufficiently severe, as it leaves room for dangerous practices, the new set of legislation has triggered the opposition of traditional farmers' interests representatives, concerned about production costs growth and lower productions prospects (Melik, 2009), but also the support from organic farmers, according to which organic agricultural production is able to provide sufficient food without using pesticides. In the same context, Colin Ruscoe, Chairman of the British Crop Production Council (Melik, 2009), stresses the economic consequences of banning certain pesticides, arguing that manufacturers will turn to other markets, possibly towards genetically modified crops, which is not necessarily a desirable fact in terms of food safety. By contrast to conventional methods, organic farming seems to offer a preferable alternative, generating a low residue level, avoiding exposure to toxic pesticides, which justifies consumers’ conversance towards organic products. In this regard, an annual monitoring report prepared in 2008 by EFSA highlighted the presence of pesticides also in organic products, generating many controversies, the source of contamination being, most probably, environmental pollution or unlawful use of pesticides in farming. At present, determining the residues level generated by various agricultural alternatives remains of particular interest to researchers. Despite the reduced data availability, a group of American scientists conducted a study that revealed that organic agriculture generates lower quantities of residues than conventional agriculture, but that organic foods are not completely free of pesticide residues; their presence can be explained by environmental pollution or by crosscontamination from nearby crops (Baker et al., 2002). The study supports the compromise solution of using natural pesticides, with a low level of toxicity and remanence, suggesting the choice of organic foodstuffs as a preferable option. At national level, the National Annual Report on pesticide monitoring in Romania for 2008 (ANSVSA, 2008) was based on evaluation of 2718 samples of fruits, vegetables and grains of different origin, covering 98 types of residues (as compared to 400 samples tested, 240 pesticides targeted in a similar study in the United Kingdom). Among the local samples, high quantities of residues were identified in apples, grapes and tomatoes, while among the imported foodstuffs, the most polluted are oranges, grapes and grapefruits. Overall results of the analysis indicate that in the 2187 samples analyzed, 366 contained pesticide residues, as follows: 298 - one residue, 59 - 2 residues, 8 - 3 residues, 1 - 4 residues. Of the 2514 samples of fruits and vegetables, 14.2% contained pesticide residues and of the 204 samples of grains, 3.9% contained pesticide residues. Also, in the national monitoring program there were analyzed 466 samples of food for children coming from EU countries and the results showed the performance of legal values. We believe though that those values, while creating an overall picture and responding to harmonized requirements do not necessarily draw a realistic frame, in terms of quantitative and qualitative limits of the study, consisting of a relatively small number of tests and residues taken into account. The information appears to be reassuring, while at global level, more and more specialists draw attention to the increasing exposure to pesticides pollution and to the major associated risks, against the background of contradictions between the data and conclusions of different studies.

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On this subject, a series of general and concrete practices and national guidelines for sustainable use of pesticides - in accordance with the Thematic Strategy on Sustainable Use of Pesticides adopted at European level - have been applied in a national workshop in 2008, bringing together representatives of all stakeholders in the field. Participating experts agreed that the main expected outcome of the National Plan of Action for pesticide should be reducing the negative impact of their use on human health and that the use of pesticides should be possible only on precautionary principle basis. At the event there were mentioned challenges facing the field, showing that currently, excessive amounts of pesticides are found in the environment, especially in the soil and water, and agricultural residues are present above the regulated limits. It was also admitted that nationally there is not a transparent system for reporting and monitoring pesticide use and residue levels in products, fact requiring the improvement of the legal framework proved so far to be insufficient in preventing health risks and environmental hazards. However, the findings have focused upon the acceptance of the idea that ensuring affordable food for the entire population remains a primary goal, especially in the context of the global crisis. Participant researchers considered that the rejection of using pesticides is a preconception, based on lack of data and transparency in information exchange, stressing that the purpose of such restrictions is to reduce the risks associated with pesticide use, so as to protect human health and the environment while ensuring optimal conditions for significant agricultural production in terms of quality and quantity. Thus, elimination of hazardous pesticides seems to be contrary to the producers’ interests, who claim that the measure is too harsh, even having disastrous effects on Romanian agriculture due to reduced subsidies, high fuel prices, possible increases of pesticides’ price - which could lead to bankruptcy for many farmers. Although the new approach promotes organic farming, one could consider today that the Romanian market is not ready for more expensive products than those treated with chemicals, especially given the climate change and global warming (INCDPM, 2008), which is leading to a broader spectrum of diseases and pests. As regards computer applications in the field, internationally and regionally there is growing concern regarding access to information and documentation for both professionals and consumers, but their relevance to the individual level is relatively narrow, to the extent that consumers’ self-protection using these resources is also limited. For example, in the U.S., Durango software is a platform for analyzing the pesticide exposure, useful both for governments, businesses and individuals; it includes a package for evaluation of pesticide exposure in daily food intake, a software based on the calendar for assessing aggregate and cumulative exposure to pesticides from both food and environment, an analytical software correlated with a database on American consumers, taking into account the daily quantities of foods consumed and their content of pesticide residues and food additives. Free of charge, this time, the websites of Codex and the EU provide data access concerning maximum pesticide residues allowed in food groups, according to official regulations, but these tools only respond to a requirement for transparency or addresses only the specialists, without supplying serious customer support. The high cost and difficulties associated with accessing such information packages cause reduced accessibility to consumers, thereby a minimum application at this level. In addition, access to databases on allowed pesticides, permitted food/crops and also the acceptable residue dose represents less relevant information to the consumer as an individual. They should be taken into account by the actual users of pesticides, by control and regulatory authorities, since only through their cooperation results the effect of real consumer protection.

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CONCLUSIONS AND PERSPECTIVES Despite scientific evidence propagation, pesticide manufacturers continue to defend their products, claiming that there is no reason for concern about food safety. However, these claims are not based on real data, as government studies do not seek long-term effects of exposure to small quantities of pesticide mixtures. The risks of contamination are amplified particularly in developing countries (which represent the fastest growing market demand for pesticides, but also ¾ of incidents of contamination and contamination related deaths), amid a poor nutritional status and lack of facilities in the area information and health, especially in rural areas. Beyond these particular issues, we believe that all people are at risk of pesticide pollution, to the extent that currently we are witnessing an unprecedented incidence of residual quantities in food. Some possible strategies for reduction of pesticides pollution could include actions and measures such as: • development of educational programs among farmers, on the following aspects: communication on risks associated with pesticides; proper use of protective equipment; controlled collection of banned, unused, outdated pesticides and empty packaging; handling of obsolete pesticides in accordance with rules for hazardous waste and safe disposal; • promotion of safer agricultural practices by adopting integrated pest management (IMP), based on a series of alternative measures: selection of hybrids resistant to diseases and pests, removal of diseased parts of plants, crop rotation, biological control, etc..; • prevention of illegal use of pesticides; • frequent communication to consumers, based on relevant studies, on the ways to reduce the amount of ingested residue, the food groups with the highest/lowest degree of contamination and preferable substitutes; • encouraging funding of research and innovation projects in the field, by setting the priority for projects of sustainable use of pesticides; • effective controls for pesticides entering the country; preventing importation and marketing of counterfeit and/or unauthorized plant protection products. Consumers can exercise self-protection measures by targeting the healthier food alternatives (organic foods), by the practice of thorough washing and cleansing of fruits and vegetables, and enjoying food from own production. Although the benefits resulting from the use of pesticides and their role in ensuring a competitive and sustainable agricultural production are undeniable, consumers must be better informed about the risks to health and the environment, adverse effects on short and long term that their use may involve. Taking into account current technologies, institutional guidelines and current legislation, the production and use of pesticides cannot be stopped yet, but stringent measures become necessary to restrict or even prohibit the use of toxic compounds with high remanence. Although pesticide utilization carried out on a scientifically sound basis, using the criterion of allowed substances, a number of issues still remain unclear and raises questions among aware consumers: o have the effects of pesticides been studied for long enough, for an adequate period of time? o in this context, are the moral requirements on animal testing taken into consideration? o is the effect of accumulation, combination and synergy of the types of pesticide residues ingested daily, in terms of quantity and quality, taken into account? o are possible interactions with other pollutants and contaminants of food products, such as food additives, genetically modified organisms, heavy metals, metalloids, radionuclides, etc. taken into account.? Governments must be able to better respond to growing consumer concerns with scientific data from valid studies, beyond simplistic concepts and explanations which claim that, in 53

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accordance with good agricultural practices, pest control will be achieved without generating residues in food "more than necessary ". In fact, pesticides serve mainly, in a relatively comfortable manner, for increase production and hence profits in agri-food chain. It is possible that the consumers’ requirements should soon be more consistently expressed, drawing and expanding existing dispute in relation to other aspects of food safety (genetically modified foods, irradiated foods, food additives, fast food, etc.), and food and agricultural technologies may be urged to innovate in order to provide safety. Once again, it remains to be seen for whom the balance will tilt further, given the imbalance of power between consumers and food industry, which currently operates to the detriment of effective protection of individuals as consumers, essentially undermining their fundamental right to the protection of life, health and safety. Achieving consumers’ protection objective against harmful effects of pesticide residues should be based on the combination and interdependence of effective protection, consisting of an urgent review of regulations to dramatically reduce the amount of toxic pollutants in food and of better informing the consumers, but also of self-protection, based on the existence of aware consumers, able to select safe and wholesome food choices. Thus, as long as the review of the regulation process in the field is laborious and uncertain, unable to provide safety in immediate terms, we believe that the solution lies in increased consumer awareness of the risks associated with pesticide residues, so that consumers are able to make optimal food choices. REFERENCES 1. Ames, B. N., Gold, L. S. (1997). Environmental Pollution, Pesticides, and the Prevention of Cancer: Misconceptions, FASEB Journal July 21. 2. Banu, C. (coord.) (1982). Produsele alimentare şi inocuitatea lor, Editura Tehnică, Bucureşti, 1982. 3. ANSVSA, Romania pesticide monitoring summary 2008, available at http://www.ansvsa.ro/?pag=18, [accessed 27.01.2010]. 4. Baker, B. P., Benbrook, C. M., Groth III, E., Benbrook, K. L. (2002). Pesticide residues in conventional, IPM-grown and organic foods: Insights from three U.S. data sets, Published in: Food Additives and Contaminants, Volume 19, No. 5, May 2002, pages 427-446, available at http://www.consumersunion.org/food/organicsumm.htm [accessed 27.01.2010]. 5. Bessin, R. (2009). Pesticide Residues in Foods, Is food safety just a matter of organic versus traditional farming?, University of Kentucky, College of Agriculture, ENTFACT-009, available at http://www.ca.uky.edu [accessed 25. 01.2010]. 6. Codex Alimentarius Commission. (2000). Codex Alimentarius - 27 - Section 2.1, Volume 2A, Part 1 – 2000. 7. Codex Alimentarius Commission. (2002).Understanding Codex Alimentarius, Food and Agriculture Organization of the United Nations, World Health Organisation. 8. Commission of the European Communities, Regulation (EC) No 396/2005 of the European Parliament and of the Council of 23 February 2005 on maximum residue levels of pesticides in or on food and feed of plant and animal origin and amending Council Directive 91/414/EEC. 9. Commission of the European Communities, Directive of the European Parliament and of the Council establishing a framework for Community action to achieve a sustainable use of pesticides, Brussels, 12.7.2006, COM(2006) 373 final. 10. Commission of the European Communities, Regulation of the European Parliament and of the Council concerning the placing of plant protection products on the market, Brussels, 12.7.2006 COM(2006) 388 final.

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11. Eng, M. (2009). Latest Government Report Shows More than 50 Pesticides on Peaches, Chicago Tribune IL, Aug 12, available at http://www.organicconsumers.org/articles/article_18804.cfm [accessed 27.01.2010]. 12. Environmental Working Group, EWG Shopper’s Guide to Pesticides, available at http://www.foodnews.org/ [accesed 26.01.2010]. 13. European Commission, New rules on pesticide residues in food, Directorate-General for Health and Consumers, September 2008 14. Friptuleac, G. (2006). Ecologie umană, USMF Nicolae TestemiŃanu, Chişinău. 15. Ibitayo, O., Monosson, E. (2007). “Agricultural pesticide contamination”, în: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment). [accessed 24.01.2010]. 16. Institutul NaŃional de Cercetare-Dezvoltare pentru ProtecŃia Mediului (INCDPM), Workshop NaŃional: Utilizarea Durabilă a Pesticidelor, 29 - 30 octombrie 2008, Raport ştiinŃific, disponibil la http://www.icim.ro/evenimente.html [accesat la 27.01.2010]. 17. Melik, J. (2009). EU's pesticides ban raises issues, available at http://news.bbc.co.uk/2/hi/business/7828059.stm [accesed 26.01.2010]. 18. Pesticide Action Network (PAN) Europe. (2008)., PAN Europe Annual Report 2008, available at http://www.pan-europe.info/Resources/index.html [accessed 28.01.2010]. 19. Pesticide Residues Committee (PRC), Annual Report of the Pesticide Residues Committee, Chemicals Regulation Directorate (CRD) of the Health and Safety Executive, UK, September 2009 20. Petrescu, V., Pâslaru, C., Sârbu, R. (2000). Expertiză merceologică, Editura ASE, Bucureşti. 21. Phillips, L. (2009). Toxic pesticides banned in Europe, available at http://euobserver.com/9/27399 [accessed 26.01.2010]. 22. Segal, B., Segal, R., Dan, V., Teodoru, V. (1985). Determinarea calităŃii produselor alimentare, Editura Ceres, Bucureşti. 23. Wallop, H. (2009). Fruit and Vegetables Have 'Unacceptable' Levels of Pesticides, The Telegraph UK, Sept 24, available at http://www.organicconsumers.org/articles/article_19203.cfm 24. WHO, Guidance on setting of acute reference dose (ARfD) for pesticides, available at http://www.who.int/ipcs/food/jmpr/arfd/en/index.html [accesed 27.01.2009]. 25. *** Consumer Concerns about Pesticides in Food, Cornell University Program on Breast Cancer and Environmental Risk Factors in New York State (BCERF), Fact Sheet 24, March 1999a. 26. *** EU report reveals pesticides in organic food, 2008, available at http://www.euractiv.com/en/cap/eu-report-reveals-pesticides-organic-food/article183986 [accessed at 27.01.2010]. 27. *** Pesticide Residue Monitoring and Food Safety, Cornell University Program on Breast Cancer and Environmental Risk Factors in New York State (BCERF), Fact Sheet 25, March 1999b. 28. *** Sănătatea consumatorilor şi reziduurile de produse fitosanitare, available at http://www.agroazi.ro/politici_agricole/Proiecte-si-practici [accesed 26.01.2010].

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THE CONSUMER ROLE IN HIGHER EDUCATION Ph.D. Student Maria-Lavinia POPESCU Faculty of Economics Science and Business Administration „Babeş-Bolyai” University, Cluj-Napoca, Romania [email protected] Abstract The present social context is disturbed by questions, diversity, complexity, and the time and space parameters, which change, the educational institutions being obliged to adjust one at ones news requirements which oblige and which sometimes are contradictories. Thus it is justifying dwelling on higher education development by the perspective of assurance the quality in education, orientation which would deserve adopt by each academic entity. For this reason any entity for profit to a big notoriety, for use at maximum the opportunities offered by market and for neutralization the threats of external environment in the first place is necessary to invest in human component and in them perfection, the key of any success business. The study it is based by primary quantitative research method by conclusive-descriptive nature based by the divided plans or transversal research how this is know in specialty literature. The dates collect method has been “face to face” investigation and the research instrument the questionnaire. The quantitative dates processed using SPSS. This paper achieved on the basis of punctual investigation represents a photography for the time being of students and of students at master opinions referring to the perceptions which they coached by the different aspects vis-à-vis by the education institutions where they are entered in. Keywords: educational services, consumer behaviour, quality, students, higher education JEL Classification: M31, I21

1. INTRODUCTION Romania is supporter of Bologna Statement by 1999 and member of European Union beginning by 1st January 2007. This aspect involves, between others that Romanian universities are in a strong computational environment, total different by the hothouse climate offers by the governmental monopoly over educational national system (Brătianu and Lefter, 2001). The statute of states universities doesn’t help very much in the new market created through the realization of European Space of Superior Education. The education consumer has a certain behaviour defined as the totality of acts and decisions regarding to turn to account of opportunities with the view to obtain and to use the educative goods and services. For this has with view to following actions succession: stimulus perception, representing information’s process of mind received by the surrounding, in this case the consumers are aware to educational needs, the inform regarding the educational goods and services which are on market, their contents, the utility, the diversity, the accessibility, the axiological level etc. The attitude creation, mint bent for the consumers to “buy” these goods and services, the motivation, which represents the state of mind stress which lead the fellow at purchase, satisfying his needs and expectations. A special accent is put on education consumer motivation, on interns’ motive of his behaviour. Certain reasons are by general order; others are more specials, as: the statement and self content feeling, the feeling of creation characteristic etc. Important is the knowledge of reasons which are in opposition with the decision of education. These reasons being: the incomes level, the distance, the transport, the educational program, the availability time, other offer more reasonable. The after consumption behaviour is considered through the estimation of satisfaction index. That is, the graduates of one school are in measure to make valuations if their expectations have been satisfied in the course of studies years and what doesn’t correspond with these expectations. Educational marketing policy must be drawled up through the motivations study and of symbolic representations of consumers, through the fundamentals options defined of groups and fellows.

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2. THE EDUCATIONAL PROBLEMATIC BY DOCUMENTARY PERSPECTIVE The news conditions make adequate the pedagogic preoccupations which regarding the issue of educational change in the direction drawing up the practical models which can be use by the managers of each university and by the teachers for project and for use the personal development strategies, but in the same time organizational. The changes impact and of the new socials requirements from Romanian education it is apparent in theoretical plan, but and in practical plan by the imperative of development strategies of Romanian schools accommodation at essential principles of quality in education. The fellows take decisions every day, but as often as not these decisions suppose a low implication level. The decisions regarding the choice of educational services are the decisions with high implication because (Kotler & Fox, 1995): a. the choose one faculty have implications over the proper image and can has consequences on long term over life of potential student; b. taking the purchase decision of educational services suppose personals or economics sacrifices; c. personals and socials risks in the case to taking one “wrong” decisions are perceived as being very highs; d. it is a considerable stress by reference groups’ part to choose a certain faculty or university, and the potential student is powerful motivated to satisfy the expectations of reference groups. Currently, institutions of higher education, moreover and other organizations and businesses operate in a highly dynamic environment. As following of rapidity and dimension of environment changes, the institutions of higher education don’t can regard each change as a separate event, which can be individual studied for increase the advantages and for minimize the negatives effects which their create. Jim Knight affirms that „the change is a present reality in the framework of education institutions must learn to operate or assume their failure risk” (J. Knight, 1997). These evolutions impose changes in the manner in which the managers will understand the relation between the institution and the market of which it address oneself. The reform higher education requests imposed by the transition at Bologna system impose of universities and faculties remarkable efforts for accommodation. With all reform elements laid, the currently informational system by educational marketing used in Romania presents big deficiencies especially regarding the information’s quality supplied both the managers and others institution members. Thus, in the current dynamic environment, the universities begin to recognize the bigger and bigger importance of services which they offer and, in consequence, to focus on students’ needs and expectations. For to have success one university must to identify which are the important aspects for students and, in consequence to offer of students what they expect. 3. RESEARCH METHODOLOGY With the view to realize the study I resorted to make one punctual investigation using a quantitative research which provides too qualitative information’s. The sphere of research included is representing by „customers”, following to emphasize the factors which in students’ opinion would lift the quality level of educational services offer by FSEGA, elements which would prop the increase of educational services quality in economic area within the framework of “Babeş-Bolyai” University, Cluj-Napoca. The purpose of research is to diminish the errors in decisions taking at the management level of one entity and to help with coaching and improvement those marketing decisions. I resorted to using a quantitative research realized in base investigation, what is a method of primaries dates collect through addressing questions included in a questioner at one representative pattern (100 masters students and 168 students) by the mother population (students register in 2008-

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2009 of FSEGA-UBB, in last year of study in faculty and masters – one year, daily classes). The dates collected in June 2009. Thus in study I used a structured investigation which supposes using one questioner with questions which was established to begin with and was arranged in a certain order which must respect. In same times the investigation was one not dissimulate, the fellow being informer about the purpose of research and he could identify him with rapidity in the base of questions of questioner. Much, I used the classic personal investigation which supposes a discussion face to face between the interview operator and fellow asked, which permit obtaining the necessaries information’s for research. I resorted to using one conclusive descriptive research based by the divided plans or transversal research how this is know in specialty literature (Plăiaş I., 2008) which supposes collecting the information’s by the representative pattern level, all of a sudden. A devised plan, some times named too pattern examination; can be seen as a snapshot about market in a certain moment. In plan, the people group selected is measured only one date. This examination type is the most use descriptive research type in marketing research. The devised plans, generally, constitute them in a support of transversal research. This form of research following discovery and define the relations between the aspects, the phenomenon’s and the processes which have place all of a sudden, without proposes him some form of prediction. In this case, it is obtaining photography of marketing phenomenon and the influence of different variables of consumer over fellows asked behavior. In this study I used the pattern proportional stratification in report with the students’ percent and the students’ percent at master of each section and their percent in “mother population”. Thus, the method used is framing in the category probabilistic inquiries in which are included there methods based by methods the constitution of patterns in which the choice of units by population makes in accidental manner, each unit having a probability known and different by zero to belong to frame of the pattern selected. Therefore, I resorted to at proportionally stratification investigation because this supposes as the universe population to be divided in k clusters (in concrete mode in this case in 20 clusters at masters, represented the master sections and 10 clusters at faculty), the pattern being constituted through the building of independents patterns at level of each cluster. Much more, this method is used when the population studied is heterogenic, the variables register big variation, and the using of simple investigation not is efficient. Thus, the population studied will be divided in homogenous clusters, named to layers, each unit belonging to an only cluster, not being any unit common in clusters. The accidental extraction realized after the not return ball plan, when a ball extracted sometimes after the number is noted it is not put in urn. In this case a subject one day asked will not be asked once again even if he is register simultaneity at more masters programs or sections in faculty. With the view to realize the research I extracted a pattern with 100 persons by master population and 168 students, that is 10% by persons of each study form. Total population (investigate universe) have 1000 subjects at masters and 1680 subjects in the last year of study in faculty. I used the proportionally stratification investigation in function with the students percent in mother population and in same times in report with repartitions by section. One advantage of stratification investigation in report with others probabilistic method is the increase of accuracy of estimations made. Only the proportionally stratification investigation (“representative stratification”) is which can be interpreted as a census. The interest of this investigation type is that number of persons asked having common characteristics is proportionally with layer population. The proportionally stratification investigation assures a investigation rate “n/N” in each layer equal with on the whole population “n/N”.

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4. PARALLEL STUDY BETWEEN THE STUDENTS’ OPINIONS AND THE STUDENTS AT MASTERS OPINIONS The process of take decision for to follow a faculty isn’t straight or rational, but is a complex process affected by numerous factors as: register fees and school fees and others prices involved, the available information, the academic prestige, the entrance examination method in faculty, the opportunities offered by diploma, the life experience and the school experience (Moogan & Baron, 2003). A lot of human needs are never wholly satisfied. The education need represents an answer of fellow at environment requirements, of his interactions with others and of his former experiences. For this reason must given a special importance of educational services needs. The competition very big by present emphasized the strategic importance of satisfaction and of quality in the contest from the win of consumers and from to maintain of important advantages. Thus, the satisfaction is based on consumers’ expectations and on their perception regarding the services quality (Johnston and Lyth, 1991; Ekinci, 2004; Cronin and Taylor, 1992; Christou and Sigala, 2002). Therefore, the universities must to try to understand their target markets, to value the needs of these markets and they modify their offers from to meet with these needs, contributing thus at a growth of consumers satisfaction through services with a lifted qualitative level (Keegan and Davidson, 2004). Table no. 1 Academic education on a tuning dials -3 at +3 for students:

Valid

"Very unimportant" "Unimportant" "Less important" "Indifferent" "Quite important" "Important" "Very important" Total

Frequency 1 1 1 4 16 56 89 168

Percent 0.60 0.60 0.60 2.38 9.52 33.33 52.98 100

Table no. 2 On a tuning dials -3 at +3 for students at master the academic education:

Valid

"Less important" "Indifferent" "Quite important" "Important" "Very important" Total

Frequency 2 5 8 43 42 100

Percent 2 5 8 43 42 100

Better half between the students which answered at questions by investigation consider the higher education that being very important, while 33.33 % between they are agree with the fact that is important. Modest percents obtained the options "Very important", "Unimportant", "Less important" and "Indifferent", and 9.5% between they assert that to have academic studies it is a thing “quite important”. Thus, in follow of study realized to confirm that for the students asked registered at Faculty of Economics Science and Business Administration within the framework of UBB at masters the higher education represents one important factor in professional prepare. A lot of students of masters asked consider that the higher education is important or very important (85%), while only 15% between they value this aspect between quite important and less important. The rapid development of universities, as well as the growth school fees, together with the intensity of competition in educational surrounding oblige the universities to adopt a strategy orientated to market for make difference and for distinguish the offer in report with the 59

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competition. Too, in the context of one birth rate in reduction, of the government priorities regarding the education quality and of the public finances reduction, much European states suffered a stressed diminution of students number (Alves, 2005). In these conditions, the universities confront with the need to accommodate at certain important changes, taking a big accent by the attraction and the maintaining of students in faculty, through the satisfaction of needs and expectations of those. In the first place is necessary the needs knowledge, through the attentive study of dimensions educational experiences of students. Their knowledge will allow the determination of interest for futures studies, but too for present studies, because a student can renounce at the courses of one higher education institution in any moment. If approximate 86% between the students which answered considered that the higher education is important or very important 82.14% believe that they have need too masters graduates studies from to improve their professional prepare. The students’ satisfaction it is in generally defined as an attitude on short term, which results from a valuation of educational experience (Athiyaman, 1997). The satisfaction comes into sight then when the effective realizations meet or surpass the students’ expectations (Szymanski, Henard, 2001). Browne, Kandelberg, Brown and Brown (1998) showed that the global satisfaction in report with a university is determined by a valuation of quality of courses, as well as others factors associated with this university. As services purveyors, the universities must to try to satisfy the students needs through the information and diplomas offer, and the orientation to a carrier, all these in the change students time, of their effort, of fees and of one positive advertising by type „word-of-mouth” (Kotler and Fox, 1995). Very much between students asked wish the studies continuation immediately about they graduate from the faculty, 74.40% wanting to obtain a master graduate qualification in the next period. A reduced number say that they will expect a certain period just they keep this decision or just in the moment in which they have financials resources which to permit their this thing, fact owed of reduced number of budget places offered in the framework of faculties from masters, the fees very big and the big number of graduate who wish to complete the professional prepare. Insignificant percent declared that they will make this thing when they will feel prepared. But the perception about education often differs between the members by inside (teachers) and the members by outside (students, potentials students, employers or others public categories). The United States of America researches show that the universities accentuate much more the research role and of one competitively development, while the population has need by a very well education of students for to lighten the process of finding a job. When intend to continue the studies? 80 74

60

40

Percent

20

11

9 4

0 immediately

w hen I have money after a time

other time

w hen I am prepared

Figure no. 1 The data finished studies

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80 75

60

40

20

Percent

17 8 0 this year

last year

much years ago

When graduated from the faculty?

Figure no. 2 The year of faculty graduated form Thanks to the fact that in measure which the fellows touch they aims they develop others news, can see in the base of the study made through the responses analyze obtained by the persons asked that three quarters between they which follow a master program are fresh licentiates, while 17% between they graduated form the faculty with one year before the master program, and 8% let the sands are running out much more years by the moment which they graduated form the classes of university till to enter in master. The most important reasons which are of base the studies continuation through graduates are: advantage in finder a job and looking into of knowledge, only a little percent don’t feeling prepared to work. Table no. 3 Principal reason to continue the studies Valid

Missing Total

"I don’t feel prepared to work” "looking into of knowledge" "advantage in finder a job " Total "no answer"

Frequency 4 58 75 137 31 168

Percent 2.38 34.52 44.64 81.55 18.45 100.00

The competition intensity between universities become more difficult the current situation, because these must to put a powerful accent on the students attraction in a big number, what is a difficult task and this involved a compromises series in quantity favour, with the risk to reduce the quality level of higher education.(Bailey, Rom and Taylor, 2004). The motivation can manifest fewer than two different forms: negative or positive. Than this is negative the persons not to feel comfortable and they skulk to fulfil an activity with much levity. The fees are the principal hindrance in the way of continued the studies, approximately half of students manifest the fear than they are obligated to give up at wish to continuation them studies because this reason. Also, the graduates are lively by wish to work and probably for fear than the job which they choose will request big resources temporal they don’t have time which to allot of study. The reduced numbers of budget places represent other obstacle in the way of continuities studies, especially in the context of fees extremely big for the Romanian students.

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Table no. 4 Principal’s reasons will determine you don’t continue your studies Valid

"reduced number of budget places " "the fees very big" "the wish to work" "other" Total

Frequency 20 81 56 11 168

Percent 11.90 48.21 33.33 6.55 100

The managers of higher education institution must to understand each aspect of consumer behaviour of educational services. Because the higher education was transformed in a very competitive domain the decision taking in this sector became by a special interest from researchers. The students have a wide game of options and they confront with complexes decisions for to reach at fair choice. Thus, the most wished destinations for the master following are: Germany, Italy, France and United Kingdom. The results regarding the factors which have the most influence about this process of decision taking as well as the number of factors take in consideration are contradictories (Hoyt & Brown, 1999).Anyway, the qualitative factors as: the academic reputation and the faculty fame are considered as being very important (Soutar & Turner, 2002). Table no. 5 Options for to follow a master Valid

"the faculty which I finish" "at other faculty, but the same university” "at other university" "other option" Total

Frequency 110 15 17 26 168

Percent 65.48 8.93 10.12 15.48 100.00

Table no. 6 Intend you to follow a master program at other option

Valid

“no answer” “to find a job” “abroad” “no intend” “I don’t know” Total

Frequency 142 1 17 5 3 168

Percent 84.52 0.60 10.12 2.98 1.79 100.00

A lot of students (65.48%) wish to continue the studies un the framework of same faculty of graduates they are, a little number between they wishing to change the faculty (8.93%) or the academic centre (10.12%). Between the people who opt for other option a lot of they wish to study in the framework of foreign university. Much more students go in others countries for to realize a part of their studies and they go then at work in Europe or in outside and after they are graduates from (Hapenciuc C.V., Hapenciuc C., 2002). Table no. 7 Principal reason from which I intend to change the academic centre is: Valid

Missing Total

"much more professional prepare" "the access at one superior quality of education" Total "no answer"

62

Frequency 23 14

Percent 13.69 8.33

37 131 168

22.02 77.98 100.00

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Everywhere in world, and especially in the European space, the universities must to manage of accommodation need for significant changes (Brătianu, 2002). The fellows which wish to change the academic centre in the view of studies continuation hope to profit in the new faculty by much more professional prepare (62.16% between the people which wish this change), or for to beneficiate by educational services which have much more quality (37.84% between the persons which don’t opt from master in Cluj-Napoca). Table no. 8 The knowledge of educational proposal for masters of your university Valid

"no" "yes" Total

Frequency 101 67 168

Percent 60.12 39.88 100.00

What they buy, where they buy and when buy the consumers will depend by the knowledge’s haven by these, these aspects being important in the taking of purchase decision. In spite of students number which wish to obtain a master diploma is considerable, only 39.88%between they knew the master offer which UBB proposed. Table no. 9 The knowledge degree of masters’ proposal

Valid

Frequency 41 29 16 22 40 18 2 168

"very little" "little" "quite little" "neutral" "pretty well" "well" "very well" Total

Percent 24.40 17.26 9.52 13.10 23.81 10.71 1.19 100.00

The master offer has been studied with very much attention only 1.19% between the students asked and well by 10.71% between these. 23.81% are pretty well in this regarding. A lot of students but recognize that they don’t given a very big attention of this subject just the moment of this marketing investigation. Table no. 10 Reasons to follow the master program selected Valid

“domain attractively” “the knowledge of a new domain” “enforce” “other” Total

Frequency 58 37 2 3 100

Percent 58 37 2 3 100

The motivation can be described as o guidance inborn power in the intern structure of fellows which stimulate at action. Much more persons (58) decided to follow the master program of which they are register in fact because the domain studied is attractive.95% between the persons asked affirmed that the domain attractively or the knowledge of a new domain has been the reason which it is at the base of choice made. Table no. 11 The quality of educational services of FSEGA Valid

“no” “yes” Total

Frequency 22 78 100

63

Percent 22 78 100

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Much more three quarters between the subjects consider the quality of educational services offered by FSEGA as being lifted and corresponding of the waited for quality standards. The motivation can manifest fewer than two different forms: negative or positive. Than this is negative the persons not to feel comfortable and they skulk to fulfil an activity with much levity. The needs set activated all of a sudden are often determined in while by specific hints concretization in motivations which manifest in environment.

Reasons to change the section 40 37

36 30

20 19

Percent

10

5 3

0 domain dissatisfied

market requests

inadequate prepare

missing other

What are you determinated to change the section?

Figure no. 3 Reasons to change the section Between 63 persons asked which affirmed that from the master studies they decided to change the section, about 60% motivate the choice as being determined by the requirements imposed by the work market, re orientate towards the domains which they consider that their will assure possibilities from professional realization. Reduced percents chosen this option because they don’t like the domain formerly studied or because they aren’t satisfied by the teachers prepare which carry on didactic activities at that section. 30% between the investigation participants mentioned others reasons. Between the fellows who said that other motive has been at the base of change section followed at master, the majority justify their option as being result from diversity desire (42.10%). Others specified reasons have been as in Figure no. 4. Reasons to change the section prof essionaly change 5.3%

autoperf ection

instigation

5.3%

5.3% many-specialization 15.8% diversity buget places

42.1%

5.3%

absence examination 15.8%

language of study 5.3%

Figure no. 4 Others reasons to change the section

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5. CONCLUSIONS The idea of fellows preparation in agreement with the society requirements in which they live lead at initiation the instructive-educative ways capable to respond of formative exigencies for the moment, but in the same time and for perspective. The educational institution has moreover the responsibility to form ablest citizens to build all the time the new society, a task more difficult: that to reform/to restrict in such manners so that they majors objectives to realize more rapid as the changes of societal paradigm. In a different way spoken, the dynamic school change to be more rapid as the change of societal facto, the school institution taking the role of civilization engine, and not preservation engine, hindrance of societal dynamism. They majors objectives are determinate by the necessity of development resources by the measure of increases complexity of life conditions and aspirations. The marketing – through her traditionalises functions of consumer research and of increase of adaptability entity at environment in which this work – will play a determined role in the assurance of success on market. At his place, the marketing will constitute the subject of some important changes in the years which will come, changes which will intervene on all this landings: marketing research, communications with potentials clients and current clients, sales, services addressed of clients etc. It dare say that isn’t no argument which to contradict the marketing methods and techniques using within the framework of educational system, methods and techniques which they proved their efficiency in all the sectors in which they has been used, especially that these can lead at an improvement of change process which have place between communities and education institutions. Absence using marketing view within the framework of educational system it is similarly with the disagreement educational institutions access at the ensemble valuables tools which can eliminate the status quo problem present within the framework of this. BIBLIOGRAFICS REFERENCES 1. Brătianu C., Lefter V., 2001 – “Management strategic universitar”, Editura RAO, Bucureşti 2. Brătianu C., 2002 – “Paradigmele managementului universitar”, Editura Economică, Bucureşti 3. Hapenciuc C.V., Hapenciuc C., 2002 – “Aspecte privind managementul calităŃii în învăŃământul superior”, Revista Română de Studii Culturale (pe Internet) 4. Hapenciuc C. V. (coord.), 2008 – “Cercetarea selectivă, studii de caz, proiecte”, Editura Didactică şi Pedagogică, Bucureşti 5. Knight J., 1997 – “Strategic Planing for School Managers”, Kogan Page Limited, London 6. Kotler Ph., Fox K., 1995 – “Strategic Marketing for Educational Institutions”, Second Edition, Prentice-Hall, Inc., New Jersey 7. Plăiaş I. (coord.), Buiga A., Comiati R., Mureşan A. C., Nistor C. V., Pop C. M., 2008„Cercetări de marketing”, Editura Risoprint, Cluj-Napoca 8. Plăiaş I., 2005 - “Comportamentul consumatorului”, Editura Risoprint, Cluj-Napoca 9. Pop M.D., Băcilă M.F., Moisescu O.I., Tîrcă A.M., 2008 - „Marketing educaŃional – sistemul informaŃional de marketing”, Editura Alma Mater, Cluj-Napoca 10. Pop, M D., 2006.- “Cercetări de marketing”, Editura Alma Mater, Cluj-Napoca

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FDI DEVELOPMENTS IN THE ROMANIAN ECONOMY Professor Ph.D. Maria MUREŞAN Academy of Economic Studies, Bucharest, Romania [email protected] Lecturer Ph.D. Oana CHINDRIŞ-VĂSIOIU Ecological University of Bucharest, Romania [email protected] Abstract Since 1990, Romania was in a permanent process of metamorphosis and became one of the most important emerging markets of Central and Eastern Europe investitutii FDI receivers. In this sense, the model followed in terms of investments and preferred industries suffered following the successive changes during evolution of business in Romania. Romania, with competitive manufacturing costs and high levels of productivity, itself represented a real opportunity for the issuing of foreign investors seeking high returns through the implementation of export-oriented productive activities in proximity to the border with the European Union, and today even the European single market. In recent years foreign investors have realized that Romania is a mature market and strong consumer and investment have driven the trend towards mass consumption by developing projects mainly in services, ICT, research and development and technological innovation. As one of the largest European markets, Romania offers great opportunities in terms of market, both in size and the population, providing investors with a significant market potential. Factors which caused direct investments have been positive momentum in Europe, availability of material and human resources, low labor costs and, after long grinding, legislation. Keywords: foreign direct investment; investment climate; capital movements; economic growth; European Union. JEL Clasification: F21; P45.

INTRODUCTION The investment is, broadly speaking, the sacrifice of part of present consumption for future consumption, possibly uncertain. Unlike saving which can be defined rather simply as deferred consumption, investment is actually sacrificed consumption currently intend to obtain a greater future consumption. Foreign direct investment can be defined as a relationship of time investment, between a resident entity and a non-resident entity and which typically involves the exercise by the investor of a significant management influence now you invested. In recent years, Romania has become an attractive location for foreign investors, the number of those present in our country is growing. Because of joining NATO and then EU membership, Romania has consolidated its position in the Euro-Atlantic both economically and politically. Foreign direct investment will facilitate direct access to foreign markets and importation of technology and know-how. According to UNCTAD, Romania has attracted most foreign direct investment, their volume rising to 13 billion, occupying first place in the Eastern European region. However, comparing with Central European countries such as Hungary, the Czech Republic and Poland, this achievement can not be considered on a scale so large given that these countries have absorbed about 80% of FDI in Central Region Europeans. INVESTMENT CLIMATE IN 2006 AND 2007 Improving the business environment, the effects of introducing the flat tax and the positive attitude of foreign partners towards Romania led to the attraction of foreign direct investment worth EUR 9.1 billion only in 2006. This record high in 2006, up 74.24% compared to same period the 67

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previous year (5.213 million euros), includes an amount of 2.2 billion euros, Erste Bank takeover 36.8% stake in Commercial Bank Romanian. The most important component of foreign direct investment attracted by Romania was represented by equity (worth EUR 4.098 billion, representing 45.1% of total FDI), followed by other capital, loans granted by the parent company affiliated structures in Romania (3.029 billion euros, representing 33.3% of total FDI), and component reinvested earnings (EUR 1.956 billion, representing 21.5% of total investments of these types of investments). So, 2006 is the absolute record in terms of foreign direct investment attracted by Romania. In 2006, the cumulative amount of FDI attracted by Romania has exceeded 30 billion, registering a stock of 31.130 billion euros. In 2006, the fierce competition in attracting foreign investments in Central and Eastern Europe region, Romania had a well deserved second place with 9.1 billion euros worth mentioned. Share capital of companies with foreign participation in capital - an indicator expressing the overall value of contributions in cash and in kind, written by associates in the formation of society, and to increase the capital during the existence of the company - registered in 2006 value of 2.434 billion euros, up 0.5% from 2005. As a share in 2006 represents 15.7% of the balance amount of share capital, since 1991. Most dynamic in terms of months of 2006 the value of share capital were: August (85.5 million euros) and December (355.5 million euros). In terms of orientation towards economic sectors to foreign investors in 2006, foreign direct investments were located mainly in manufacturing (34.2% of total), during its most attractive investment is in metallurgy (8, 3%), food, beverages and tobacco (5.5%), oil processing, chemicals, rubber and plastics (4.5%) and transport means (4.1%). Other activities that have attracted significant foreign direct investments during 2006 are financial intermediation and insurance, including insurance and banking activity and represents 22.2% of the total, retail and wholesale (12.2%), telecommunications (8.2%), construction and real estate transactions (6.4%) is still observed a low percentage compared with the potential of certain areas such as textile, clothing and leather (2.1%) and Hotels and restaurants (0.8%). As to the type of FDI, greenfield investments are emphasized, which represents 48.5% of the total of 31 December 2006, respectively mililoane 16,725 euros, representing the difference takeovers of companies. In 2007, Romania is at a stage of maturity in terms of FDI, which show an increasing trend, keeping the country in second place among states in Eastern Europe after Poland. In the first half of foreign investments have accumulated about 3.5 billion euros and I think by the end of the year will reach over seven billion euros, a level similar to last year if we consider the privatization of BCR, which contributed 2 2 billion. To note is that of total FDI in the first six months of the year, 50.6% represents reinvested earnings and equity. In 2006 direct foreign investments were 9.1 billion euros, placing Romania in second place in the region after Poland, which had a level of over 11 billion. Volume of foreign direct investment in Romania stood at an average of 7.7 billion dollars (5.5 billion euros), which ranks a 30 on a global ranking produced by the Economist Intelligence Unit (EIU). This value leads our country to foreign direct investment share of 0.51% of total investments in the countries of Eastern Europe however, Romania ranks in second place, being surpassed by Poland. Poland is the first position among the countries of Eastern Europe: 24 place, FDI 12.6 billion USD, 0.84% of total global volume. The report by the EIU in cooperation with the Columbia Program on International Investment (CPII), estimates that FDI inflows worldwide in 2007 increased, although at a slower pace than in 2004-2006. The same report says that after this growth will decline slightly from 2008 but will return to a stronger pace in coming years, 2009-2011. U.S. will remain number one destination for FDI in the period 2007-2011, with a rate of approximately 17% of total global investment. But the situation changed when it comes to business environment conducive to FDI. Denmark is first quality business environment, followed by Finland, Singapore and Switzerland. No 68

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Eastern European country is not in the top 20. Romania comes at 48, beat of Bulgaria (44), but also other countries of Central and Eastern Europe: Estonia (21), Czech Republic (26), Slovakia (29), Slovenia (32), Poland ( 34), Hungary (35), Latvia (37), Lithuania (38), Croatia (47). However, surpassing countries like Sri Lanka (66) Dominican Republic (67), Bangladesh (74), Kenya (77). In 2007, the main industries to which foreign investors have been facing the automotive and auto components, IT and telecommunications, energy (biodiesel and wind), and other building materials industry. The projects are made public the Technology developed by Renault, Delphi Diesel, Honsel, Nokia, Ericsson and Pirelli Ambiente Technology in the field of automotive components, worth 25 million euros. Also, China is in the field of electronics and IT, a project worth 20 million euros, Belgian Walkens company announced a project worth 5 million euros in the field of printing and advertising material, company Hirschmann comes with a draft 5 million euros in the field of automotive wiring and Helovet in Belgium, with 3 million endowment invested in equipment and medical units. FDI IN 2008 AND 2009 Foreign direct investment surged in the first two months of 2008 with 1,22 billion, 40% above the same period in 2007, and covered over half (55.5%) of the current account deficit, the high proportion last year. After the first two months of 2008, foreign direct investment had reached 870 million euros and covered 42.5% of current account deficits at that time. Of the total foreign direct investments made in Romania in January and February, Equity and reinvested earnings accounted for less than half (49.2%) and intra-group loans accounted for the remaining 50.8%. Loans they take from companies located in Romania based parent companies abroad have the potential to deepen the current account deficit as it will be returned at maturity. Their share in FDI in first two months of 2008 increased slightly compared with the first two months of 2007, when intra-group loans accounted for 46% of the total. Compared to January 2008, FDI advanced in February, with 75.25%. Foreign direct investment amounted in the first months of this year, 695 million euros, but covered a larger extent (61.2%) current account deficit. Foreign direct investment in Romania in 2008 decreased by 22.3% to 7.069 billion euros and covered the balance of payments deficit at a rate of 41.9%. In 2008 Romania occupies the first position among the most attractive countries for investors in Southern Europe, with a rate of 52% of total investments, followed by Turkey with 50%, Bulgaria with 40%, 31% Greece, Croatia 28% and 19% Serbian. In 2009, the percentage of foreign direct investment was further reduced to 36.4%, and the National Forecasting Commission projections show that this percentage will be reduced to 30% in 2013. Thus, the current account deficit has increased in 2009 to 18,2 billion, but declined as a share of GDP, up from 13.6%, compared with a revised 13.9% result in 2007. Last year, foreign investments accounted for only 41.2% of current account deficit, compared to 2008, when it covered 41.7 percent. In the following years, foreign direct investment will be reduced gradually to 6.4 billion euros in 2013. EFFECTS OF FDI IN ROMANIA For Central and Eastern European countries, foreign direct investiitiile are crucial for their integration into the world economy. Obviously, the early transition countries of Central and Eastern Europe lacked physical and financial capital to help restructure and stimulate economic growth. Foreign direct investment generates additional benefits for countries collateral vessels and not only those strictly related to the production of goods and services. The countries of Central and Eastern Europe, they are greater than the capital itself. The main effects of FDI: 69

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Technology transfer Obviously, it is likely that foreign direct investment to bring technology from abroad, including plant and equipment itself, as modern production processes. State firms by buying companies in advanced economies has resulted in upgrading their factories. This has led to increased productivity which was then supplemented by qualification programs in business, ultimately resulting in an increase in skills and real wage. Large amounts of investment from strategic investors not guarantee technical improvements that create value added export structure increased. For example, Audi's subsidiary in Romania is not used by local suppliers, so local suppliers have no contact with any technology and new methods and incentives to improve their own technology. But there are good examples. Type of investment that improves power export industry is made by Renault in Romania. Renault has invested in modern production and export at west level prices. An understanding of the principles of competition (both domestic and international) was necessary, while marketing practices such as advertising campaigns were attractive and differentiated packaging completely absent. Recent practices introduced new style of leadership were also absent. Logistics and supply channel management were also unknown. It also lacked the attention directed at the quality in the production process and focus on customer service, both in the manufacturing sector, and in the service. New management practices involve competition, opportunity for success, but also a serious threat to company existence. • Investments are beneficial to the market FDI made by multinational firms are probably the most contraversata form of globalization. There are critics who say that foreign companies exploit poor workers and labor law loopholes. The problem is that these critics base their criticism on cases of abuse reported. There are those who believe another, and saying that foreign investments bring new capital, technology and jobs to countries that need them acute and statements are based on these macroeconomic studies. Foreign direct investment certainly helped the local economy. They make it possible to increase productivity and production in these sectors, while increasing the national income as reduce prices and improve quality and offer services and products for consumers. Foreign investments have not only proved beneficial for the industry to invest directly, but generated positive effects for the economy side. • Standard of living improves Perhaps the most important effect of FDI is the ability to raise local living standards. It is estimated that approximately 80% of direct foreign investments made today are made by companies entering the local markets and sell goods there and not producing companies to export cheaper. Local consumers are the biggest beneficiaries of these investments. In almost all cases investigated local consumers get to enjoy lower prices on products or enjoy a wider range of products, after the foreign companies came to this country. Lower prices for foreign companies improve efficiency and productivity of the sector by introducing new capital, technology, know-how and by determining the least efficient local firms to improve their economic cycle or to exit the market. Although some companies will lose market share, in the end benefit consumers by lowering prices to improve the standard of living. • It creates jobs There are criticisms of direct investment made by companies seeking to invest in the production of cheap products that will be exported. It was found however that such investments are good for local economies that create jobs and lead to economic growth without threatening local businesses from competition. Foreign firms, whether or not export-oriented, pay wages that are at least equal or often higher than the wages offered by local competitors. That comes mainly from the fact that foreign firms pay higher salaries to attract the best workers, to motivate and reduce staff turnover.

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Foreign investment companies that are export oriented and are threatening local producers because foreign companies do not compete for domestic market share. On the other hand, local firms can profit from this situation action as local suppliers to these companies. Also, local firms can win if foreign companies come to emulate, if acquiring technology and know-how from them. FDI CRITICISM During the wave of globalization of national economies critics argue that foreign direct investments are a form of neocolonialism which preserves the dependency status of countries that are not part of the club of developed countries. Another argument is that foreign direct investment focuses on economy sectors are labor intensive and not on those who are technologically advanced. On the other hand, foreign firms that act a weak institutional environment widely used restrictive business practice in order to prevent the entry of new firms in a given sector. These include acquisition of potential competitors, dumping prices, restrictive contracts with suppliers and distributors to store not competitive products, know-how monopolization through acquisition of patent rights and licenses that are then used for lobbying and lobbying for higher tariff barriers high costs in a given sector. Another argument is that instead of decreasing unemployment in the long term is growing. Also, multinational companies are accused of excluding citizens from the host country and managerial positions that remove unjustified profits by using transfer pricing techniques. Lately, another concern emerged: multinational companies transform the host country in "oasis in environmental pollution" investing mainly in those industries in countries of origin have a negative environmental impact high. The most pronounced effect of competition on investment flows is freezing environmental regulations at a lower level of protection. Countries fear that by taking a unilateral decision to increase environmental standards relating to risk losing a competitive advantage in favor of regulated countries with lower standards. In other words, environmental commitments lose value for that is related to attracting investments. Economic globalization has greatly expanded opportunities to outsource capital related costs imposed by environmental restrictions on poor countries by exporting waste and pollution factors. Even tax benefits hoped the host country is often successfully avoided investing firms. Often, multinational firms are not subject to effective taxation because of their ability to exploit transfer pricing and other methods to minimize debt. A variety of factors may make foreign direct investments have a negative impact on the host country. Impact of foreign investment depends on the sector in which investment takes place and the legal environment, social and economic investments held. Disadvantages of attracting foreign investments in case of a weak and inefficient institutional environment: • Fri attracted to invest in companies wish to obtain additional revenue from the creation of monopolistic structures are drawn accurately and weak institutional environment and handled; • These investments have a negative effect on society rather that in terms of social development (whether in terms of nominal growth is seen rising); • Multinational firms operating in a dangerous environment poor institutional even for competitive local firms due to relatively high power they have. From the perspective of the host country may be potential benefits from the following list:
FDI promotes economic growth and high productivity;
FDI is a source of currency strength for developing countries (these are different forms of financial arrangements, which may be contributions in money, materials or property). The biggest advantage is that country's foreign debt does not grow by such contributions;

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FDI contributes to the transfer of new technologies, know-how, managerial skills and marketing skills together with foreign investors;
FDI promotes international trade through horizontal links with branches mother companies, leading to increased market competition and a host country and there is potential to establish research and development relationships with local universities and research centers;
Capital as foreign direct investment capital is the most beneficial to the recipient country’s economy due to the positive effects of time on domestic economy (not volatile like other forms of capital);
Creating good jobs and contribution to growth by this solvent demand;
It creates competition for local firms and forcing them to restructure and become competitive or go away. CONCLUSIONS FDI can play an important role in modernizing the national economy and promote economic growth because the positive effects they have on productivity, technology transfer, introduction of knowledge management, improvement of labor, access to new markets, etc. Starting from these considerations, public authorities have taken a number of advantages for attracting foreign investment of which recall those of the market, the resources of international relations and also political benefits, and social legislation. Following these opportunities offered by our country wants Romania to be viewed as a business partner able to satisfy potential investors. Clear evidence of how it is perceived positive investment climate in Romania are the companies that hold important positions on the market where they operate and who decided to invest some of their equity in our country. Such examples can be given by Yazaki, a world leader in production of electrical wiring that has invested 14 million euros to build a plant in Ploiesti Industrial Park. Another example is Johnson Controls, one of the largest manufacturers in the world in the field of automotive systems and has invested an amount of EUR 16.5 million for the construction of factories in the automotive trim in Ploiesti. First position in the ranking of foreign investors after share capital is what the French company Renault SA invested in the Romanian company Automobile-Dacia SA. Investment potential of our country has always been attractive to foreign investors but, in entering the Romanian market opportunities have materialized since 1997, with the change our country and the beginning of reform legislation to privatize state companies from different industries of the our country. Direct foreign investments are spread across the economy, and investors are coming mainly from Europe. Romania is attractive for foreign investors due to low labor costs and well trained workforce. Foreign direct investments are important for us because of “the import of know-how” and modern technology that investors bring home countries. It was found that generally, foreign direct investment grew annually but not always enough to cover the balance of payments deficit. However, EU accession, in the future can be considered an impediment for some investors because the alignment of labor remuneration of European community standards. Foreign direct investment generates additional benefits for countries collateral vessels and not only those strictly related to the production of goods and services. They bring foreign technology, including equipment and plant itself as modern production processes, and new capital and jobs in countries that need them acute. Foreign direct investment certainly helped the local economy, making it possible to increase productivity and production in these sectors, while increasing the national income as price reductions and improved quality and offer services and products for consumers. Foreign investments have not only proved beneficial for the industry to invest directly, but generated positive effects for the economy side. 72

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Because many benefits of FDI, we believe they are an essential element in the economic development of a country, an example in this respect is even Romania. REFERENCES 1. Beata K. Smarzynska, Shang-Jin Wei, “Pollution Havens and Foreign Direct Investment: Dirty Secrets or Popular Myth?”, (SSN Working Paper, Sept. 2009) 2. Diana Farrell, Jaana K. Remes, and Heiner Schulz, New Horizons: Multinational Company Investment in Developing Economies, Mckinsey Study, www.mckinsey.com/knowledge/mgi/newhorizons 3. Romanian Agency for Foreign Investments - Evolution of FDI in Romania in 2007 4. Tripartite Meeting on Labor Practices in the Footwear, Leather, Textiles and Clothing Industries, International Labor Office”, Geneva 2008

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VALUES: LINKING HOSFTEDE’S CULTURAL DIMENSIONS TO ADRIAN-PAUL ILIESCU’S “RIGHT” & “LEFT” INTERPRETATIONS FROM POPPER’S “OPEN SOCIETY”PERSPECTIVE Professor Ph.D. Carmen-Aida HUłU „Gheorghe Asachi” Technical University of Iaşi, Faculty of Textiles-Leather and Industrial Management [email protected] Associated Assitant Dorina łICU “Alexandru Ioan Cuza” University of Iaşi, Faculty of Philosophy and Social-Politic Sciences [email protected] Abstract: The study presented in this article aims at identifying a framework for value analysis in linking Hofstede’s cultural dimensions and the dually oriented, left-right, value-ideological options of Adrian-Paul Iliescu’s theory, from Popper’s “open society” perspective, and with a focus on the Romanian democratic context. In relation with the theoretical framework, there was an ex ante expectation that the ideological right (valorization towards the right of freedom, equality, solidarity and the market economy) must be correlated with the value dimensions specific to the Western liberal democracies (low Power Distance, Individualism, Acceptance of Risks). Against this perspective, for the considered sample in the study, it can be underlined that the respondents with ideological orientation to the right according to Adrian-Paul Iliescu’s theory also manifested a mainly positive orientation towards Hofstede’s dimensions specific to liberal democracies: moderate Risk Acceptance and moderate Individualism, although a bias towards high Power Distance must be pointed out. In spite of sampling limitations, the study confirmed certain relationships among the value domains afferent to the two considered theories, from an “open society” perspective. Keywords: cultural dimensions; democracy; “left-right” ideologies; “open society”; value analysis framework. JEL Classification: D46, D71, D72, D73, M12, M14, Z1

1. INTRODUCTION The study of values is closely related to the specific culture of a people. While “values are concepts, explicit or implicit, distinctive for an individual, or characteristic for a group”[1], „the ultimate reason of actions of individuals and collectivities, as defining elements of the social life” [2], culture is a set of „norms and values which prevail for a nation at a certain time” [3]. But what is the relationship between culture and values? Hofstede (2001, 1991, 1980), Schwartz (1999), or Inglehart (2005), among many others, consider the values as the central element of culture. The relationship between values and the other elements of culture is extremely close because the dominant values transpose themselves into norms, rituals and artefacts that define the institutions along with the functioning of the society as a whole. Ultimately, values define the social needs and the general principles that structure social life. Therefore, they depend on how individuals represent their needs, objects and purposes of human existence in defining behaviors and attitudes, in defining and being defined by other values, in defining and being defined by the characteristics of the social environment. This study aims at identifying a framework for value analysis in linking Hofstede’s (2001) cultural dimensions and the dually oriented, left-right, value-ideological options of Adrian-Paul Iliescu’s theory (2003), from Popper’s (1993) “open society” perspective, and with a focus on the Romanian democratic context.

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2. HOFSTEDE’S CULTURAL DIMENSIONS VS. ADRIAN-PAUL ILIESCU’S VALUE-IDEOLOGICAL FEATURES FROM POPPER’S PERSPECTIVE OF AN “OPEN SOCIETY” Hofstede’s theory (2001, 1991, 1980) places the values at the center of culture underlying their universality, though applicability to any society. He identifies five orientations of universal comparable value: 1. Power Distance – this dimension is a measure of a society’s representations of inequality; cultures with low Power Distance are characterized by actions towards legitimating power and a permanent need to publicly debate on the sources of power; in contrast, societies with high Power Distance develop centralized hierarchical structures; the values attached to low Power Distance societies are equality, freedom of action, low degrees of discrimination, democratic government, free market economy; 2. Individualism vs. Collectivism – proposes an orientation from individual to society; in the individualist societies everyone is responsible for their own welfare, whereas the collectivist societies focus on defining the individuals according to their belonging / integration within a reference group; the values attached to the individualist societies suppose: promoting the individual, free initiative that means maximizing one’s own welfare, inequality regarding personal income, building an educational system based on creativity and on the capacity of adapting to unpredicted situations, minimal state intervention in the economic activity; 3. Masculinity vs. Femininity – this dimension relates to gender inequality; “masculine” societies view men and women as performing different roles with attached attributions being clearly delineated by specific contexts, such as the family, the labor market, etc.; also these societies highly value assertiveness; the “feminine” societies suppose a higher degree of tolerance concerning gender and, simultaneously, a lesser degree of discrimination based on age, sex, religion, etc.; 4. Uncertainty Avoidance – involves people orientation towards risk taking; risks accepting societies present a reduced tolerance to uncertainty, react emotionally, are normative; among the main values of risks avoiding societies are planning of economic activities and a high degree of intolerance towards the different opinion trends; it can be pointed out that, in linking Uncertainty Avoidance to Individualism-Collectivism, the extended family, exhibiting high degrees of risk avoidance, is the central element of the collectivistic societies, while high degrees of relationship diversity, centered on the individual, is typical for individualistic societies; and 5. Long Term Orientation vs. Short Term Orientation (Confucian Dynamism) – Hofstede considered that the dimension represents the features of Virtue regardless of Truth; typical values associated to Long Term Orientation are thrift, perseverance, having a sense of shame and ordering relationships by status, whereas typical values for Short Term Orientation express an inclination for personal stability, respect for tradition, fulfilling social obligations, protecting one's ‘face’, and reciprocation of greetings, favors, and gifts. Adrian-Paul Iliescu (2003) proposes a value theory based on values’ reflection within the right-left ideologies: 1. Freedom – is a sine qua non condition for liberalism, that may be translated by: individual independence, meaning independence in relationships with others, with institutions, and with the state that needs a personal domain for action; the left ideology considers that freedom depends on a more significant state/society intervention in one’s private life: freedom might be endangered by the absence of opportunities, and the opportunities are provided by the state; 2. Equality – liberalism considers that people have to be and are free to follow their own goals and to fulfill their own desires; equal opportunities undermine human freedom by limiting the free use of personal resources, talents and virtues to get uneven results; the left considers that the political and legal equality is formal and superficial if they were not also economically and socially backed up; inequality based on merit is justifiable but while other kinds of inequality are unjust; equal opportunities are not possible if big economic and social inequalities existed, and the state must provide equality of chances for all; 75

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3. Solidarity – liberalism has a prone to treating individual goals as real and authentic, and common goals as pseudo-goals and, also, to substituting the individual goods to the public ones, thus getting to a privatization of social life; individual initiative is eulogized at a political, social and economical level; for the left, the common goals exist, are important and must be followed; they stake on solidarity for common objectives and on social security; while liberalism considers that social security is subordinated to freedom, the left talks about economic and social security; and 4. The relationship economy-state-market – liberalism starts from the premise that the citizens’ economic interests are satisfied by the market mechanisms and, as a consequence, each individual who follows the accomplishment of his own interests contributes to satisfying the common needs of the society; the left stakes on the creation of opportunities and on the equal repartition of income, criticizing poverty, considered as a great social danger, as well as economic inequality, considered unjustifiable and inequitable; the state has to consider the legitimate interests of the disfavored groups and to reduce social costs. From Popper’s perspective (1993), „inside a closed society the individuals have no choices to make, the social transformations being made in a utopian and substantial way, inside an open society the individual is confronted with certain decisions, the social change being made through small and reversible measures” [4]. Also, „inside closed societies decisions are not made by individuals, they arise as a result of group beliefs, of group decisions; inside open societies, individuals come first” [5]. Inside open, democratic societies, “the only authentic social entity consists of singular entities, individuals or persons, whereas the collective entity does not actually have a real existence. This conception presents social life as a summum of individual activities, recognizes individual values only and gives a central place to the individual rights and liberties [6]. In opposition, inside closed societies, inclined towards totalitarianism, predominantly collectivistic, there are promoted: adherence to norms, respect for authorities and for older people and tradition, conformity, association with stable, hierarchical roles, as well as encouragement of collective property. So, the distinction „open society” – „closed society” is centered on the dichotomies: democracy - totalitarianism; individualism - collectivism, economic freedom – centralized economy. In aiming at relating the theories of Adrian-Paul Iliescu and Geert Hofstede to Popper’s “open society”, this study starts from the general premise that an open, democratic society is characterized by a predominant inclination to the right, to individualism, to low Power Distance, to a high degree of acceptance of risks, whereas the degree of masculinity / femininity and long term / short term orientation vary within large limits. Furthermore, an ideological perspective of values may become relevant as long as the democratic societies are based on the principles of market economy and support a high degree of individualistic competition as well as liberalism in all its forms (Sartori, 1999; Przeworski, 2004). Finally, the study proposes a methodology to determine if the specific dimensions of ideological liberalism were correlated with identifiable dimensions of values in Hofstede’s theory, from an „open society” perspective (Table 1):

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Table 1 – Connections among Hofstede, Iliescu and Popper’s “open society” • • • • • • •

• •

Geert Hofstede Power Distance: Individual freedom of action; Equality under the law; Democratic governance; Individualism: Orientation towards the individual; Maximizing one’s own welfare; Meritocracy; Risk Taking: Tolerance to uncertainty/ unstructured situations (new, surprising, different from ”normal”); Limited regulatory system; Acceptance of difference in opinion.

Adrian-Paul Iliescu The ideological “right”: 1. Freedom: • Individual independence; • Valorization of the individual; • Individual rights; • The State: liberal democracy; 2. Equality: • Equal opportunities; • Positive rights; • Minimalist intervention of the State; 3. Solidarity: • Privatization of social life; • Freedom before solidarity; 4. Economic values: • Free market mechanisms; • Individual needs; • Economic inequality; • Economic rationalism.

• • • • • • • • • • • •

Karl Raymond Popper The “open society”: Democratic, free State; Individualism; Freedom of action; Free market mechanisms; Contract State; Rationalism; Individuals are equal under the law; Rational institutional regulations; Protection of the individual against state abuse or other individuals' abuse; Respect of individual rights; Inequality; Rule of law.

3. METHODOLOGY AND RESULTS This study was designed in purpose to set the methodological framework for identifying core value content related to Hofstede’s dimensions in correlation with the political-ideological values of Adrian-Paul Iliescu, from the perspective of Popper’s „open society”. Using a descriptive approach (Yin, 1989), the attention was focused on synchronic aspects of the targeted variables while data collection was based on a small scale survey due to resource constraints that limited the sampling process to a “convenience” and ‘snowball” (Henry, 1990) sample of young adults. Considering this, an array of inherent different types of errors (such as, for instance, age related) could have not been avoided. The questionnaire used in the survey consisted of two parts: the first part dealt with core values embedded in Hofstede’s dimensions along the “individualism-collectivism” continuum while the second part concerned the values addressed by A. P. Iliescu’s theory (equality, freedom, solidarity, etc.) along the „right-left” continuum. The variables representing the value content of the two theories were designed as ordinal, and those assigned to demographics as nominal. Coding was based on key words. The mean of the scores obtained for each dual answer was computed in relation to an ordinal scale from (0) = „total agreement” to (100) = „total disagreement”, so that the values ranging from 0 to 40 represented low degree of intensity, between 40 and 60 medium degree of intensity, and over 60 high degree of intensity of the scores. From 100 questionnaires randomly distributed within the period April-May 2009 to a “convenience” and “snowball” (Henry, 1990) sample of young adults in Iaşi area (North-Eastern Romania), mostly students/employees at the “Al. I. Cuza” University, 92 questionnaires were filled in. Obviously the limitations of sampling, mainly in terms of generalization potential and validity/reliability issues, must be underlined. The summary of the demographic data is the following: 55.4% of female; 27.2% aged up to 20 years old, 53.3% between 20 and 25 years old, 6.5% between 26 and 30 years old and 13.1% over thirty years old; 96.7% Christian-Orthodox, and 3.3% Romano-Catholic; 80.4% single, 18.5% married, and 1.1% divorced; 80.4% from urban, and 19.6% from rural area; 39.2% from two and three member families, 41.3% from four member families, and 19.6% from five member or more families; last school graduated - 88.7% high school, 9.8% college, 3.3% Master’s degree, 1.1% Ph.D., and 2.2% post graduate studies; at the time the questionnaire was distributed 77.2% declared 77

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themselves students, 5.4% academic staff, 4.3% engineers, 2.2% trade operators, and 10.9% a mixture of sales agents, civil servants, secretaries, programmers, PR specialists, economists, doctors, jurists, employers; monthly income - 30.4% up to 500 RON, 18.5% from 500 to 1000 RON, 15.2% from 1000 to 2000 RON, 7.6% over 2000 RON, and 28.3% non-response; political endorsement - 45.7% party members, from which 26.1% with maximum one year of service, and 14.1% over one year of service. In terms of Hofstede’s theory, the following results were summarized: 1. Power Distance – building on the degree of acceptance of inequality in a society/social group, 85.9% of the respondents believed that the members of a group have to perform competitive activities, 91.3% declared that if they had aimed at doing something they have had to carry it out until the end, 71.7% perceived that all members of their families have had an equal status, 76.1% declared that they did business with the state authorities rather rarely, 82.6% didn’t agree that the elderly were always right, and 79.3% declared that the people in power had got a privileged status; it may be noticed an inclination toward high Power Distance, except for the “rebellion” against the elderly, probably as an expression of the conflict between generations, “natural” for the respective sample content; 2. Individualism vs. Collectivism – 89.1% of the respondents declared that their achievements depend on the way they acted upon, 94.5% that they were interested in learning as many things as possible from the people around them, and 70.7% that school has to teach you a job the best way possible; the answers show a balance in respondents’ preference for individualism / collectivism, with a slight prone to individualism; 3. Masculinity vs. Femininity – 30.4% of the respondents declared that in a family mainly men provide for financial support; 50% perceived that only some people have the stamina to succeed; 27.2% believed that anybody could do politics, and 82.6% declared that, generally, they were not bothered by topics related to sex; the scores show a slight preference for femininity; 4. Uncertainty/Risk Avoidance/Taking – 94.6% of the respondents declared that they were adaptive to new, unpredicted situations, 78.3% believed they have got involved in various activities, and 66.3% considered that peoples’ mistakes were due to the decisions they made; also, 75% of the respondents were worried about the future of their families, 40.2% took the risks for their activities, and 84.8% declared that they liked to collaborate with as many people as possible; although moderate, it may be identified a tendency towards taking risks and to accepting unstructured situations; and 5. Long Term vs. Short Term Orientation (Confucian Dynamism) – 58.7% of respondents declared that they planed their personal finances in strict dependence of their expenses, 50% considered that the decisions were neither good nor bad, but only problems that needed to be solved, 87% believed they respected other people’s opinions, and 67.4% declared that, when involved in an action, they planed the steps to be taken; the scores indicate a moderate Long Term orientation, in opposition to previous results (Gallup, 2005, quoted by Luca, A. [Online]). Geert Hofstede ([Online], 2009) estimates for Romania high Power Distance (PDI 90) and Uncertainty Avoidance (UAI 90), low Individualism (IDV 30), and a tendency to femininity (MAS 42). Although Hofstede didn’t estimate the index for Confucian Dynamism in Romania, there is an estimation of the above mentioned Gallup survey (2005) that computed a LTO of 42, so a moderate Short Term Orientation. Comparatively, the results of this study show the same tendency to high Power Distance, a slight inclination to Individualism and Femininity (Individualism and Collectivism scores were practically balanced, showing a higher degree of Individualism than Hofstede’s estimate, 2009), a moderate inclination towards Risk Taking and acceptance of unstructured situations, in contradiction with Hofstede’s estimate (2009) and with the Gallup survey (2005), as well as a moderate Long Term Orientation, in contradiction with the Gallup results (2005). Although the results are interesting from the „open society” ideological requirements, the limitations related to sampling allow neither conclusions, nor generalizations. In respect with Adrian Paul Iliescu’s theory, the following results were summarized: 78

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1. Equality – 95.7% of respondents agreed or strongly agreed with a society based on meritocracy; 44% agreed or strongly agreed with the assertion that „the state has to help the poor”, whereas 45.7% were neutral, and 9.6% didn’t agree or totally disagreed; 86.9% declared that equal opportunities referred to lack of discrimination, and 76.1% believed that anyone was entitled to equal access to goods; 2. Freedom – 82.7% of respondents declared that they acted autonomously in order to reach their goals; 90.3% considered that inner cities public order must be guaranteed; 89.1% considered that everyone had to have the same degree of freedom in carrying out their activities; 60.9% declared that they agreed or strongly agreed that they were motivated by their earnings; 47.8% neither agreed nor disagreed with the fact that government regulations interfered as constraints in their activities, whereas 30.4% strongly agreed or agreed with it, and 21.7% didn’t agree with this statement; 57.6% strongly agreed or agreed with the fact that freedom was important, but more important was the authority that governed it; 3. Solidarity – to the question if “education should have been paid by everyone”, 30.4% were neutral, 28.2% answered positively, and 41.3% gave a negative answer (disagreement or total disagreement); 69.6% declared that they agreed or strongly agreed with the statement that “the State ought to pay health insurance”; 69.3% considered that the state has to provide for the main goods and services, whereas 80.4% agreed or strongly agreed that the state have been charging too many taxes too much; and 4. Values related to market economy – 75% of respondents declared they agreed or totally agreed with the statement that “the State ought to provide for jobs and to take care of unemployment; 55.4% declared that they were positively positioned in respect to a competitive market; 58.7% considered that the state ought eliminate the risks related to the economy, and 91.4% of respondents agreed or totally agreed with the fact that each person has to strive for a better life. It must also be noticed that Equality was strongly valued in relation with respondents’ orientation to the right. For instance, the statement „everyone has to be rewarded according to one’s merits”, and the statement referring to equal opportunities (absence of discrimination) received very high positive percentages in relation with the orientation to the right. As previously showed, the respondents also placed equality as a value of the left in stating their need for equal access to goods and services. Oppositely, Freedom was valued more to the left: very high percentages for “public order and safety”, “equality in freedom”, “freedom guaranteed by the authorities”. At the individual level, the results indicated autonomous action, so orientation to the right. The State area of influence and authority seems not to affect the respondents’ area of activity and liberties. Paradoxically, it must be stressed out that there are 57.6% of respondents that considered the authority that governs freedom more important that freedom itself, supporting this way high Power Distance. Concerning Solidarity, the general perception is closer to the left, that is, there are valued the services collectively provided by the State for education, health care, or public order, even if the respondents exhibited a position of the right when they considered the fiscal system, understandable from an individual’s perspective. As for the Values related to market economy, the respondents combine the right and left perspectives: the state has to provide for jobs, to take care of the unemployment problem and to eliminate economic risks, even if, at the same time, the respondents agreed or totally agreed that demand and supply govern a competitive economy and that everyone has to strive for their individual welfare. To sum up the findings related to Adrian Paul Iliescu’s theory, it may be observed that the respondents do not have a clearly defined ideological identity.

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4. CONCLUSIONS: PERSPECTIVE

VALUES,

FROM

IDEOLOGY

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TO

A

CULTURAL

In relation with the theoretical synthesis in Table 1, there is an ex ante expectation that the ideological right (valorization towards the right of freedom, equality, solidarity and the market economy) must be correlated with the value dimensions specific to the Western liberal democracies (low Power Distance, Individualism, Acceptance of Risks). Against this perspective, for the considered sample of respondents, data analysis identified the following: 1. The cultural profile from Hofstede’s dimensions perspective: high Power Distance, opposed to the orientation towards the right; moderate Individualism, Femininity, and orientation towards Risk Taking, where Individualism and Risk Taking support a bias towards the right, while Femininity is a dimension that must be further investigated for the Romanian population (HuŃu, 2003); 2. In respect with Adrian-Paul Iliescu’s theory, the sample couldn’t provide a clear respondents’ profile as being oriented towards the right or the left; they valued freedom, equality, solidarity and the market economy, either to the left or to the right, depending on each item proposed and subordinated to each ideological dimension. Although, in general, the statistical correlations of variables representing Hofstede’s and Adrian Paul Iliescu’s theories didn’t reach statistical significance (and though were not previously discussed), it may be noticed that the respondents with ideological orientation to the right according to Adrian-Paul Iliescu’s theory also manifested a mainly positive orientation towards Hofstede’s dimensions specific to liberal democracies (low Power Distance, Individualism, Acceptance of Risks). Finally, assuming the obvious limitations of sampling and of the sample structure and content, the conclusions of the study must be reserved in respect with a relevant correlation between the ideological and cultural perspectives, although, as previously discussed, there are obvious relationships among the afferent value domains. There is no doubt that further methodological developments and follow-up studies, including sampling processes that will allow sampling error minimization, are needed in order to clearly confirm the correlation between the two approaches from Popper’s „open society” perspective. ENDNOTES [1] Parsons, T., Shils, E., Toward a general theory of action, Harvard University Press, Cambridge, 1951, p. 35. [2] Parsons, T., The structure of social action: a study in social theory with special reference to a group of recent European writers, McGraw-Hill Book, Co., New York and London, 2005, p. 45. [3] Almond, G., Verba, S., Cultura civică, atitudini politice şi democratie în cinci naŃiuni, Ed. Du Style, Bucureşti, 1996, p. 34. [4] Popper, K. R., Societatea deschisă şi duşmanii săi, vol.2, Editura Humanitas, 1993, p. 45. [5] Collas, D., DicŃionar de gândire politică Larousse, Ed. Univers Enciclopedic, 2003, p. 287. [6] Iliescu, A.-P., Introducere în politologie, Ed. Bic All, Bucureşti, 2003, p. 138.

REFERENCES 1. Almond, G., Verba, S., Cultura civică, atitudini politice şi democratie în cinci naŃiuni, Ed. Du Style, Bucureşti, 1996 2. Collas, D., DicŃionar de gândire politică Larousse, Ed. Univers Enciclopedic, Bucureşti, 2003 3. Henry, G. T., Practical sampling. Applied research series, SAGE Publications, Newbury Park, 1990 80

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4. Hofstede, G., ‘Cultural dimensions’, [Online] retrieved at http://www.geerthofstede.com/ on June 20, 2009 5. Hofstede, G., Culture's Consequences. Comparing Values, Behaviors, Institutions, and Organizations across Nations, Sage Publications, Thousand Oaks, 2001 6. Hofstede, G., Cultures and organizations. Software of the mind. Intercultural cooperation and its importance for survival, McGraw-Hill Book Comp., London, 1991 7. Hofstede, G., Culture’s consequences: International differences in work-related values, SAGE Publications, Beverly Hills, 1980 8. HuŃu, C. A., Cultură, schimbare, competiŃie. Cazul transferului de tehnologie în firme româneşti, Ed. Economica, Bucureşti, 2003 9. Iliescu, A.-P., Introducere în politologie, Ed. Bic All, Bucureşti, 2003 10. Inglehart, R., Cultural Change and Democracy: The Human Development Sequence, Cambridge University Press, New York and Cambridge, 2005 11. Luca, A., ‘Studiu despre valorile şi comportamentul românesc din perspectiva dimensiunilor culturale după metoda lui Geert Hofstede’ [Online] retrieved at http://www.training.ro/docs/studiu2.pdf, on June 25, 2009 12. Parsons, T., The structure of social action: a study in social theory with special reference to a group of recent European writers, McGraw-Hill Book, Co., New York and London, 2005, p. 45 13. Parsons, T., Shils, E., Toward a general theory of action, Harvard University Press, Cambridge, 1951 14. Popper, K. R., Societatea deschisă şi duşmanii săi, vol.2, Editura Humanitas, Bucureşti, 1993 15. Przeworski, A., Alvarez, M., Cheibub, J. A., Limongi, F., ‘Ce determină trăinicia democraŃiilor?’ in Chu, Y., Plattner, F., Tien, H., Diamond, L., (eds.), Cum se consolidează democraŃia, Ed. Polirom, Iaşi, 2004 16. Robbins, P. S., Organizational Behavior, Prentice Hall, Upper Saddle River, 2003 17. Sartori, G., Teoria democraŃiei reinterpretată, Ed. Polirom, Iaşi, 1999 18. Schwartz, A., ‘Theory of Cultural Values and Some Implications for Work’, 1999, Applied Psychology: An International Review, 48 (1), p. 23 – 47. 19. Yin, R. K., Case Study Research: Design and Methods, SAGE Publications, London, 1989

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CONTEMPORARY MANAGEMENT ASPECTS OF THE COMPANIES WITH INTERNATIONAL ACTIVITY Lecturer Ph.D. Sebastian ENE Constantin Brâncoveanu University, Piteşti, Romania [email protected] Lecturer Ph.D. Mihaela IONECI Constantin Brâncoveanu University, Piteşti, Romania [email protected] Abstract: The activity of the national and international companies is determined by the manner in which their management is implemented. Obviously, the management must be structured starting from each company’s particularities in accordance with the economic environment where the respective organization develops its activity. In the contemporary times, the rigorous organization, the planning on a short-term, medium-term and long-term, the human capital quality as well as the control represent elements that differentiate companies. It is an essential condition to differentiate the companies in the competitional and functional market economy, and the profit obtained represents the source of a future attraction of investors and the possibility of developing the company, in the situation when its own resources are insufficient. Keywords: planning, company’s objectives, human resources, decisions JEL Classification: F23, M16

INTRODUCTION Presently, any economic, social, political activity represents a judicious and efficient coordination process, which reaches the proposed objectives in an economical manner with maximum results. A superior qualitative management corresponding to the present requirements could lead to the achievement of this goal. In the present paper we have outlined some management, manager and international management-related definitions offered by a series of economists, presented in specialty papers. The understanding of these concepts is completed by the main elements necessary for the company management. They are presented as concepts, stages, figures, schemes and examples within the international companies. THE PAPER CONTENT The international management is sometimes identified with the management of multinational companies. In Al. Puiu’s point of view, the management of international economic affairs represents “the totality of the concepts, methods and instruments needed to identify the opportunity, promotion, and negotiation, contracting and developing of the economic transactions between the partners who belong to different countries”.(Puiu, 2003) H. Koontz and C. O’Donnell consider that the international management is an activity necessary “to the functioning of the companies in the hosting countries”. (Koontz and O’Donnell, 1992) Ed. Miller believes that international management “deals with the management and the activities of the international companies”. (Nicolescu, 1997) In this sense, the managers’ role is that of managing their organizations in order to reach the objectives. The managers and their management methods make them responsible to combine and use the organizational resources so that the organizations reach their objectives.

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In what the purpose and the objectives are regarded, Robert Albanese said: „there isn’t a more important management idea than the objectives. The management is insignificant without its objectives”.( Albanese, 1998) Thus, Rank Xerox Company decided that the quality represents its main objective, while Kodak oriented its strategy to the imagistic-related methods. In this sense, they set up a special department which deals with the informational marketing. Polaroid uses its inventions in the field of polarized light and oriented to a single line of activities. James Lincon, the manager of Lincon Electric, considers that the organizational objective is to create “better and better products that will be sold at smaller and smaller prices”.

Clients

Government Incomes Process Outcomes

Competitors

Suppliers

Environment Organizational objectives Figure 1. The way in which an open management system works in order to reach the organizational objectives Source: Samuel Certo – Modern Management, Prentice Hall, 2000

We may say that the company’s objectives may be synthesized into three principles (figure 1): 1. the profit is the force that motivates the managers; 2. serving the clients with goods and services justifies the company’s existence; 3. the managers have social responsibilities in accordance with the ethical and social codes where the company acts. Consequently, the objectives have a major force and must be realistically established, easily achieved by the employees. The planning is the next function that a performing management should have. The purpose is that of increasing the organizational management. Table 1. M. Porter’s SWOT Matrix Internal factors External factors Opportunities (O)

Threats (T)

Strengths (S) SO strategy Maxi-Maxi Uses the strengths of the company in order to take advantage of the environment opportunity ST strategy Maxi-Mini Uses the strengths in order to eliminate the environment threats

Weaknesses (W) WO strategy Mini-Maxi Tries to eliminate the weaknesses in order to use the opportunities

WT strategy Mini-Mini Eliminates the weaknesses through liquidations, founding companies etc. Source: I. Popa, R. Filip – International management, Economica, Bucharest, 1999 83

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Within the various types of planning, the strategic planning holds the main role. This type of planning implies a SWOT analysis that should underline the weak points and the strong points of the company. According to them, the company plans the action strategy. In the analysis of the opportunities and the threats, one may use M. Porter’s model (table 1). The SWOT matrix analyzes the situation of the company, accentuating the external environment. Presently, the multinational companies use an elaborated planning process divided into stages meant to reach the objectives with maximum efficiency. Planning 1. Presenting the organizational objectives 2. Enumerating the alternative modalities of reaching the objectives 3. Establishing the premises for each alternative 4. Choosing the best alternative 5. Elaborating plans in order to apply the alternatives 6. Transposing the plans into action

Incomes A part of: 1. People 2. Monetary resources 3. Raw materials 4. Installation

Outcomes

The organizational plans

Figure 2. The planning process in multinational companies Source: Samuel Certo – Modern Management, Prentice Hall, 2000

The planning of such companies as Du Pont, Sun Oil, Quaker Oats, and Continental Airlines are made with such a process (figure 2). Today, a largely used instrument is represented by the business plan. As compared to the usual planning, this instrument has the role to guide the company’s activity and to promote the business to the possible investors. Organizing and human resources are two functions without which the management activity could not reach its objectives. Organizing is a process that establishes the way in which the resources of the organization are used. A judicious organization made possible the success of Lucent Technologies which detached from AT&T. Richard McGinn, the general manager of the company realized that the five stages of the organizational process will make him successful (figure 3). Stage 1 Analysis of the plans and the objectives

Stage 2 Setting tasks Stage 3 Sharing tasks

Stage 5 Evaluating results Stage 4 Allocating resources

Figure 3. Stages of the organizational process Source: Saul Gellerman – In Organizations, as in Architecture, Form Follows, Org. Dynamics, 18/1990

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An efficient organization implies an adequate structure which permits the usage of every resource individually and collectively while the management system tries to reach its objectives. The organigram is used as an instrument for organization and it implies a good dimension of the hierarchical structures and neither it lets neither uncovered certain positions or attributions nor creates a supra population. In what human resources are regarded, they make reference to those people in the organization who bring an important contribution to reach the objectives of the management system. The productivity in all the organizations is influenced by the way in which people interact, “human resources are combined in order to use the other resources of the management system”. (Paik, 1998) A series of factors such as training, age, experience, act upon the compatibility between a person and the organization. The American company named Northwestern Mutual Life, with assets exceeding 63 billion dollars faced various personnel problems, which affected its performance. Presently, due to the reform in the personnel recruitment process on the Internet, the company stopped the decline of the human resources. The specialists consider there are 4 stages necessary so that the company could have welltrained employees: recruitment, selection, training and performance evaluation. The recruitment deals with the attraction and the initial selection of the human resources offer available for a certain position. The selection is the stage in which they choose the person to be employed from the number of recruits. It is very important to make the right recruitment selection and choose a person who best corresponds to the job. An adequate selection of the employees made the company Compaq Computer record, in 1994, sales of 10.9 billion dollars as compared to 7.2 billion dollars in 1993. The traits of the human resources are developed through training, which allows them become more productive.[8] The performance evaluation is the last stage, within it they analyze the contributions brought by the human resources to reach the objectives of the management system. The decision represents a fundamental stage of the management process. The decision is a choice made by two or more alternatives. The managers make everyday decisions which influence their organization and which they communicate to its members. Regarding the decisions typology, they may be planned or non-planned (table 2). The planned decisions are routine, repetitive decisions which require specific methods to be administered. The non-planned decisions are unique, non-repetitive and less structured than the planned decisions. Such a decision was made by Ron Glaber, the owner of Real Network, when he was supposed to choose between becoming the competitor of Microsoft or selling his company to the former. Table 2. Techniques in making decisions Types of decisions Traditional Modern Planned 1. Customs 1. Operational research through -routine, repetitive decisions 2. Routines –standard mathematical analysis -the organization creates specific procedures 2. Electronic processing of the processes to administer them 3. Structure of the organization information Non-planned 4. Judgment, intuition, 3. Heuristic techniques of resolution -unique, poorly structured motivation decisions 5. Empirical methods in -administration through the selecting and training the general process of resolution managers Source: Samuel Certo – Modern Management, Prentice Hall, 2000

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a. Conditions of certitude when the person who makes the decision knows all the possible alternatives and the consequences associated to them; b. Conditions of risk – the person who makes the decision knows the alternatives, but the consequences are probabilistic; c. Conditions of incertitude – according to the person who makes the decision does not know the alternatives and cannot establish the possible consequences. In a large, international company, the decisional level is very important. In this sense, the decisions can be centralized or decentralized. R. Hodgetts and F. Luthans identify a series of factors which act upon the decisional level (figure 4). Factors of centralization

Factors of decentralization

1. Large company 2. High competitiveness 3. Advanced technologies 4. Interdependence between branches 5. Small geographical distance 6. Rich experience

1. Small company 2. Small investments 3. Reduced competitiveness 4. Poor technologies 5. Big geographical distance 6. Reduced experience

Decision

Figure 4. Factors influencing the decisional level Source : R. Hodgets, F. Luthans – International Management, McGrow Hill, 1997

The last stage of the management process is the control. It allows verifying the way in which the planned objectives were carried out. Planning and control are two virtually inseparable functions. An efficient management follows the next stages in the control process (figure 5). Establishing standards

Measuring performance erformanŃelor

Comparing performance

Maintaining the initial plan

Evaluating performance

Correcting the errors

Structure of the standards

Figure 5. The stages in the control process Source : I. Popa, D. Filip – International management, Economica, Bucharest, 1999

As types of control, we may have direct control through personal, indirect control, through reports, to anticipate preventively the possible problems, and currently to interfere with problem solving, verification, after an activity has been perfectly carried out. An application of this scheme is at the Marriott Hotels through the standard imposed by the program “The first 10 minutes” regarding the rapid accommodation of the clients. In evaluating the performance we observe that the standard is respected and the degree of customer satisfaction has increased. CONCLUSIONS Presenting these elements we notice that the importance granted to all of them to finalize the decisional process in optimum conditions. The Romanian managers must understand the importance of each stage for the managerial process, as a company’s performance improvement 86

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starts with the objectives established in accordance with the resources of the enterprise on a longterm strategic planning. The good organization at all levels, the careful choice of the human resources, the decisional process and, not lastly, the control are various aspects that should be applied in any form. Presenting these elements and offering various examples within the international companies are achievable; the weight is represented by the successful implementation of a type of management that leads the company to the best results. We consider being difficult to excel a company either Romanian, or international at all these levels, but also the continuous improvement of its management represents a necessary requirement if they want to resist in the competitional and functional market economy. REFERENCES 1. R. Albanese – Management, Cincinnati Southwestern, 1998 2. S. C. Certo – Modern Management, Eighth Edition Prentice Hall, 2000 3. Saul Gellerman – In Organizations, as in Architecture, Form Follows, Org. Dynamics, 18/1990 4. R. Hodgets, F. Luthans – International Management, McGrow Hill, 1997 5. H. Koontz, C. O’Donnell – Management, Nine Edition, McGraw Hill Book Company, NY, 1992 6. J. Lincon – Intelligent Selfiness and Manufacturing, Bulletin 434, NY 7. O. Nicolescu – Compared management, Economica, Bucharest, 1997 8. Brenda Paik – Growing Without au HR Department, Workforce, nr. 1/1998 9. I. Popa, R.Filip – International management, Economica, Bucharest, 1999 10. Al. Puiu – International management, IndependenŃa Economică, Piteşti, 2003 11. C.W. Roney – The Two Purposes of Business Moning, International Journal of Management, 15 March 1998

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EMPIRICAL REFLECTIONS REGARDING THE BENEFITS OF THE HUMAN CAPITAL Assistant Ph. D. Candidate Simona BUTA The “Stefan cel Mare” University of Suceava, Romania [email protected] Lecturer Ph. D. Rozalia KICSI The “Stefan cel Mare” University of Suceava, Romania [email protected] Assistant Ph. D. Candidate Angela –Nicoleta COZORICI The “Stefan cel Mare” University of Suceava, Romania [email protected] Abstract Starting from the hypothesis that the impact of the human capital on the economic performances does not only depend on the quality, quantity and type of the human resources, but also on a large number of other factors, such as the meeting between the work demand and supply, the degree of satisfaction obtained at the place of employment, the capacity of a country to attract high qualified people from other countries or the measure in which the companies train their employees, the present paper tries to highlight the direct and indirect effects generated by the education. From the perspective of individuals, the economic benefits of the human capital are the increase of the incomes; the wage earnings increase with each level of education. Those who reached the high school, post high school or university level enjoy substantial advantages in comparison with people of the same sex that did not graduate from high school. Also, the wage earnings offered by the education grow at the same time with the age; to those with university studies, the incomes are relatively bigger, but at an advanced age. With few exceptions, women earn less than men, with similar levels of education. From the perspective of national economies, it was noticed that the more educated the countries are, they develop faster because the superior level of training gives the possibility to the workforce to innovate new technologies and to adapt the existent ones to the local production. Besides the economic benefits, education can bring other individual benefits, such as: the growth of the health and nourishment level, a more favorable environment , a better political and community participation, a lower criminality rate, the growth of life expectancy, a larger movement liberty, etc. Keywords: human capital, education, health, wage earnings, economic growth, social welfare. JEL Classification: I 2

INTRODUCTION In the 21st century, there were multiple debates regarding the benefits of the educational systems and their capacity to produce new generations of people with appropriate abilities. Those who are not cultivated will be disadvantaged at their place of employment and, as a consequence, they will not have the chance to enjoy the life standard of those who possess abilities. The life standards that the citizens of a country enjoy, depend on the workforce productivity. The workers are more productive if they work with more and better equipments. At the same time, they are more efficient if they benefit from education and training. Education can increase the welfare not just by enlarging the economic opportunities, but also by its indirect benefits, improving the level of health, nourishment, offering personal fulfillment opportunities and developing certain individual abilities. As long as these skills / abilities are unequally distributed, the same thing will happen to the incomes. The standard solution for correcting these educational unbalances is, of course, the investment of more funds; still, which is imposed to be remarked, is the fact that, for the economic growth and development, more important than the quantity of resources meant for education is the way in which they are allocated between the primary, secondary and tertiary cycle. The present paper, by form and content, proves the direct and indirect effects, from a micro or macroeconomic level that education generates. The research measure will be carried out cyclically, from theory to practice, from observable and palpable to explicative and theoretical.

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ECONOMIC BENEFITS OF THE HUMAN CAPITAL Which are the economic benefits of the human capital? There are two ways in which we can answer to this question, meaning from the individual’s perspective and from the perspective of national economies (at macroeconomic level). The students’ number increased in many countries beginning with the 1800s, UNESCO estimating that there were 500.000 students in universities worldwide in 1900 and, a century later, the number was of almost 100 millions. The following graphic offers an image on this evolution. 1913

1950

1973

12

7

5,4

SUA

10

11,7 9,6

9,5

2009

13

16

15

9,1

1992

12,1

9,4

8,1 6,4

7,9

14,9

9,1

9,5

5,4

NETHERLAND

FRANCE

JAPAN

S

Figure no. 1. The growth on average of the educational years per adult in USA, France, Netherlands and Japan (According to Barro-Lee Data – the average of the adults’ educational years is the formal school years received on average by adults over the age of 15). Source: Angus Maddison, Monitoring the World Economy, 1820-1992, Washington, DC: Organization for Economic Cooperation and Development, 1995 and UNESCO via NationMaster – www.nationmaster.com/red/graph/edu_ave_yea_of_sch_of_adu-education

From the individuals’ perspective, the economic benefits of the human capital- such as increasing a person’s income- must be balanced in comparison with the acquisition cost of this capital, firstly. These costs include money that is not earned when they studied, and also the price of education itself- study fees, etc. In many countries, this thing is not cheap at all; families make big sacrifices to send young people to university, while the graduates can still pay for the loans that were financed their school and after they start working. In essence, all these investments will be paid, eventually, by themselves. Indeed, it is not imperiously necessary for the individuals to attend university studies in order to enjoy the economic benefits of education. For example, a person that graduates from high school (usually, concluding school at the age of 18), is more likely to have a job than someone who graduated from middle school (those who leave school around the age of 15 or 16). Of course, in which concerns the third level of education, among those with higher studies, the rate is bigger than in the case of high school graduates. And after that, there are the incomes (earnings); here, again, a person with a higher level of education has, from the economic point of view, a net superior situation. In figure no.2, it is suggested by a comparative manner the wage earnings of those with superior education and those that did not graduate from high school.

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250 211 200

172 150

150

126

100

84

72

MIDDLE SCHOOL UNIVERSITY

84

65

50 0 HUNGARY

SWEDEN

USA

FRANCE

Figure 2: The evolution of relative earnings for the adult population (1997-2007), according to the studies level, for people with ages between 25-64 (superior secondary level (high school) and post- secondary (post- high school)=100) Source: Education at a Glance, OECD 2009, www.oecd.org/edu/eag2009

The wage earnings grow with every level of education. Those who reached the high school, post high school or university level enjoy substantial advantages in comparison with people of the same sex that did not graduate form high school. The earnings, for those who graduated from university are bigger, in most of the countries, and exceed 50% in 17 from 28 OCDE member countries (OECD, 2009, 14). Relative earnings in work (2007)- according to the level of education and sex for 25-64 years- (superior secondary and post-secondary non-tertiary education=100) Studies below high school ones (superior secondary) Type B superior education Type A superior education and advanced research programs

90

Slovenia1

Korea4 Norway1

New Zealand Denmark1

Sweden Australia2

Belgium2 Switzerland UnitedKingdom Netherlands 1 Spain3

Canada1 Austria Germany OECDaverage Ireland2 Turkey2

France Italy1

Brazil Hungary Czech Republic Poland1 Portugal1

UnitedStates Israel Luxembourg1 Finland1

Men

Index 300 250 200 150 100 50 0

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Brazil Ireland Korea Great Britain Hungary Portugal Canada Israel Germany USA Czech Republic Austria Poland Switzerland OECD Average Turkey France Finland Netherlands Australia Spain Belgium Luxemburg New Zeeland Italy Norvway Sweden Denmark Slovenia

Women

Index 300 250 200 150 100 50 0

1. 2006 Year of reference 2. 2005 Year of reference 3. 2004 Year of reference 4. 2003 Year of reference

Source: OECD. Table A7.1a. (Annex 3 www.oecd.org/edu/eag2009)

According to the data given by OCDE, the people of male sex with type A superior studies or those involved in advanced research programs have a significant income in Hungary and Brazil, where the earning bonus exceeds 100%; in the Czech Republic, Poland, Portugal, USA, Israel, these people earn 80% or more in comparison with those with high school and post high school level, while in Hungary, Ireland, Korea, Great Britain and Brazil, women have a similar advantage. The wage earnings offered by the education increase at the same time with the age; to those with university studies, as I mentioned before, the incomes are relatively bigger, but at an older age, in all the countries, excepting Australia, Italy, New Zeeland, Turkey, Great Britain and Israel. The people who do not have high school studies, generally, form the point of view of earnings, are disadvantaged at the same time with the age. With few exceptions, women earn less than the men with similar levels of education; for all the levels of education, the average income earned by a woman with the age between 30 and 44 differs from 51% from the men in Korea to 88% in Slovenia. With all these, for women who do not have high school studies in New Zeeland and USA, and also for those who graduated from high school in the Czech Republic, the earnings difference reached more than 10% in the last decade. The unemployment risk decreases, sometimes dramatically, as long as people accumulate more studies; for example in the Czech Republic, 19.2% of the people who did not graduate from high school are unemployed in comparison with a percentage of 1.5% for the people with superior studies. Graphically synthesized, the unemployment risk, on the three levels of education on the whole OCDE area, is presented as it follows: -People with ages between 25-64, 2009 3,80%

12,30%

TERTIARY (UNIVERSITY) HIGH SCHOOL 6,00%

MIDDLE SCHOOL

Figure no.3. Who does not work? The people percentage, at each level of education, which are unemployed in the whole OCDE area Source: Education at a Glance 2009 91

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What do these high earnings represent? In a word, productivity. In the real world, productivity has multiple meanings. Simplifying in a way, productivity represents the economic value of what is carried out by a worker (or by a piece of land or by any kind of capital form). A high productivity has the tendency, also, to support the economic growth that brings us bigger economic benefits. A more educated workforce increases the productivity at a local level, fact that, apparently curious but justified, implies an increase of the land price (Popescu, PohoaŃă and others, 2007, 8). It was established that a supplementary year of school, of medium level, increases the rents with almost 13%, a higher medium level of the human capital increases the global productivity, a fact reflected in the value of the land and also in wages (Rauch, 2005, 9). Even if the economists believed long time ago, that there really was a connection between education and the economic growth, the calculation and the impact of this connection was not easy. The human capital, eventually, is a factor, an important one that influences the growth. A common point of view was reached, in which the capital and the economic growth are real and significant. This situation was supported by some members of the OCDE, who proved that, in the case in which the average time spent in education by a population increases with one year, then the production per head of inhabitant increases with 4% up to 6% on a long term. On a consequence path, the level of education influences the economic productivity of a country: the countries that registered a rapid growth of the number of people that enter their names on the school register, experimented a growing productivity and a improvement of the workforce quality (Lange and Topel, 2005, 6).the influence that the education has on productivity was analyzed by Topel (1999), who believes that in a large period of time (15-20 years) the impact estimated of the education on productivity is much bigger than in a short period of time (5 years). OTHER NON- ECONOMIC BENEFITS The economic growth is just a part of the human capital equation. Education brings other individual benefits, such as: people with more years of education are probably more available to offer themselves volunteers in the community groups, such as women associations and those parent-teacher organizations. There are, also, proves that the amount of time and money dedicated to charity actions are associated, positively, with the educational degree. For example, in the study entitled Giving and Volunteering in the United States: Findings from a National Survey, Hodgkinson and Weitzman established that the university graduates offered themselves as volunteers almost twice as number of hours and donated more than 50% of their income than the high school graduates (Hodgkinson and Weitzman, 1988, 3). In Great Britain, „The National Child Development Study” (NCDS) highlighted a strong correlation between the levels of education and the adhesion to political, environmental organizations or women and charity groups (Schuller and others, 2001,12). Bynner and others (2001, 1) reports that in Great Britain, the superior education graduates have three times more chances to be an active member of a non-lucrative organization than those who have no secondary studies (high school) and almost twice more probable than those who graduated from high school. Certainly, one of the most visible benefits of education is health. People with a high degree of education enjoy a better health: they smoke less (a supplementary education year means that, on average, a woman will smoke 1.1 cigarettes less/day and a man 1.6 (Wolfe, 2001, 13) and practice more sports (a supplementary year of school corresponds to 17 minutes of extra physical exercise (Kenkel, 191, 4)). Health, as a benefit of education, is due to, in part, choosing a job (the decision to have an occupation with relatively low risks) or localization options (the decision to live in less polluted areas). More people with superior studies are liable to being more capable to identify and use of relevant information for health that, in the end, lead to a better behavior and state of the body (Kenkel, 191, 5). Anyhow, Kenkel proves, using the data from the USA, that the biggest variations can not be explained through the differences of knowledge on health. Education seems to have an effect on health, no matter income, race, social environment or other factors.

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Sianesi and Van Reenen (2000), besides those mentioned previously, believe that a high degree of education can be associated with a more appropriate environment, bigger social cohesion and with a lower rate of criminality; even if Freeman (2000) believes that there is no clear connection between education and the criminality rate. On the other side, Kelly (2000) sustains that there was an indirect connection between education and criminality: the training degree influences the level of the incomes, this one generating certain inequalities, that on their turn will determine the increase of criminality. Other options belong to Leight (1998) and Lochner (1999) who see between education and criminality a direct connection. Even more, the level of studies in one generation has positive effects on the school results of the next generation: the children from mother with a superior secondary level (high school) will graduate from high school more probable than those children from parents with inferior studies (Sandefur and others, 2006, 11). The parents with a higher level of education have children with a higher level of cognitive development, and also children with bigger possible earnings. There are also, proves of the external effects, at a community level; those who live in communities with a superior level of education have a higher probability for their children to graduate from high school (Wolfe, 2001, 13). Education has a positive influence on making a poll on the workforce market; plausible effect, since, because of the abilities acquired in the use of information, and also the capacity to use the networks with access to these information, determine a series of important connections. Even more, the more educated people are, the more efficient consumers are (Rizzo and Zeckhauser, 10). The graduated level of education represents a predictive element of more forms of political and social employment. Verba, Schlozman and de Brady (1995) established that education is a constant factor of influence that stimulates the political participation. More than that, the literary abilities among adults showed a positive relation with the participation to voluntariate community activities for more member countries OCDE (OECD, 2001, 15). Bynner et al. (2001), using data for Great Britain, identified higher levels of “social skills” for the high levels of education, a high degree of tolerance for diversity, and also the commitment of chances equality and resistance to political alienation. The opinions of other analysts are more ambiguous. For example (Helliwell and Putnam 1999, 2) established that a growth of the average of the educational level has as effect the intensification of the level of trust, but it reduces the degree of political participation, while Nie, Junn and Stehlik-Barry (1996, 7) sustain that the “relative” levels more than the “absolute” levels of education are the key factor of the civic participation. Wolfe, Haveman (2001) and McMahon’s (2001) conclusions are those that the effects and social advantages of education are bigger, possibly, more ample than the macroeconomic effects and those from the direct labor market. CONCLUSIONS Education, formation and learning can play a remarkable role in building a solid base for the economic growth, social cohesion and personal development. The investments in the human capital need time for developing and bring benefits; as long as the effects can be measured and compared, certain studies suggest that the social impact of education (health, crime, social cohesion) could be as intense as the impact on the economic productivity, if not, even bigger. With all these, a correlation between the absolute indicators of education and different economic-social results does not offer a clue in the correct direction for the formal education, besides the fact that, the growth of the education degree of population is benefic. There is a synergy and a complementarity between education and other dimensions or social, institutional and legal environments. The abilities and skills can have a direct influence, through highlighting the impact of other factors. The superior education in partnership with the public and private interest can play a key role in stimulating research and innovation that could lead to a more rapid growth in the national income.

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In fact, the non- economic benefits of education, under the shape of personal welfare and a better social cohesion, are seen by many, as essential, just from the point of view of their impact on the incomes on the workforce market and of the economic growth (OECD, 2001, 16). REFERENCES 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

12.

13.

14. 15.

16.

Bynner, J., McIntosh, S., Vignoles, A., Dearden, L. (2001), Reed, H. And Van Renen, J., Wider Benefits of Learning Improving Adult Basic Skills: Benefits to the Individual and to Society, Report prepared for the Department for Education and Employment (UK), DfEE Wider Benefits of Learning Research Centre, Institute of Education, London University, the Centre for Economic Performance, London School of Economics and the Institute for Fiscal Studies Helliwell, J. F. And Putnam, R. (), Education and Social Capital, NBER Working Paper, No. 7121, National Bureau of Economic Research, Cambridge, M.A. Hodgkinson, V., and Weitzman, M. (1988), Giving and Volunteering in the United States: Findings from a National Survey, Independent Sector, Washington D.C. Kenkel, D. (1991), Health Behaviour, Health Knowledge and Schooling, Journal of Political Economy, vol. 99(2): 287 Kenkel, D.(1991), lucrare citată: 287-305 Lange, F., Topel, R. (2005), The Social Value of Education and Human Capital, Handbook of Education Economics, Amsterdam Nie, Junn şi Stehlik-Barry, K. (1996), Education and Democratic Citizenship in America, University of Chicago Press, Chicago Popescu, C., PohoaŃă, I., coordonatori (2007), Capital uman, capital social şi creştere economică, Editura UniversităŃii „Al. I. Cuza” Iaşi:119 Rauch, J. Productivity gains from geographic concentration in cities, Journal of Urban Economics, no. 34:380-400 Rizzo, J. and Zeckhauser, Advertising and the Price Quantity of Primary Care Physician Services, Journal Of Human Resources, 27 (3):381-421 Sandefur, G. D., McLanahan, S. And Wojtkiewicz, R. A., Race and Ethnicity, Family Structure, and High School Graduation, Discussion Paper, No. 893-889, Institute for Research on Poverty SchulleR, T., Bynner, J., Green, A., Blackwell, L., Hammond, C. and Preston, J.(2001), Modelling and Measuring the Wider Benefits of Learning: An Initial Synthesis, Centre for Research on the Wider Benefits of Learning Institute of Education/Birkbeck College Wolfe, B., Haveman, Accounting for the Social and Non-Market Benefits of education in J.F. Helliwell (ed.), The contribution of Human and Social Capital to Sustained Economic Growth and Well-being: International Symposium Report, Human Resources Development Canada and OECD *** OECD (2009), Education at a Glance, www.oecd.org/publishing/corriega *** OECD, The contribution of Human and Social Capital to Sustained Economic Growth and Well-being: International Symposium Report, Human Resources Development Canada and OECD *** OECD (2001), The Well-being of Nations The Role Of Human and Social Capital, http://www.oecd.org/dataoecd/36/40/33703702.pdf

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DETERMINANTS OF CUSTOMER RELATIONSHIP MANAGEMENT (CRM): A CONCEPTUAL ANALYSIS Assistant Professor Mohammed ALAMGIR Department of Marketing Studies & International Marketing, University of Chittagong, Bangladesh Lecturer Tasnuba NASIR Faculty of Business Administration, University of Science and Technology Chittagong (USTC),Chittagong, Bangladesh Mohammad SHAMSUDDOHA Department of Marketing Studies and International Marketing, University of Chittagong, Bangladesh [email protected] Abstract The study aims to examine various literatures on CRM determinants and effectiveness to adapt perfect strategy and policy for service oriented organizations. It also aspires to identify the relative importance of CRM determinants analysis as one of the most important factors which influence the organization directly. To comply with the objective, an exploratory research approach based on archive method has been adopted to identify the CRM key determinants and effectiveness factors through literature review. Our initial research model is derived from two areas of the literature: CRM key elements and CRM performance effectiveness. Furthermore, we introduce a new framework for evaluating existing business process from Bangladesh perspective. Keywords: Customer relationship Management, CRM determinants, CRM effectiveness JEL Classification: M39

INTRODUCTION One of the most important challenges for any organization is to serve and maintain good relations with the king-the customer. Earlier, customers were simple person and were happy at whatever organizations, manufacturing or service oriented, offer to them. Marketing is no longer just about developing, selling and delivering products. It is increasingly more concerned with the development and maintenance of mutually satisfying long-term relationships with customers. Over a period of time with the competition and technological improvements customers have become fully aware of their rights and augmented offer soon become an expected one. This changing business environment is characterized by economic liberalization increasing competition, high consumer choice, well-informed and demanding customer who care about quality and value purchase. The new framework for company activities that emerged in 1990s, characterized by the globalization of markets, technological development, larger number of competitors, and increased customer demands compelled companies to rethink their management systems to adapt fit themselves to the new competitive environment. Because of rigorous competition, in recent years, many organizations have perceived the need to be more customer-orientated. (Bull, 2003). CRM is more evolution than revolution. Thus, achieving the full potential of each customer relationship should be the major goal of every business. A dissatisfied customer causes market damage because they are more likely to persuade others to defect. It is therefore no surprise that CRM is an important topic of conversation in business world (Feinberg et .al., 2002). Albeit customers are the important factors for the success of business but lees attention has been given in this regard. On the other hand, several strategies have been attempted to retain customers by the private commercial banks of Bangladesh but there is a problem with factors identification and specific framework of CRM. Keeping this fact in mind, the proposed research will attempt to explore the CRM issues and its determinants as well as its impact on customer acquisition and retention process and thus finally develop a framework of customer relationship Management for bank customers.

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OBJECTIVES OF THE STUDY Due to the rapid speed of Globalization and increased competition both from local and international companies, the importance of CRM has increased. To be successful in the market firms have to developed strategies based on present market as well as customer requirement. This makes it interesting how companies manage the issue. The principal objective is to evaluate literature on CRM which has been developed by the different researchers that is applicable to different kind of organizations. To accomplish this, the study has covered the following specific objectives: 1. To identify the Key elements of CRM 2. To identify the factors related to CRM effectiveness 3. To find out possible approach to examine Customer relationship dimensions 4. To propose an instrument concerning determinants and effectiveness of CRM RATIONALE OF THE STUDY Albeit customers are the important factors for the success of business but lees attention has been given in this regard. On the other hand, managing customer relationship should be practice oriented rather than conceptualize. But various researchers pointed out various determinants and it also varies organization to organization and so does the outcome. Differences in the extent of use of CRM exist across countries. Compared with developed countries, use of CRM in Bangladesh is relatively new. It is important for practitioners’ as well as academicians to know these elements critically and their importance and usefulness in a way to achieve good organizational outcomes. It is also important for us to know the integrated approaches of CRM (combining the effective and efficient blend of managerial issues and IT issues) as it is very important for Bangladeshi business sector, especially in the service organization so that both organization and customers individually and society as a whole can reap benefit. Keeping this fact in mind, the proposed research will attempt to explore the CRM issues and its determinants thus finally develop a conceptual framework of customer relationship Management. METHODOLOGY OF THE STUDY The study has covered various literatures on Customer relationship Management dimensions based on developed countries. A Library research method (Archive) has been used in this study. Different books, journals, periodicals and online papers have been observed by the researchers to find out different issues in CRM dimensions in this connection. Mostly secondary data has been compiled in this study and this data has been collected from focused countries literatures, textbooks, e-journals, government publications etc. CUSTOMER RELATIONSHIP MANAGEMENT CRM has become one of the most dynamic topics of the new millennium. CRM is basically a remarkable step forward in creating a system that can provide a way of keeping hold of individual loyalty. In order to comply with the concept of CRM one must also understand the changing nature of the customers because they are not what they used to be (Greenberg, 2001). Thus, CRM initiatives must address relevant organizational factors as well as the extra-organizational environmental factors (carol & Banarjee, 2009). Since the area is quite new and still under development, there is no universal explanation of CRM. Therefore it is important to know what CRM is all about according to the academic researchers and how many organizations adapt the definition to their own business and their unique needs (Wilson, et al., 2002). It can be defined in the following ways — 96

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“CRM is the infrastructure that enables the delineation of increase in customer value, and the correct means by which to motivate valuable customers to remain loyal-indeed, to buy again” (Dyche, 2001, p4). “CRM is about managing customer knowledge to be understood and serve them and it is a multi-dimensional concept which places customers at the centre of an organization where customer service is an important component of CRM; however this notion is also concerned with coordinating customer relations across all business functions” (Bose & Sugamaran, 2003, p.4). CRM is a customer oriented business strategy that aims to increase customer satisfaction and customer loyalty by offering a more responsive and customized service to each customer (Fayerman, 2002) It can also be defined in the following way — “CRM is enterprise-wide mindset, mantra, and set of business process and policies that are designed to acquire, retain and service customer. CRM is not a technology, though technology is a CRM enabler” (Greenberg, 2001, p.14) DETERMINANTS OF CRM According to Karakostas et. al., (2005) the factors that influence the CRM implementation are new customer attraction, consumer buying behavior, competitive advantage, customer satisfaction, customer retention, acquisition, long-term relationship, knowledge management, webenabled customer service, customer value, etc. On the other hand, other researchers like Mendoza et. al,. (2006) pointed out that IT, long-term relationship, higher profitability, significant investment in technology are the factors influencing CRM. Gefen & Riding (2002) divided CRM into three folds: Operational, analytical, and collaborative. Operational CRM, known as front-office CRM, enables communications and involves the areas where direct customer contact occurs. Operational CRM attempts to provide integration of back-office transactions with customer interfaces. Collaborative CRM is the communication centre and it is also the coordination network that provides the neural paths to the customer and supplier. On the other hand, Customer Relationship Management (CRM) has been increasingly adopted by corporations as a core IT driven business strategy and firms have started to invest heavily in CRM (Reinartz et. al., 2004). Academics and practitioners have tried to find the drivers of CRM success or failure with their own perspectives for many years. While some researches focused more on IT related factors, others emphasized organizational factors like human resources, organizational structures, and reward systems (Rigby et. al., 2002) or business process-related factors (Reinartz et. al., 2004). The above factors pointed out by different researchers basically cover the three key aspects of every CRM strategy which include human factor, processes, and technology. Bohling et. al., pointed out some critical success factors for CRM implementation and their proposed model is as follows-

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Locus of CRM

CRM Initiatives

CRM Strategy Budget Process Management Change Management

Initiative Implementation

Making CRM A Business Case

CRM- Major concerns & Business Objectives

Management’s attitude Alignment with key stakeholders

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 Improving the Customer Experience  Deepening Relationship with Customer  Retaining and expanding Share of Existing Customer Base  Increasing Customer Acquisition Rate  Increasing Customer Retention Rate

Process Change

Figure 1: CRM implementation model, Source: Bohling et. al., (2006) p. 188

On the other hand, Lindgreen et. al., (2006) pointed out ten critical aspects of CRM implementation which are- people, culture, relationship management process, knowledge management, IT, organization, brand strategy, customer strategy, customer interaction strategy, and value creation strategy. Kim et. al., (2003) believes that performance measurement is so powerful in enhancing business performance. Various researchers proposed various framework for evaluating CRM effectiveness. Bohling et. al., (2006) suggest five factors namely, proven customer impact in terms of retention and satisfaction, quantifiable revenue growth, improved information and insights, quantifiable cost reduction, improved employee productivity, etc. For evaluating CRM effectiveness Kim et. al., (2003) proposed a very comprehensive model which is as follows, Company

Service center CRM strategy

CRM system

Information Technology

Customer

Communication Channel

Retail Branch Call Center

Internet Virtual community

Customer Satisfaction ------------------------------------------------------------------------------------------1. Excess of expectation Expectation < Satisfaction (Customer impression) 2. Satisfaction of expectation Expectation=satisfaction (Customer satisfaction) 3. Insufficiency of expectation Expectation > Satisfaction (Customer dissatisfaction)

Profits

E-mail Evaluation of Customer Satisfaction

Others Customer Knowledge

Customer interaction

Customer satisfaction

Evaluation of Customer Relationship Management

Figure 2: Model for evaluation of CRM Source: Kim et. al., (2003) p.14 98

Customer Value

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CRM is a complex term that requires several aspects of the organizations and it can not be reduced to only one of theses aspects where majority of the early researchers either continued with managerial issues or IT issues. According to the above discussion of various determinants of service quality, it is found that different authors have proposed different determinants of CRM. For having a quick look, all determinants as well as effectiveness of CRM proposed by different authors mentioned above are shown in the following table. Table 1: various CRM determinants and their effectiveness Authors

Determinants/ critical factors (management issues)

Determinants/ critical factors (IT issues)

Ryals & Knox (2001) Reynolds (2002)

Service delivery, delighted customers, differentiation

---

Kim et., al. (2003)

Customer knowledge, customer interaction, People, and process

Chen & Popovich (2003) Bose and Sugumaran 2003; Piccolo, O’Conor…(2003) Karakostas et., al., (2005)

Bohling (2006))

Mendoza et. al., (2006)

long-term relationship New customer attraction, consumer buying behavior, competitive advantage, customer value Management’s attitudes, stakeholder attitudes, budget, change management.

Customer process

oriented

business

CRM technologies (Operational, Analytical and Collaborative CRM) ---

Expected Outcome/Performance measure service cost and profitability

Customer value, Customer satisfaction

Technology Gaining Customer understanding through CRM technology Use of Information technology, Knowledge Management, web-enabled customer service,

higher profitability, Customer satisfaction, customer retention, acquisition, long-term relationship Improving customer experience, increasing acquisition and retention rate through maintaining relationship.

Partial focus on IT

Based on the above literature the initial research model can be developed which will incorporate Key CRM elements in one side and CRM effectiveness in the other side and the framework is as follows CM Culture

KM Organization

Economic Effectiveness

Process

Marketing Effectiveness CRM Strategy

People

Process

Internally-oriented effectiveness

Technology

CRM Strength

Figure 3: proposed framework for CRM determinants and its effectiveness Concluding Remarks 99

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This paper focused on CRM issues in the developed countries which can be a guideline for our fastest growing service industry. As various organizations are approaching, especially service industry is growing very quickly, the respective authorities have to give careful attention regarding discussed CRM determinants in order to minimize the expectation-perception gap as well as ensure better and quality service. This paper analyses different literatures on key elements of CRM. It is clear that those literature have been discussed based on some elements which is directly related with the CRM issues and these issues are equivalently important for an organization for sustainable growth of their profitability. In this paper the researchers also propose a model of CRM determinants along with their effectiveness instruments on the basis of the earlier research work, which can be followed by Bangladeshi organizations, especially the service sectors to promote true quality service. Moreover, this model can be guideline for the top level managers to understand the different aspects of CRM dimensions so that they can be able to choose the right dimensions and instruments to offer competitive service for the sake of holding sustainable growth and profitability of the organizations. REFERENCES: 1. Bohling, T., Bowman, D., LaValle, S., Mittal, V., Narayandas, D., Ramani, G. & Varadarajan, R. (2006). CRM implementation: effectiveness issues and insights. Journal of Service Research, 9(2), 184-194 2. Bose, R., & Sugumaran, V. (2003). Application of Knowledge Management Technology in Customer Relationship Management. Knowledge and Process Management, 10 (1), 317. 3. Bull, C. (2003), ‘strategic issues in customer relationship management’, Business process Management Journal, 9:5, 592-602 4. Carol, O.X., Banarjee, P.K. (2009). Determinants of successful customer relationship management. Journal of Information Technology Management. XX (1): 56-66. 5. Chen, I.J. & Popovich, K. (2003). Understanding customer relationship management (CRM): People, Process and Technology. Business Process Management, 19(5), 672688 6. Dyche, J. (2001). The CRM handbook: A Business guide to customer relationship management. London. 1st edition-Wesley Educational publisher Inc. 7. Feinberg, R., Kadam, R., Hokama, L., & Kim, I. (2002). The state of electronic customer relationship in retailing: International Journal of Retail & Distribution Management. 8. Fayerman, M., (2002). Customer relationship Management. New Directions For Institutional Research. 1 (13), 57-67 9. Gefen, D. & Ridings, C.M. (2002). Implementation team responsiveness and user evaluation of customer relationship management: A quasi-experimental design study of social exchange theory. Journal of management Information System. 19 (1), 47-69 10. Greenberg, P. (2001). CRM at the speed of light: Capturing and keeping Customers in Internet Real Time. Berkeley: Osborne/McGraw-Hill. 11. Jayachandran, S., Sharma, S., Kaufman, P., & Raman, P. (2005). The Role of Relational Information Processes and Technology Use in Customer Relationship Management. Journal of Marketing, 69 (4), 177-192. 12. Kim, J., Suh, E. & Hwang, H. (2003). A model for evaluating the effectiveness of CRM using the Balanced Scorecard. Journal of Interactive Marketing, 17 ( 2), 5-19. 13. Kirby, J., (2001). CRM program Management: the art of change, in: presentations of the conference on Making the Vision a Reality, Gartner Group, Paris, France. 14. Karakostas, B., Kardaras, D., and Papathanassiou, E. (2005). The state of CRM adoption by the financial services in the UK: An empirical investigation. Information & Management, 42, 853-863 100

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15. Lindgreen A., Palmer, R., Vanhamme, J. and Wouters, J. (2004). The design, implementation, and monitoring of a CRM program: A case study. Marketing Intelligence and Planning. 22(2): 160-186. 16. Mendoza, L. E., Marius, A., Perez, M., & Griman, A.C, (2006). Critical success factors for a customer relationship Management strategy, Information and Software Technology. Doi: 10.1016 17. Rigby, D.K., Reichheld, F.F., & Schefter, P. (2002). Avoid the four perils of CRM, Harvard Business Review, 80, 101-109 18. Reynolds, J. (2002). A Practical Guide to CRM: Building more profitable customer relationships. CMB Books: New York. 19. Reinartz,W., Krafft, M., and Hoyer, W. D. (2004).The Customer Relationship Management Process: Its Measurement and Impact on Performance. Journal of Marketing Research. 293-305. 20. Wilson, H., Daniel, E. and McDonald, M. (2002). Factors for success in CRM systems. Journal of Marketing Management. 18(1): 193-219 21. Williams, T. J., Nozick, L. K., Sansalone, M. J., Poston, & R. W. (2006). Sampling Techniques for Evaluating Large Concrete Structures. ACI structural Journal (Technical Paper), 103(42), 399-408

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HOW TRACTORS TRADERS SEE THE ROMANIAN QUALITY MANAGEMENT SYSTEM Assistant. Ph.D. Ramona Ioana TIPA Faculty of Mechanical Engineering, Mechatronics and Management, Ştefan cel Mare University of Suceava, Romania [email protected] Abstract: For the last four years the Romanian market of tractors is in constant decline. In the next 10 years, to reach the level of the European Union endowment with tractors, we should absorb 30,000 units. But currently the market absorbs only 3,000 tractors. That would take about 100 years to reach the current level of the EU endowment.. The survey results conducted from May to October 2009 shows that only 45.5% of the analyzed companies have a certified quality management system and all have less than 100 employees. In 2008, the average profit margin for tractors retailers was 8.5%. Another interesting result of the study presented in this article shows that exists a direct link between the business relationship with suppliers and the attitude of the customers. Keywords: quality management, certification, tractor’s market, turnover, profit, relationships between partners JEL Classification: C 10, E 20, G 10, Q 11

INTRODUCTION There is any interest in obtaining and providing high quality when agriculture is hit by the Crisis? Are the employees aware of what happens inside their firm or business, in terms of quality management system? These are only two questions with which I have started my study. During the study I was surprised by the openness with which it was received by the tractors retailers. Traders have discussed with me, sometimes for hours, about what happens with them, with their company and what they do for things to work better. Next, I will present most of the interesting results obtained after processing the data from the applied questionnaires. PRODUCTION OF AGRICULTURAL EQUIPMENT – OFFICIAL DATA According to data provided by the Romanian National Institute of Statistics, in the period January 2009 - January 2010, the agricultural machinery manufacturers’ production has decreased. As it can be seen in figure 1, the largest decline compared with the same period from the previous year was reported in November 2009 and was with 30% less, however comparing with the same period from the previous month the decrease was only 0.8%. In December 2009 compared to December 2008, the decrease was slightly lower than the above, but compared with the previous month, the decrease was 3.9%. In April 2009 production decreased with 31.7% compared with the previous month. In January 2010 production increased with 23.2% from the previous month but was 5.5% less than January 2009. January 2008 decreased by 6.6% from January 2007 and January 2009 was 0.1% less than January 2008. It follows that in January 2010 compared with January 2007 was with 11.82% less. SELLING TRACTORS – HOW THE KEY MARKET PLAYERS SEE IT To equip the Romanian farms with tractors, the market in the next 10 years should absorb 30,000 units. The main problems are: Romania produces about 1,000 units annually and that the farms managed to absorb about 3,000 units a year.

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According to a study ordered by the tractor manufacturer GEDA Prodexim and created in partnership with consulting firm Deloitte, the Romanian National Park includes 174,000 tractors, serving 9.4 million hectares of arable land. 110 105 100 95 90 85 80 75 70 65

ian.09

feb.09

mar.09

apr.09

mai.09

Relativ la Luna precedenta Previous month =100%

iun.09

iul.09

aug .09

sep.09

oct.09

nov.09

dec.09

ian.10

Relativ la luna corespunzatoare din anul precedent Corresponding month of previous year=100%

Figure 1. Agricultural machinery production in Romania Source data: www.insse.ro

One solution for farmers would be to rebuild tractors. The rebuilding can be handling by manufacturer GEDA Prodexim. They specialized in making a new body for the old tractor and in installing a new motor on it, all at a cost of 11,800 euros. The cost is at a half of the cost for a new tractor but has the same running time with a new one, or 15,000 hours. After the “Rabla pentru tractoare” program will start and if it would subsidize the reconstruction, then the costs for manufacturers would fall to 7,000 euros, a sum which is easier to access through a credit. “Rabla pentru tractoare” program began on March 19 and will finish at the end of the current year. When the owner will give away a tractor he will receive a non transferable document and then with it he can buy a new tractor. He can’t give away more than one old tractor for a new one. These information are provided by Director of Environment Fund Administration, Gheorghe Popescu The sum received when giving up a tractor is 17,000 lei. For individual the amount can’t overcome 50% of the purchase price of new tractor or new self-propelled agricultural machine, and for corporate 40% of the purchase price excluding VAT. STUDY DESCRIPTION In the current context of permanent decline of the market I decided to measure the view of manufacturers and dealers of tractors in terms of quality management system. The study was conducted during May 2009 - October 2009. Data was collected during three specialized fairs:  Agraria, May 2009  RomAgrotec, September 2009  Indagra Farm, October 2009. Data were obtained from direct interviews and questionnaires application and were gradually processed. The purpose of the study was to identify the main players in the tractors market. The first step was to talk to them at Agraria fair about their current situation as regards the quality management system. After I have consulted the specialized documentation and I’ve evaluate the answers and questions received I’ve created a questionnaire with opened answers. I applied it to RomAgrotec participants. Next, after I received feedback from the participants, I’ve improved and completed the questionnaire. The final form of the questionnaire I used it for interviewing the Indagra Farm Fair participants. 103

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Questionnaire was applied only to those who sold tractors, not to all exhibitors. This resulted in a total of 19 valid questionnaires. The number is small, but the number of tractors dealers admitted to the “Rabla” program was 20 and the number of major producers in Romania is 4. The final form of the questionnaire contains 25 questions. Questions are of different types: openended questions, with multiple answers. With this questionnaire I measured the view of the market trader’s regarding quality management system certification, the relationships between key market players from the traders’ point of view. I also analyzed the turnover and profit over a period of 3 years for the firms analyzed. Data were analyzed with the help of 3 software: SPSS 17 and Excel Statgraphic. RESULTS According to data obtained (fig. 2) the highest part of retailers are in the Bucharest area (37%) and the smallest are in the South East and Central area with only 6% each. The single area that doesn’t appear in this study is the Southwest. In 2009 none of the companies surveyed had more than 100 employees and 73% had less than 50 employees, number distributed equally among firms with less than 10 employees and more than 10. At the question The Company has a quality management certificate 45.5% said they own a proper certificate (company has undergone a certification process) 36.4% own only a license for products sold and only 18.2% do not have any kind of certificate. We can conclude that approximately 54.5% of firms surveyed have no certification.

The distribution of analyzed companies

Ilfov 21%

NeamŃ 6%

Arad 6%

Bacău 10%

Bucuresti 16%

Iaşi 6% IalomiŃa 6%

Covasna ConstanŃa 6% 6%

Cluj 11%

Călăraşi 6%

Figure 2. The distribution of analyzed firms RELANTIONSHIP BETWEEN ANALYZED VARIABILE Given the small number of employees and the large number of firms with no certificate I put the question: Quality management system (possible case) influence the number of employees of a company (possible effect). After I used specific statistics tests that establish links between variables and after I processed the data the results revealed that the two variables do not influence each other. One possible explanation is that certified companies are more efficient and thus require fewer employees but on the other hand being better organized, more competitively priced, having high quality products they can move easier to other markets, so we can say that increasing the demands leads to an increase in staff. Decreased staffs after certification and increase shortly due to expansion, tend to cancel each other. Another interesting result indicates that the quality management system does not influence the price. When asked in what ways you feel improvements after certification: money, 104

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productivity, organization, quality products and services, reduce costs, other? Only 5.6% indicated that the main direction of improvement price. Companies analyzed did not reduce prices even if costs were reduced after certification. They preferred to compete with other companies with products /services that are better but have the same price. Given the Romanian market particularities the question is I can afford to practice a lower price, given the small number of units sold per year? THE TURNOVER AND PROFIT ANALYSIS To answer this question I’ve analyzed the turnover and profit evolution over a period of 3 years 2006-2008. Figure 3 shows the evolution of the turnover expressed in euros. It appears that in 2008 most companies have achieved, compared to previous years a higher turnover. Only 2 of the 19 companies analyzed have achieved at least in 2 of 3 years a turnover higher than 25 million. Turnover in 2008 was with 61.11% higher than in previous year. Turnover in euro 2006-2008 100.000.000,00

75.000.000,00

50.000.000,00

25.000.000,00

0,00

1

2

3

4

5

6

7

8

9

CA2006 euro

10

11

CA2007 euro

12

13

14

15

16

17

18

19

CA2008 euro

Figure 3. The evolution of the analyzed companies turnover In proportion of 66.67% was higher than that recorded in 2007 and of 72.22% higher than in 2006. Average turnover in the 2006-2008 period and average profit can be found in Table 1. Although in more than 60% of the cases the turnover in 2008 exceeded the 2007 turnover, however, that average was higher in 2007 than in 2008. The smallest turnover was registered in 2006 and was about 7894, but in 2007 it increased by approximately 7.5 times and 22 times in 2008 compared to 2006 and 2.95 times compared to 2007. Table 1 .Turnover and Profit 2006-2008 INDICATOR 2006 2007 32.977.130,84 40.647.144,84 Turnover in euro 1.877.342,07 640.259,17 Profit euro Note the analysis was done at a Euro course of 4.1179 RON (registered on 28.01.2010).

2008 36.594.608,63 946.940,89

The highest turnover was recorded in 2007 and was about 386 million lei and was about 6500 times higher than the lowest turnover in 2007. On average, and regardless the companies founded in 2006, 2007 and having no turnover in 2007, compared to 2006, turnover increased by 9.34 times, in 2008 by 29 times over 2006 and, in 2008 by 2.03 times of 2007. It appears that the ascending trend in 2008 was approximately 4.5 times less than that recorded in 2007. In terms of profits in 2006 there were 3 companies (15.78%) which had a negative profit. The highest loss was recorded at 123,300 lei and the higher profit was of 13,148,336 lei and both were recorded in 2006. It can be noticed that the highest average profit was obtained in 2006 when

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the average turnover was the lowest and the lowest profit average was obtained in 2007 when was recorded the highest turnover. Compared to turnover, profit in 2006 was around -24% since there were 3 companies that have obtained a great difference between profit (negative) and turnover. The highest difference was about -318% profits on turnover. In 2006 the proportion was 29 lei profit to 100 lei turnover. In 2007 the average was 9.25%. In 2007, the highest value recorded was about 72 lei profit to 100 lei turnover and the lowest value was 1.68 lei profit to 100 lei turnover. In 2008 the average was 8.5 lei profit to 100 lei turnover, the highest value was of 40 lei to 100 lei turnover and the lowest was 0.38 lei profit to 100 lei turnover. In 2007 compared to 2006 profit risen for about 2.35 times, in 2008 compared to 2006 increased by 2.23 times, in 2008 over 2007 by 4.6 times. I counted over for 2006 figures, firms which have posted profit 0 in 2006. Profit 2006-2008 17 15 13 11 9 7 5 3 1 -150000

150000

450000

750000 1050000 1350000 1650000 1950000 2250000 2550000 2850000

Profit2006

Profit2007

Profit2008

Figure 3. The evolution of the analyzed companies profit THE NECESSITY OF A QUALITY MANAGEMENT SYSTEM CERTIFICATION Another question at which firms responded: Why you need/ would you need a quality management system certificate: to Reply to European standards/requirements / Romanian standards/requirements, to expand, because we were ask by customers, by suppliers, to be more efficient or other reasons? I’ve examined this question with the previous question. The results shows that:  Companies that have experienced improvements in terms of prices charged, have achieved certification because of costumer requirements, (50% of reasons) and because they wanted to be more efficiently (50% of reasons).  The main reasons behind firms that have experienced improvements in productivity responsible to carry out a certification were the Europe’ requirements and standards (33.3%) and because they wanted to be more efficiency (33.3%).  For companies that have improved product quality the reasons to obtain it were to improve the activity efficiency y (42.9%) and to respond to European requirements.  Reduced businesses costs were obtained by those who received a certificate as a response to customer requirements result (50%) and desire to work more efficiently (50%).  Companies that obtained it in response to European requirements and standards have also felt improvements in productivity, quality products/services and in organization.  Those who wanted to expand and obtained quality management system certificate have felt improvements in organization. 106

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 Some companies have obtained it because it was asked by suppliers and after the certification they too felt improvements in organization, quality products and services and productivity.  Certification in response to customer requirements brought to organization positive changes in productivity (20%), quality of products and or services (20%) and organization (20%) and negative changes in price and cost  None of the firms did not show other lines of improvement or other reasons for obtaining a certificate. RELANTIONSHIPS BETWEEN PARTNERS The main types of partners analyzed were client, suppliers and staff from the state. 3.5% of the studied have a bad relationship with partners, 22.8% have a satisfactory relationship. 73.7% believe that relations with partners are good and very good. Approximately 50% of firms have a poor relationship with partners and they consider that partner’s attitude is bad and very bad, while firms that have a satisfactory relationship with them believe that attitude is good, in 41% of the cases. A much better opinion seems to have the one who consider having a good relationship with partners: 62.3% of them think that partners have also a good attitude and those who have a very good relationship at a rate of 52.6% think that attitude is good. 33.3% of companies surveyed believe they have a very good relationship with partners, a good relationship 40.4%, 22.8% a satisfactory relationship and a bad relationship only 3.5%. None of the companies consider the relationship being very bad. An interesting thing emerging from the analysis was that a good attitude, is not always attach to a better relationship. But a better relationship with suppliers is transferred in a better customers attitude With the improving of the customer behavior the level of customer confidence in the firm increases. This leads to a more frequent company's services usage, or i.e. an increase in the sales. This increases the turnover, eventually leading to a increase in needs, materials or other goods and services purchased from suppliers. Customers with a better attitude and payment product / service is better and therefore the company can better fulfill obligations resulting in a better relationship with suppliers. CONCLUSIONS The Romanian tractors market is going through a difficult period. There is interest and commitment from both companies and the customers but there is insufficient funding. At time of writing this article “Rabla pentru tractoare” program is still not operational. The vast majority of Romanian farms has small size and can afford to buy a new tractor. On the other hand more and more companies invest in improving product quality and services and business efficiency through certification of a quality management system. According to the survey, QMSC does not influence the number of employees or the prices. Grounds for obtaining a QMS certificate were mainly the desire to streamline and to comply with rules / requirements of European Union and of Romanian. Unfortunately, companies have small size and market share, so all the companies examined have fewer than 100 workers. In addition, less than 10% of firms said they have managed to obtain in at least 2 consecutive years an annual turnover exceeding 25 million. A positive aspect of the study was the relationship between business and customers. Traders, in general, are satisfied by their customer relationships and customer behavior is influenced by the relationship between firm and suppliers and vice versa.

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REFERENCES 1. Auerbach, C., Silverstein, L., 2003, Qualitative Data. An Introduction to Coding and Analysis, Ed New York University Press 2. Berg. B., L.,2001, Qualitative Research Methods For The Social Sciences, Ed. California State University, Long Beach, A Pearson Education Company 3. Costea, R. I.,2009, Quality management certification on Farms Machineries Market, AAB.Bioflux 1(2), 59-63, http://www.aab.bioflux.com.ro/docs/2009.1.59-63.pdf 4. Dey, I., 2005, Qualitative Data Analysis – A User – Friendly Guide for Social Scientists, ED Routledge Taylor & Francis e-Library 5. Field A, 2005, Discovering statistics Using SPSS, 2nd edition, Ed. Sage Publications 6. Heaton, J., 2004, Reworking Qualitative Data, Ed. Sage Publications 7. Mnistry Of Finance, www.mfinante.ro, last visualisation 4.04.2010 8. Monthly Statistical Bulletin No.1/2010, http://www.insse.ro/cms/files/arhiva_buletine2010/bsl_1.pdf 9. Monthly Statistical Bulletin No.1/2009, http://www.insse.ro/cms/files/arhiva_buletine2010/bsl_1.pdf 10. Newspapers And Media New Financial Newspaper, October 12, 2009 http://www.zf.ro/companii/agricultura-are-nevoie-de-tractoare-de-10-mld-europroducatorii-locali-asambleaza-1-000-de-unitati-anual-aproape-cat-dacia-intr-o-zi4979757/ 11. Realitatea TV, march 19, 2010 http://www.realitatea.net/lapar--micii-fermieri-nu-vorputea-beneficia-de-programul-rabla-pentru-tractoare_705390.html 12. Regression, http://statisticasociala.tripod.com/regresie.htm 13. R i t c h i e, j., Le w i s, j, 2003, Qualitative research practice. A Guide for Social Science Students and Researchers, Ed. Sage Publications 14. Romanian Firms www.listafirme.ro, last visualisation 4.04.2010 15. Romanian Regions http://wapedia.mobi/ro/Regiunea_de_dezvoltare_Sud-Vest 16. Romanian Trade Register www.recom.onrc.ro last visualisation 4.04.2010 17. Schneider, D., 2005, Qualitative Data Analysis, TECFA, University of Geneva 18. Seidel, J.,1998, Qualitative Data Analysis Qualis Research, www.qualisresearch.com 19. Statistics, http://thor.info.uaic.ro/~val/statistica/StatWork_8.pdf 20. Statistics http://www.univermed-cdgm.ro/dwl/Curs_6_Teste_Dg.pGd libertate 21. Statistics Chi Square Association, http://www.scribd.com/doc/13893972/Asocierea-ChiPatrat 22. http://www.inimm.ro/index.php?page=34

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REFLECTING THE COMPLIANCE AND PERFORMANCE DEGREE IN THE SPECIAL REPORTS OF THE EUROPEAN COURT OF ACCOUNTS Professor Ph.D. Ionel BOSTAN Ştefan cel Mare University of Suceava, Romania [email protected] Professor Ph.D. Elena HLACIUC Ştefan cel Mare University of Suceava, Romania [email protected] Lecturer Ph.D. Student Eugenia IANCU Ştefan cel Mare University of Suceava, Romania, [email protected] Lecturer Ph.D. Student Gabriela NEMłOI Ştefan cel Mare University of Suceava, Romania [email protected] Abstract: The European Court of Accounts (ECA) is the European Union’s institution, established by treaty, with the purpose to make the audit of the EU funds. As an external auditor of the European Union, it contributes to improving the financial management of the Union, and acts as an independent defender of the financial interests of the Union’s citizens. The ECA provides with audit services, by which it evaluates the collection and use of the EU funds. Also, it examines if the financial operations were correctly recorded and presented, if they were made respecting the law and the regulations and managed with respect to the principles of economy, efficacy and efficiency. The ECA makes known the results of the audits in clear, relevant and objective reports and gives reports regarding various aspects of financial management, The Court publishes the results of its audit activities in three types of reports: the annual reports, presenting the results of the financial audit activities as insurance declarations concerning the general budget and the European Development Funds. These reports are presented together in the month of November, with the specific annual reports, which present the results of the financial audits made concerning the agencies and organizations of the Communities. The special reports, reserved for the results of certain performance audits and conformity audits, may be published at any time of the year. The present paper analyzes exactly this latter category of reports, made by the institution in the recent annual financial statements. Keywords: European Union, audit, public acquisition control, EU Court of Accounts, monitoring, managerial procedures, investment projects, audit report, risks, audit, communitarian budget, efficiency, European program, subventions, food donations, European Committee, disfavored populations, poverty. JEL Classification: K39

1. THE NORMATIVE FRAMEWORK APPLICABLE TO THE ECA The audit activities are performed within an inter-institutional framework, established mainly by: - the treaty regarding the European Union functioning, within which the articles 310-325 include financial dispositions regulating the income and expenses of the Union; - Regulation (EC, Euratom) no. 1605/2002 of the Council of June 25, 2002 referring to the financial regulation applicable to the general budget of the European Communities The treaty concerning the functioning of the European Union attributes to the European Court of Accounts (articles 285-287) as a main task to audit the Union’s accounts, with a double purpose- to improve the financial management and report, in front of the European citizens, on the method of using the public funds by the authorities responsible with their management. Therefore, according to the treaty, the ECA verifies the total of income and expense accounts of the Union and of any organization, office or agency established by the Union, as much as the constitutional act does not exclude this control. The institution presents to the European Parliament and to the Council an insurance declaration, which refers to the reliability of the accounts, and the legality and regularity of the subjacent operation, declaration published in the Official Journal of the European Union. The declaration may be completed with specific appreciations, specific for each major activity domain of the Union. 110

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The ECA examines the legality and regularity of all income and expense, and verifies the existence of a well financial management. Therefore, it is obligated to signal especially any deviation from the rule. After closing each annual financial statement, it makes an annual report, transmitted to the other institutions of the Union, and published in the Official Journal of the European Union, along with the responses formulated by these institutions to the Court’s observations. Furthermore, it can present at any time the observations regarding specific matters, especially as special reports, and can emit authorizations at the request of one of the other Union institutions. 2. THE FINANCIAL REGULATION AND THE REPORT TYPES The objective of such a regulation is to organize the procedures to make, adopt and execute the European Union’s budget. This financial regulation establishes the financial structure of the European Union. Article after article, it introduces key concepts, establishes procedures and regulates the making and execution of the budget. The financial regulation of December 21, 1977 was replaced at June 25, 2002 with a new financial regulation (Regulation EC-Euratom no. 1605/2002 of the Council, JO L 248, 16.9.2002). The detailed application norms of the financial regulation were made by the Committee (Regulation 2342/2002 of December 23, 2002 JO L 357, 31.12.2002) As an external auditor of the EU, the ECA verifies if the communitarian funds are correctly accounted and spent according to the current norms and legislation, and in respect to a preoccupation spirit to obtain an optimum resourcesresults report, regardless of the funds’ destination. The results of the Court’s activities are used by the Committee, the Parliament, the Council and the member states in order to improve the financial management of the EU budget. The public court publishes the results of its audit activities in the next types of reports: - the annual report – presents the results of the financial audit activities as insurance declarations concerning the general budget and the European Development Funds. These reports are published together in November. - the specific annual reports – which present the results of the financial audits made to the agencies and organizations of the Communities; - the special reports, presenting the results of certain performance and compliance audit results, and may be published at any time of the year. Furthermore, the Court must formulate opinions concerning the new legislative acts with financial impact, or the modification of these legislative acts. The types of made audits are: financial audits, compliance audits and performance audits. These approach the following problems: • if, in the accounts, all of the significant aspects, the financial statement, the results and treasury flows of the annual statements are presented fairly, according to the applicable framework of financial reporting (financial audit); • if the operations respect, under all of the significant aspects, the juridical and regulation frameworks applicable to them (compliance audit); • if the financial management is good, in other words of the funds are used in a degree as small as possible (economy), if the results are obtained with the smallest possible level of resources (efficiency) and if the objectives proposed were reached (efficacy) (performance audit). The Court’s audit regarding the EU’s accounts are made according to the International Standards – ISA, applied for the public sector and in the private one. The existent ISA do not cover in the same measure the conformity audit type made by the Court. The court actively participates, along with the national audit reports, to the elaboration of international standards by the standardization organizations (INTOSAI, IFAC). In order to obtain the assurance that the payments respect the juridical and regulation frameworks, the Court is based both on the results of the surveillance and control system s examination, meant to prevent or detect the errors of legality and regularity, and on the results of 111

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examining a payment sample. In the case when, after the system tests, these are considered to be reliable, the number of operations that has to be audited by the Court to reach a valid conclusion regarding the legality and regularity of the operation no longer has to be as large. The ECA uses also other sources in supporting its conclusions, for example the activity of other auditor. In the performance audit, the Court uses a wide range of audit methodologies in order to evaluate the management and monitoring systems, and the information concerning performance, based on criteria derived from legislation and principles of well financial management. When selecting the performance audit that are to be made, the Court seeks to identify the audit subjects leading mostly towards determining possible improvements connected to the economy, efficiency and efficacy of the EU expenses. In the following passages, the most representative special reports made by this institution in the recent financial statements are to be analyzed. 3. AUDITING CERTAIN PROJECTS OF THE CENTRAL EUROPEAN BANK (CEB) On the exact spot of a “Grossmarkthalle” in Frankfurt, the Central European Bank builds its structure, measuring almost 186,000 sq.m. The project includes the historical buildings with a tower building of circa 185 meters high. The budget is also high, reaching almost one billion euros. Initially, finishing the work was planned for 2008, but postponed to 2011, this because two new phases were introduced: a review one and an optimization phase. The review phase tool 10 months and was followed by the optimization one, of 13 months, during which a cost reduction of 30% was performed. The delay of the project finalization lead nonetheless to additional rent costs. Obviously, managing such a huge project couldn’t have escaped from the Court’s jurisdiction, that is why the control institution set, as main objective, the evaluation of the operational efficiency of managing all of the activities concerning the mentioned investment (started in 2001) and its compliance with the current norms. Also, the court made a “monitoring audit” regarding the human resource policy efficiency of the CEB. The accent was put on the contest of selecting the construction project and the technical aspects of the task book made by the CEB. The audit also took into consideration the further evolution of the project concerning the new CEB establishment. Mainly, the Court evaluated if the CEB set efficient planning and organizational structure, made a corresponding risk management framework (monitor, control and report), taking into consideration the complexity of the project, and applied adequate acquisition procedures, according to the generally applicable norms. According to the ECA Report (J of EU – 2007/C 313/01), there were remarked certain deficiencies concerning the risk management, but also in the plan of performing the public acquisitions, By August 2006, the Court had seen the risk log made for the project of the new CEB building, presenting for each element, the potential impact, measures to take, the responsible person and the evolution stage. The CEB classified more than 100 potential risks in the mentioned log, classifying them from level 1 (reduced impact and low probability) to 25 (high impact and high probability). The registry didn’t always offer a clear image of the element with the greatest risk impact, their apparition possibility and the time period in which they could have appeared; the risks were not always formulated in a coherent way and sometimes confusions were made between risks and sub-risks. Also, the various reputation risks were spread allover the registry log, sometimes being categorized as having a relatively low degree, and several times being logged only a sub-risk or omitting the main risk. As for the public acquisitions, it was seen that the general norms and procedures of buying did not stipulate an official contestation procedure and did not define the criteria of excluding the

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unusually small offers. To this was added the fact that the valuable sums were nut upgraded systematically. Although in general the acquisitions connected to the construction of the new establishment respected the norms and procedures of the CEB, the scoring method was sometimes unclear and based on sub-criteria not stipulated explicitly as being evaluation criteria. Then, although the majority of the exceptions were authorized and rightly justified, there were cases in which the justification supplied for the exceptions was debatable and not sustained by adequate documents. As for a series of public acquisition procedures, there are not available proving elements to attest that the most advantageous offer from the quality/price report point of view was selected. Within some of these procedures, there wasn’t clearly defined the area of including the to-besupplied services, the offers presented a great number of deviations, and the ones who offered for negotiations were afterwards authorized to significantly modify their offers. The court also saw deficiencies in the controls made by the CEB regarding the acquisition procedures referring to the services performed by external consultants. In one of these cases, there were no documents to make possible monitoring the controls made by the CEB for the way of scoring the offers. Also, the ECA recommendations take into consideration for the CEB to improve the risk management within the project of the new establishment and consolidate its own control mechanisms in the public acquisitions procedure, assuring the full respect to the applicable norms. The audit of the human resources policy efficiency highlighted that the CEB only outlined the elaboration of the key performance indicators. The introduction of the new informational system version aiming to increase the reliability and complete character of the data concerning the days off and personnel absences was to be finished after the audit finalization date, and certain orientations and procedures (the disciplinary or concerning part-time jobs) were never approached. 4. AN X-RAY OF THE EUROPEAN PUBLIC HEALTH PROGRAM (PHP) Due to an audit made by the ECA on the financial activity of the General of Health and Consumer Protection of the EC highlights the fact that the subventions coming from the EU budget were used with certain “deviations”. The mentioned sums (232 mil. Euros, 2003-2007) were meant for financing the PHP, and aimed towards organization holdings on numerous plans. Among these, we recall: preventing/treating cancer, rare or pollution diseases, AIDS and other transmissible diseases, preventing injuries and drug addiction, health monitoring etc. Within the PHO, the financing agreements were made with the project coordinators, who received co-financing of up to 60% (in extraordinary cases, 80%) for the cost generated by performing project activities. Besides the subventions designed for the projects, a small amount (app. 3%) of the PHP operational project was used to attribute service contracts. The projects financed with the use of PHP, that is – 352, were very different from the size, target group and adopted approach points of view. The holdings varied, as dimension, from 3 to 60 partners, the communitarian contributions having a value from 45,000 to 2.5 mld. euros. Also, the project activity types substantially varied. The ECA Document (Special report no. 2/2009), recently published, highlights that, referring to the PHP, there were three aspects verified, and those are: if the way in which the PCP provided with a corresponding framework to implement and monitor effectively the health promoting actions; if the EC was assured, in the program implementing and project selection stage, that the projects financed within the PHP component referring to the “factors determinants for health” may obtain durable results, were complementary and provided with European value added and if the EC and project coordinators were assured that the projects were reliably managed. Although seeing that, in general, the projects had an European dimension, easing in many cases the experience changing and mutual learning, the ECA also retained elements with critical connotation. Therefore, the PHP objectives characterized as being “very general and ambitious” clearly were opposed to the limited means at the program’s service., 113

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What should have been imposed was rather the efforts to be concentrated on the objectives which could have been actually reached. The intervention logic was never explained, situation that wouldn’t have been capable to allow objectives to be clear, pertinent and logically connected or specifying matching performance indicators. Therefore, within the PHP there was no strategic focusing. The program actions subdomains, established in the annual activity plans, were far more numerous than the projects financed. As the project proposing authors were often invited to candidate for financing within very general categories, the multitude and diversity of project themes and target groups caused the dilution of the brought contribution and lead to fragmented results. The efficacy of the projects was undermined by the concept differences and problems concerning applicability. In very few cases, the projects didn’t define the results that were to be obtained and were proved to be impossible to demonstrate that made any effect. The durability was often understood by the participants as the continuation of project activities, therefore depending greatly on the communitarian financing continuation. Finally, there was no systematic monitoring of the actions already made in various priority domains, often leading to repeating certain already made efforts. 5. THE INTRODUCTION, AS AN AUDIT OBJECT, OF THE COMMUNITARIAN SYSTEM OF FREE FOOD Recently, the ECA published the Special Report concerning the food help provided by the European Union for the disfavored persons, The available resources for the years making the objectives of the audit were: 216 ml. euros in 2005, 264 ml. euros in 2006, 274 ml. euros in 2007 and 307 ml. euros in 2008. The sum afferent to 2009 goes up to 500 ml. euros. The audit especially examined if the objectives stipulated for the program are still valid, in the context of changing market and social situation. Furthermore, there were aspects evaluated from the point of view of the quantity, the value and the varieties of the projects supplied and distributed, the corresponding character of the available means and the system applied to measure the programproduced impact for the beneficiaries. Neither the examination of the administrative and management procedures used for implementing the annual plans was not omitted. The European food help program for disfavored people was first applied in 1987. Its purpose is to provide with products from the intervention stocks of the Community for charity, freely distributing to the needy persons certain products as: rice, sugar, flour, butter, milk, jam and biscuits. In order to allocate the program funds to the member states, the Committee uses a term known as “the population exposed to poverty”. This is a relative category, defined for each member state as the people with income under the 60% average income level. The target group is numerous, one person of six being considered as “exposed to poverty risk” at the whole Union level. Within the communitarian space, almost 80 ml. persons – that is, 16% of the EU-27 population are considered to be exposed to poverty risk, and almost 43 ml. persons are exposed to the food poorness risk. Here are some data, organized on countries, for the average of the population exposed to the risk out of the whole population: Romania – 18%, Bulgaria – 15%, Greece – 20%, Italy – 19%, Poland– 21%, Germany – 13%, England – 18%, Sweden – 9% (the only country with one figure). The participation of the member states at the mentioned project is volunteer, these having to declare every year to the Committee their intention to participate and communicate their necessities. The number of the participating countries increased in the last years: 10 in 2005, 15 in 2006, 18 in 2007 and 19 in 2008. The audit that x-rays the free food giving mechanism was made in Spain, France, Italy and Poland, to which correspond more than 72% of the annual credits, and mainly took place from 2006 to 2008. Despite the budgetary credit level increase, the sum available for each person had these values: 6.24 euro/person in 2006, 5.73 euro/person in 2007 and 5.83 euro/person in 2008. Obviously, these modest values for each person put into discussion the potential impact of the 114

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program. The conclusions of the ECA audit show that there are no established priorities within the disfavored persons’ category, to precisely orientate the help. Taking into consideration the great number of potential beneficiaries and the low level of available resources, it is imposed that the beneficiaries are to be more precisely defined, for the measure to have a significant impact on the target population. According to the juridical framework, the eligibility criteria referring to the beneficiaries must be based on a “financial and social dependence situation[…]seen or recognized”. The member states also are to annually inform the Committee on the eligibility criteria applicable to the helped. The ECA also saw that, with the auditing of this program, that the member states did not establish exact eligibility for the free food beneficiaries. What was communicated annually to the Committee is rather a typology of the assisted people than qualitative or quantitative selection criteria. The audit highlighted significant differences in the frequency of receiving the help, certain people receiving occasional meals, unlike persons of social institutions or families that regularly received food help or supplies. Given that the potential beneficiary budgetary credits go to up to 6 euros/person/year, the Committee – in its own impact evaluation – shows that in 2006 13 ml. persons of 15 member states received food supplies, and estimates the cost of a meal given by a charity organization to be at least 2 euros. These figures reflect the fact that the program contributes to the distribution of maximum three meals a year for every potential disfavored person or, in average, 12 meals a year for every effective help beneficiary. Although in certain member states the EU program provides with more than 50% of the supplies offered to the disfavored. The ECA says that a program offering, at maximum level, the equivalent of a meal per month (avg.) for its beneficiaries has the lowest chances to reach the legislator’s objective to realize “an important contribution to the welfare of its most disfavored citizens”. Nowadays, the juridical norms allow acquisition of food products on the communitarian market in case that there are shortly no intervention stocks available for free distributions. What is important is that, as long as the food products must belong to the same product groups as the ones of the intervention groups, the range of products available for distribution is limited. The mentioned regulations should be re-analyzed, in order to increase diversity, complementariness and nutritional values of the provided supplies. Within the distribution chain connecting the management authorities, the charity organization and the disfavored persons a great variety of system is applied. There are no standards or orientation that are common at the EU or national level concerning the quantity and product range to be distributed per person. This increases the risk of a low impact, which may lead to the application of an unequal treatment at the helped level. The auditors also saw that, in practice, the member states often designed without any formalized procedures a reduced number of organizations, to perform national activities. On the other side, there are no available precise data concerning the number of the organizations involved. Because in a series of cases the implementation reports of the member states were incomplete, or had incomplete data, the management information at the availability of the Committee, referring to the recorded process in making the global objectives of the program cannot be considered as being reliable enough. That is why the Committee should solicit the member states to make precise, measurable, realizable, relevant and determined-in-time objectives to implement the program and, also, in order to define the performance indicators to monitor the objective reaching degree. On the other hand, the re-analysis of the program reporting system is imposed, to assure the availability of data that are exact and fed on time, referring to the target group and implementation. Finally, another conclusion was that there are very different attribution procedures from state to state, not guaranteeing the equal access of all EU operators and not obtaining the widest competition or best conditions and prices.

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6. CONCLUSIONS The effective implementation of a program requires, on behalf of its administrator (or Committee/ executive agency) to have a correct and current assembly view on the project portfolio. This allows overlaying and “work duplication” avoidance, creating synergies among the made actions and the make of planning in a coherent and constant manner, the implementation and monitoring of the program. The audit especially examines if the objective stipulated for the program are still valid in the context of a changing market or social status. Furthermore, the corresponding character of the available means and the systems applied to measure the impact made by the program on the beneficiary level is analyzed from the points of view of the value, quantity and variety of the supplied and distributed products. Obviously, the examination of the administrative and management procedures used to implement the annual plans has a special plan within the typical operations of complex audits, as the ones described in the special plans elaborated by the ECA. REFERENCES 1. 2. 3. 4. 5. 6. 7. 8. 9.

Bostan I., Auditul public extern, ColecŃia Business/ Univers juridic, Bucureşti, 2010 Bostan I., T. Mânzală, Drept financiar comunitar, Ed. Universitaria Craiova, 2006 Regulamentul (CE, Euratom) nr. 1605/2002 al Consiliului, JO L 248, 16.9.2002 Regulamentul CE nr. 2342/2002 din 23 decembrie 2002, JO L 357, 31.12.2002) Raport ECA (J.Of.U.E. - 2007/C 313/01) Raport ECA (Raportul special nr. 2/2009) Raport ECA (Raportul special nr. 8/2009) http://eca.europa.eu/portal/page/portal/eca_main_pages/splash_page www.rcc.ro/publicatii

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TAX TREATMENT OF NON-TRANSFERS Professor Ph.D. Lucia PALIU-POPA “Constantin Brâncuşi” University, Târgu Jiu, Romania [email protected] Abstract Romania's accession to the European Union has required significant changes in many fields of activity, the field of taxation is one of the most affected as taxation is fully harmonized with the European laws after January 1, 2007. Therefore, the export and import concepts disappeared in the relationship between the Member States, being replaced by new concepts such as intra-Community acquisition (instead of import) and intra-Community supply (instead of export). Given the intra-Community commercial transactions and hence their taxation, in this article I intend to address the tax treatment of non-transfers. I started from the fact that that the proper determination of tax treatments specific to intra-Community commercial transactions is of particular importance in establishing the reporting and payment obligations concerning the value added tax for entities from different EU Member States, significantly affecting the registration procedure in accounting of such transactions. To clarify the tax issues in terms of value added tax, I found it necessary, after identifying the operations considered as non-transfers, to answer several questions based on which the tax treatment of such operations will be determined, questions that relate to the taxable person, taxable operation, the place of acquisition, the exemption or not of the operation and the obligation to pay VAT. For this I took into account several specific situations that arise in trade relations between EU Member States which fall within non-transfers, examples that allowed some conclusions to be drawn on the tax issues arising in intraCommunity trade relations. Keywords: tax treatment, non-transfer, transaction, supply, acquisition, value added tax JEL Classification: H32, H87, M40, M41, M49, Q56

1. INTRODUCTION Taxation represents the field that underwent the most changes after Romania's accession to the European Union, the Fiscal Code being entirely harmonized with the European legislation after 01 January 2007. Given the legislative changes occurred in the tax field and their complexity, in this article I intended to approach the tax treatments specific to non-transfers in the European space. I started from the fact that that the proper determination of tax treatments specific to intraCommunity commercial transactions is of particular importance in establishing the reporting and payment obligations concerning the value added tax for entities from different EU Member States, significantly affecting the registration procedure in accounting of such transactions. To clarify the tax issues in terms of value added tax, I found it necessary, after identifying the operations considered as non-transfers, to answer several questions based on which the tax treatment of such operations will be determined, questions that relate to the taxable person, taxable operation, the place of acquisition, the exemption or not of the operation and the obligation to pay VAT. Thus, I took into account some specific situations involved in intra-Community relations between Romania and the other EU Member States which fall within non-transfers, examples that allowed me to draw a series of conclusions concerning the tax treatment of such intra-Community transactions, identifying for each case the documents where these operations are recorded.

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2. THEORETICAL CONSIDERATIONS ON NON-TRANSFERS Non-transfer appeared in the same time with our country's accession to the European Union and is the dispatch or transport of an asset from Romania in another Member State by or on behalf of the taxable person, to be used for one of the following operations: a) Operations involving a transaction, without an intra-Community supply in the Member State where transport begins and without being declared in the Register of non-transfers, such as:
the supply of assets is a distance selling taking place in the other Member State;
the supply of those assets is made by the taxable person in the Member State of destination in order to carry out a supply accompanied by installation or assembly in the other Member State;
the supply of those assets is made by or on behalf of the taxable person on ships, aircrafts or trains and the place of supply is in the other Member State during the transport of persons carried out in the Community;
moving the assets in another Member State for export, intra-Community supplies and other supplies exempted from VAT with deduction right;
the supply of gas and electricity through distribution networks for natural gas or electricity. b) Operations that do not involve a transaction, such as:  provision of services on movable tangible assets, made in the other Member State, for the taxable person's benefit, provided that such assets are returned to that person in Romania on the completion of processing;  temporary use of that asset in the Member State of destination, in order to provide services in the other Member State by a taxable person;  temporary use of that asset in the other Member State for a period not exceeding 24 months, provided that import of the same asset would receive a full exemption of import duties. In terms of taxation the following aspects are taken into account: a) For non-transfers involving a transaction: • in the Member State where transport begins there is not an intra-Community supply, but a non-transfer; • the operation is not stated in the summary statement on intra-Community acquisitions and supplies of assets; • the operation will be recorded in the VAT return in the column of operations that do not take place in Romania; • the supply is invoiced without VAT in the Member State of origin; • the supplier is required to register in the Member State where the operation takes place only if the recipient is a non-taxable person, therefore the necessary condition that both partners should be registered for VAT purposes is not complied with. b) For non-transfers without a transaction: • the operations must be entered in the Register of non-transfers; • there must be a proof of the transportation. If one of the above conditions is not met, the dispatch or transport of the asset in question is regarded as a transfer from Romania in another EU Member State. According to the Fiscal Code and its implementing methodological rules, business operators making intra-Community operations with assets must fill in certain cases the Register of nontransfers. The Register of non-transfers must be filled in if non-transfers are performed and must contain the following elements: • description of assets; • quantity of assets; • value of assets; 118

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• movement of assets, descriptions of those which are not returned and the amount thereof; • the date and a reference to the documents issued in connection with these operations, if necessary. The Register of non-transfers shall not be filled in for:
means of transport registered in Romania;
pallets, containers and other packing moving without invoicing;
assets necessary to conduct radio-broadcasting and television activities;
assets necessary to conduct a profession or trade, if: - the price and normal value on each asset separately does not exceed EUR 1.250 at the exchange rate on the date the object is transported or dispatched to another Member State, provided that the asset is not used more than 7 days outside Romania, or: - the price and normal value on each asset separately does not exceed EUR 250 at the exchange rate on the date the object is transported or dispatched to another Member State, provided that the asset is not used more than 24 months outside Romania;
laptops and other similar professional material that is transported outside Romania in a business travel by staff of an economic entity or by an authorized natural person. If subsequently the conditions on the movement of goods for non-transfers are no longer met, then the non-transfer becomes a transfer. To avoid situations in which business operators should be registered for VAT purposes in several Member States for transfers of assets or assimilated intra-Community acquisitions of goods, simplification measures have been implemented for:
multi-stakeholder operations in the Community, related to works on movable tangible assets;
refusals and returns of goods within the Community;
goods sold on consignment and from inventory available to the customer;
goods sent for testing or verification of compliance. Usually, when goods come from another Member States and are subject in Romania to processing works or other works on movable tangible assets, services are not taxable in Romania if the recipient submits a valid VAT code from another Member State and the goods are transported directly outside Romania, without any stopovers to other persons that would carry out further processing. The only situation in which the recipient of such service provisions will be required to register for VAT purposes in Romania is one in which goods are transported back into the country from which they originated. In this case, in terms of movement of goods, it is considered that no assimilated intraCommunity acquisition takes place in Romania. However, the simplification measures derogate from the rules if the following conditions are met: a) the main contractor: • is registered in his Member State for VAT purposes, • does not have a registration code for VAT purposes in the Member State where the works on movable tangible assets are actually carried out, • submits his registration code for VAT purposes to the contracting party/parties; b) the other business operators involved are taxable persons in terms of value added tax; c) the products processed will return to the Member State of the main contractor. To apply the simplification measures, the place of arrival is not considered the place of a temporary stop to carry out certain works on the assets, but the place of arrival will always be considered as the Member State of the main contractor.

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Thus increases the number of people that may carry out works on such assets in Romania and that may not tax in Romania the services invoiced to the recipient. There is even the case when a sale of goods made by a Romanian seller is regarded as an intra-Community supply, even though the goods are not transported directly in another Member State, if all goods are initially transported in Romania as well, at the destination indicated by the main contractor, for processing by another person. Usually, without the application of simplification measures, the sale of goods in Romania to a person from abroad and then released for processing in Romania as well can not be regarded as an intra-Community supply. The simplification measures relate both to situations where a contractor not established in Romania will not be required to register for VAT purposes in Romania and to the situations where several providers in Romania will not tax in Romania the services invoiced by the same contractor or a vendor in Romania will apply the VAT exemption specific to intra-Community supplies for the goods purchased by a contractor not established in Romania, who sends the goods for processing in Romania. In terms of taxation, for non-transfer operations that became transfer, the following legal obligations are considered:
the Register of non-transfers is filled in;
the self-invoice for the transfer is made;
the transfer (intra-Community supply) is registered in the monthly summary statement and in the VAT return;
to exempt the assimilated intra-Community supply (transfer) the taxable person must be registered for VAT purposes in the other Member State. 3. TAX TREATMENT OF NON-TRANSFERS To clarify the tax issues in terms of value added tax, after identifying the operations considered as non-transfers and the legal obligations concerning documents to be filled in, I found it necessary to answer several questions based on which the tax treatment of such operations will be determined, questions that relate to the taxable person, taxable operation, the place of acquisition, the exemption or not of the operation and the obligation to pay VAT. In order to determine the tax treatment of non-transfers we shall start from examples that reflect intra-Community commercial transactions, situations that enable us to draw conclusions on the tax issues arising in intra-Community trade relations. 1) An Italian supplier sends equipment to a customer established in Romania, for testing. Because the customer is satisfied with the equipment received, he decides to buy it. Since it is unknown whether the goods will return to Italy if the customer is not satisfied, this operation will be regarded, in principle, as a non-transfer in Italy and will be reported in the register of non-transfers kept by the Italian seller in his country and Romania will be regarded as a non-assimilated intraCommunity acquisition. When goods are sold in Romania, the movement of the equipment that was not regarded as a transfer at the time when it was transported to Romania, in Italy it becomes a transfer assimilated to the intra-Community supply. Tax treatment of this transaction: a) Without application of simplification measures: a1) From the Italian vendor's point of view, in Italy: 1. Taxable person: Yes, Italian vendor; 2. Taxable transaction: Yes, transfer or assimilated intra-Community supply; 3. Place of supply: Italy (where transport begins); 4. Exemptions: Yes, if there are met the two conditions relating to the evidence of transportation and the validity of registration code for VAT purposes of the supplier in Romania; 5. Tax payment obligation: Not applicable. 120

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This operation must be reported:
in the VAT return of the equipment supplier in Italy, as an intra-Community supply;
in the summary statement for exempted intra-Community supplies, held by Italian supplier in Italy, indicating his registration code for VAT purposes in Romania. a2) From the Italian vendor's point of view, in Romania: 1. Taxable person: Yes, Italian supplier; 2. Taxable transaction: Yes, assimilated intra-Community acquisition; 3. Place of acquisition: Romania (where transport ends); 4. Exemptions: No; 5. Tax payment obligation: The Italian supplier applies the reverse charge (due to his registration for VAT purposes in Romania). This operation must be reported:
in the VAT return of the Italian company in Romania, as an intra-Community acquisition;
in the summary statement for intra-Community acquisitions, held by the Italian supplier, in Romania. a3) Supply of goods in Romania, operation performed by the person in Italy and that follows the assimilated intra-Community acquisition: 1. Taxable person: Yes, Italian supplier; 2. Taxable transaction: Yes, supply of goods; 3. Place of supply: Romania (where assets are made available to the purchaser); 4. Exemptions: No, the transaction is taxable; 5. Tax payment obligation: Italian supplier invoices with VAT in Romania. This operation shall be reported:
in the VAT return of the Italian company in Romania, as a local delivery. a4) The equipment acquisition by the company in Romania is treated as a local acquisition, with the place in Romania, with its reporting obligation in the VAT return. b) With application of simplification measures: b1) From the Italian vendor's point of view, in Italy: 1. Taxable person: Yes, Italian supplier; 2. Taxable transaction: Yes, intra-Community supply; 3. Place of supply: Italy (where transport begins); 4. Exemptions: Yes; 5. Tax payment obligation: None. b2) From the purchaser's point of view: 1. Taxable person: Yes, Romanian customer; 2. Taxable transaction: Yes, intra-Community acquisition; 3. Place of acquisition: Romania (where the transport of goods ended); 4. Exemptions: No, it is a taxable transaction; 5. Tax payment obligation: Customer, by reverse charge. This operation must be reported:
in the VAT return of the Italian company in Italy and in the VAT return of the customer in Romania;
in the statement for intra-Community supplies, held by the supplier in Italy and in the summary statement for intra-Community acquisitions held by the client in Romania. 2) Let's consider that a Romanian taxable person, registered for VAT purposes, concluded a contract with an entity in Italy to carry out construction works. The contract states that the materials used and some equipment are provided by the Romanian company. To this end, the Romanian provider sends the building materials in Italy and a special crane. 121

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It is known that on the completion of works there are unused materials that return to Romania and the special crane is sold to a taxable person in Italy. Tax treatment applicable to this operation: a) Tax treatment for building materials: Because the materials will normally not return to Romania after the completion of construction works, this operation is regarded as a transfer. a1) Tax treatment of materials transported from Romania to Italy (treatment in Romania) 1. Taxable person: Yes, Romanian provider; 2. Taxable transaction: Yes, assimilated intra-Community supply or transfer; 3. Place of supply: Romania, where transport begins; 4. Exemptions: Yes, if there are met the two conditions relating to the evidence of transportation and the validity of registration code for VAT purposes of the provider in Italy; 5. Tax payment obligation: Not applicable. This operation must be reported:
in the VAT return of the provider, in Romania;
in the summary statement for exempted intra-Community supplies, held by Romanian company in Romania, indicating the registration code for VAT purposes in Italy. a2) Tax treatment of materials transported from Romania to Italy (treatment in Italy): This movement is considered in Italy an assimilated intra-Community acquisition, with the following characteristics: 1. Taxable person: Yes, Romanian provider registered for VAT purposes in Italy; 2. Taxable transaction: Yes, assimilated intra-Community acquisition; 3. Place of acquisition: Italy (where transport ends); 4. Exemptions: No; 5. Tax payment obligation: Romanian company, registered for VAT purposes in Italy (reverse charge). a3) Tax treatment of materials unused in Italy, returning to Romania (treatment in Italy): 1. Taxable person: Yes, Romanian provider registered for VAT purposes in Italy; 2. Taxable transaction: Yes, transfer or assimilated intra-Community supply; 3. Place of supply: Italy, where transport begins; 4. Exemptions: Yes, if there are met the two conditions relating to the evidence of transportation and the registration code of the Romanian provider from another Member State (Romania); 5. Tax payment obligation: Not applicable. a4) Tax treatment of materials unused in Italy, returning to Romania (treatment in Romania): 1. Taxable person: Yes, Romanian provider; 2. Taxable transaction: Yes, assimilated intra-Community acquisition; 3. Place of acquisition: Romania (where transport ends); 4. Exemptions: No, it is a taxable transaction; 5. Tax payment obligation: Romanian provider (applies the reverse charge). This operation must be reported:
in the VAT return of the Romanian provider, in Italy;
in the VAT return of the Romanian provider in Romania;
in the summary statement for exempted intra-Community supplies, made by the Romanian provider in Italy, indicating the registration code for VAT purposes in Romania; 122

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in the summary statement for intra-Community acquisitions, made by the Romanian provider in Romania, indicating the registration code for VAT purposes in Italy; b) Tax treatment for special equipment (crane): b1) Tax treatment for crane transport from Romania to Italy The crane transport from Romania to Italy, in terms of taxation, has the following characteristics:
this movement is considered a non-transfer, because the crane will normally return to Romania after the completion of construction works;
the Romanian provider shall report this movement in the register of non-transfers. b2) Tax treatment of sale of the crane in Italy by a Romanian taxable person (treatment in Romania): Because initially the transport of the crane from Romania to Italy was a non-transfer, upon its sale in Romania it becomes a transfer, and in Italy an assimilated intra-Community acquisition. 1. Taxable person: Yes, Romanian taxable person; 2. Taxable transaction: Yes, transfer or assimilated intra-Community supply; 3. Place of supply: Romania, where transport begins; 4. Exemptions: Yes, if there are met the two conditions relating to the evidence of transportation and communication of the registration code for VAT purposes of the Romanian provider, from another Member State (Italy); 5. Tax payment obligation: Not applicable. b3) Tax treatment of sale of the crane in Italy by a Romanian taxable person (treatment in Italy): 1. Taxable person: Yes, Romanian provider; 2. Taxable transaction: Yes, assimilated intra-Community acquisition; 3. Place of acquisition: Italy (where transport ends); 4. Exemptions: No, the transaction is taxable; 5. Tax payment obligation: Romanian provider, registered for VAT purposes in Italy (reverse charge). This operation must be reported:
in the VAT return of the Romanian provider, in Italy;
in the summary statement for exempted intra-Community supplies, made by the Romanian provider in Romania, indicating the registration code for VAT purposes in Italy;
in the summary statement for intra-Community acquisitions, made by the Romanian provider, in Italy;
the transaction must be specified in the register of non-transfers. b4) The sale of the crane in Italy that occurs after the intra-Community acquisition conducted by the Romanian provider registered for VAT purposes in another Member State is treated, in terms of taxation, as a local delivery. 4. CONCLUSIONS Starting from intra-Community commercial transactions that fall within non-transfers and considering the applicable tax legislation in force, after going through the above examples, the following conclusions can be drawn: a) Non-transfers that do not involve a transaction must be reported by the supplier in the Registry of non-transfers, while making the evidence for transportation of goods in the other Member State. If these goods are subsequently purchased, non-transfer becomes transfer, making an entry in this respect in the Register of non-transfers on the invoice issued for that intra-Community 123

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supply, preparing in the same time the invoice for transfer. As transfer is an assimilated intraCommunity supply, it is registered in the summary statement and in the VAT return, and for the operation to be exempt from VAT; the taxable person must be registered for VAT purposes in the other Member State. To reduce practical problems related to the supplier's registration for VAT purposes in the other Member State, the system of simplification measures shall apply. b) Non-transfers involving a transaction are not registered in the summary statement and in the VAT return the operation falls under the column of operations that do not take place in Romania, as it is not an intra-Community supply but a non-transfer and the supply is invoiced without VAT in the supplier's Member State. If the recipient is a non-taxable person and the condition that both partners should be registered for VAT purposes is not met, then the supplier is required to be registered for VAT purposes in the Member State where the operation takes place. REFERENCES 1. Paliu - Popa, L., Tratamente fiscale specifice tranzacŃiilor comerciale intracomunitare AchiziŃii şi livrări intracomunitare de bunuri [Tax Treatments Specific to IntraCommunity Commercial Business Transactions - Intra-Community Acquisition and Supply of Goods], 2/2009 (Annals of the “Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 2/2009), page 81-94 2. Paliu-Popa, L., Tratamente fiscale specifice tranzacŃiilor comerciale intracomunitareOperaŃiuni triunghiulare (Tax Treatments Specific to Intra-Community Commercial Transactions – Triunghiular Operations), Annals of the University of Petroşani, Economics, Vol. IV, part. II, pag. 185-190 3. Popa, A.F., Popa, N., Impozitele şi taxele reglementate de Codul fiscal [Taxes and Fees Covered by the Fiscal Code], Contaplus Publishing House, Ploieşti, 2008 4. Popescu, N., TranzacŃii comerciale [Commercial Transactions], Economic Publishing House, Buchares, 2008 5. Popa, I., Tehnica operaŃiunilor de comerŃ exterior [Technique of Foreign Trade Transactions], Economic Publishing House, Bucharest, 2008 6. Vişan, D., Contabilitatea tranzacŃiilor de comerŃ internaŃional [Accounting of International Trade Transactions], Tribuna Economică Publishing House, Bucharest, 2009 7. *** Law no. 571/2003 on the Fiscal Code, as further amended and supplemented 8. *** Methodological norms for implementing the Fiscal Code, approved by Government Decision no. 44/2004 as further amended and supplemented 9. *** Ghidul privind taxa pe valoarea adăugată [Guide on the Value Added Tax] 10. *** www.mfinante.ro 11. *** www.infotva.ro

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AGGREGATE DIMENSIONS USED IN CARRYING OUT THE FINANCIAL BALANCE OF THE ECONOMIC ENTITY IN FINANCIAL VISION Associate Professor Ph.D. Diana-Mihaela POCIOVALIŞTEANU University Constantin Brâncuşi of Tg-Jiu, Romania [email protected] Lecturer Ph.D. Camelia Cătălina MIHALCIUC University Ştefan cel Mare of Suceava, Romania [email protected] Lecturer Ph.D. Student Anişoara Niculina APETRI University Ştefan cel Mare of Suceava, Romania [email protected] Abstract: A Financial Analysis is directed to assess the ability of the economic entity to generate relevant cash surpluses which will ensure its financial stability and development. Financial balance can be defined by the ability of economic entity to ensure uninterrupted payment of debts previously contracted, including current debt generated by carrying out its activity, or tax law from its earnings, is so that it can avoid bankruptcy risks. Maintaining financial stability is the essential condition of an economic entity’s survival and the financial stability assessment should take into account the concrete conditions that can take one into insolvency. Moreover, equilibrium refers to a generally idea of harmony between the elements of a system, what in the financial field equals with the harmonization of financial resources with financial needs. Analysis of the financial balance can be achieved on the balance sheet based on the two concepts used for its development: asset and financial management. The study on the analysis of financial stability was performed on the example of an economic entity having as main activity the production of textiles, outlining the main indicators through which one can asses the activity of the economic entity during five consecutive financial years. Within the overall balance of the economic entity, the financial balance has an important role considering the analysis of the economic management requirements in terms of an entity’s relationship between debt and self-financing in connection with the economic entity’s training and use of funds. Keywords: financial balance, net treasury, need of working capital, working capital, net situation JEL Classification: M 49

INTRODUCTION Financial equilibrium of an economic entity is a system of correlations for determining in some proportionality inside and between different financial flows, representing a premise but also a consequence in the normal course of an entity’s business in accordance with its object of activity. As a premise, one should consider the objective correlations between the needs of materials resource (in general) and funding opportunities; on how these resources are used and exploited depend the accomplishment of economic and financial balance. Thus, for each correlation and cash flow is used specific indicators, which synthetically express financial balance. To achieve financial balance for the economic entity examined, the specific problematic proposed aimed especially at the balance sheet information for a period of five years of analysis, namely 2004 to 2008. Starting from the balance sheet, a major importance in analyzing the financial goes to the financial statement (liquidity-chargeability) which is a tool of analysis through which the balance sheet is restated while also being the support of the traditional financial analysis that has as purpose the description of an economic entity’s heritage with the goal of the economic assessment, which can be of interest to both the owners and creditors. Thus, shareholders want to know the value of assets, changes in its size, the time it would take to liquidate it in the event of a equity recovery, and lenders want to know the heritage value of the economic entity which is the real warranty of their rights. Regarding financial stability from a financial point of view, the net statement, working capital, working capital requirements and net treasury are critical indicators, respectively aggregate values which many paper authors have attempted to determine considering justified the assessment of the financial activity’s quality not only in financial terms of ensuring the necessary funds and 125

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their efficient use but also in terms of how to manage the concrete conditions of work to achieve financial balance while honoring all obligations. MATERIAL AND METHOD Inventorying an economic entity's assets and liabilities, as well as ordering their liquidity and chargeability term that is the goal of the balance sheet. The main optic is that of the economic assessment of economic and financial factors, and therefore, inclusion and assessment in the balance sheet of all assets and economic resources available to conduct an entity’s business, regardless of legal status of the assets ownership and the importance of compliance criteria liquidity and chargeability. Assets are grouped by liquidity (the availability of increasingly high for them to become "liquid" and to meet the needs of the enterprise) in the following categories: assets (IA), which comprise all liquid assets of more than one year, current assets (CA), which include all liquid assets of less than one year. Resources are arranged according to their charging term in the following categories: debt payable within a period of up to one year (DTS), debt payable in more than one year (DTL), equity (C). The restatement and re-ranking of the balance sheet items aims to determine the real structure of assets (on which the economic entity achieved a certain performance) and liabilities (financial structure that supported the whole process). The presentation of the balance sheet reveals two distinct parts horizontally: the top reflecting the financial structure through the stability of its component elements (funded needs permanent funding and resources) and the lower part reflecting funding of the activity cycle (the need to finance short-term funding and temporary resources). Net statement, representing the net realizable value of the asset at a certain moment and expressing the expression of the economic entity's owners, should be sufficient to ensure not only the economic entity’s functioning but also its financial independence, it being of interest for creditors as well, especially in the case of its liquidation. Determination of the revolving fund is based on the idea of regrouping the items in the balance sheet, both for resources and their use. For working capital we’ve defined the two forms namely working capital as an expression of the economic entity's financial autonomy, determined as the difference between equity and the value of fixed assets and foreign working capital (loan), determined as the difference between net and owned working capital, this notion is closely related to speed of loan sources. Working capital requirement was determined after comparing the financing needs with resources and treasury resulting from the cross-reference of resources and means corresponding to the short term financial operations. Net Situation (SN) of the economic entity Determining the net situation (position) of an economic entity by financial analysts is based on the legal approach (economic). Net situation shows the net assets remaining after deducting all debt, such as new guarantees afforded by an economic entity (Trebuchet, 1995). Net situation expresses the net accounting value of owners' rights they possess over the economic entity, being their wealth and as it should be sufficient to ensure the entity’s operation and financial independence. The economic entity is characterized by the values that this size takes. Thus, in a situation of an increasing net positive statement, the economic entity is characterized by sound economic management, the economic entity and its equity is maximized. For a negative net worth situation, pre-bankruptcy states of the economic entity are expected, being the result of the closuring previous years with loss, losses that have exhausted the full equity. The uncovered part is exclusively the responsibility of creditors, this being the risk of insolvency. Determination of the net situation involves the comparison of property and liabilities with the same maturity.

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Working capital (FR) of the economic entity Working capital is a concept and also an independent indicator of financial stability, created under the influence of banking profession, constituting the premise of maintaining an economic entity’s solvency, respectively of its financial independence against its claimers. Thus, this is a concept with deep meanings, which retains its original features in business practice, being considered the most important indicator of businesses financial balance, the outcome of arbitration between long-term financing and short-term financing. Working capital has experienced a wide definition in the literature: it has been defined as a raw working capital (economic or total, representing the value of current assets, a net working capital or permanent determined as the difference between permanent capital and net assets (or the difference between current assets and current debt), a self-owned working capital determined as the difference between equity and net assets and not least, a foreign working capital corresponding with the size of the debt due over one year (Camp et al., 2001). It can be defined as all resources needed to finance current production activity of the economic entity (Batrancea, 2006). Working capital surplus expresses the permanent capital over the assets, representing the part of permanent equity used for financing the exploitation cycle (Peyrard, 1986). Due to uncertainties surrounding the current business flows and stocks to ensure the solvency of the economic entity management must constitute a safety margin to allow payment of all outstanding debt. This margin shows the achievement of long-term financial stability and its contribution to ensuring financial stability in the short term, known in the economic theory and practice as patrimony working capital (Petcu, 2003). Depending on the side of the balance sheet addressed (upper or lower), net working capital can be determined first of all by reducing permanent capital with the amount of fixed assets (in which case the excess shall be considered as standing in relation to capital assets) or as the difference between working assets and liabilities to be paid for a period less than one year (in this it is interpreted as working capital surplus of current assets over short-term debt). Thus, we can see that from the top of the balance sheet, a results a first balance from the confrontation of long-term liabilities (permanent capital) with permanent needs (fixed assets). Working Capital thus determined shows the surplus in permanent resources in relation to net assets, which can be used to finance current assets. This calculation shows the influence of the working capital on the financial structure to ensure financial balance. Permanent working capital calculation shows how financial balance is assured: capital assets must remain available to the economic entity and that a month longer than the lifetime of assets that they finance (Trebuchet, 1995). As an indicator of solvency, the existence of the working capital is considered an imperative condition for the creditors of a relatively secure financial situation. In traditional financial optic, the margin is justified by the uncertain and dynamic environment in which the economic entity enables, ensuring financial balance is maintained relatively stable. The bottom of the balance sheet allows us to determine the financial working capital, but has the disadvantage that it does not show the stability of the revolving fund. Determination of working capital, according to this method highlights the economic entity's future solvency by comparing the expected short-term liquidity with commitments payable immediately. Comparing the two indicators yields a surplus of cash or potential security margin risks of the economic activity (Mihalciuc, 2009). Working capital can be viewed patrimony, in light of the financing sources as (Valceanu et al., 2004): its working capital (FRP), loan working capital (foreign) (FRI). FRP measures the excess equity to use, respectively the permanent allocations, based on the economic entity’s autonomy regarding the financing of fixed assets. In the structure of permanent capital the ratio should not exceed more than 50% of the equity, the rule requiring the determination of its working capital and loan working capital (foreign). Moreover, FRI = ∆ TML (medium and long term debt). 127

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Loan working capital know a practical utility, precisely because of failure of own financing sources. Thus it is known the situation in which external sources are used for financing permanent needs in the form of medium and long term loans (∆ TML), when the equity can not cover all permanent needs. Harmonized balance sheet enables the faster determination of the working capital. Need of working capital (NFR) of the economic entity The need of working capital or requirements working capital (NFR) is due to gaps in time between purchases and sales, and between sales and revenue. In the first case, these gaps generates inventories (of raw materials, goods, production process and finished product), while the second arise claim rights. Both inventories and receivables require a working capital, which is however weakened by the opposite gaps between supply and payment. The existence of the working capital is linked to the net capital collecting need shown in the operating cycle thus known as working capital required. The need of working capital is estimated by some financial analysts as the most relevant indicator of financial balance, as it highlights those temporary needs permanently renewing themselves in successive operating cycles of the economic entity (labile, 2007). The need oh working capital is an element of active nature and represents that part of the assets to be financed from the revolving fund account. Actually the need of working capital means financial needs arising from the execution of repetitive operations making up the current operating cycle (buying, selling, paying salaries), which all need to be at least partially covered by stable resources (net working capital). It is money that should be flowed in the business to ensure its operation (after financing assets), which require expenditure to be recovered from bills paid by customers (Petrescu, 2008). So, the need of working capital measures the coverage of needs by current assets (inventory and receivables) with non-banking loans (primarily commercial loans). The need of working capital depends on the following factors: turnover, value added share of turnover, inventory size, amount of debt, whether the economic entity can obtain commercial credit (from suppliers) the various time payment of obligations accepted by state staff, shareholders, creditors different, etc. The need of working capital is higher, the more the economic entity is in need of short-term financial resources, which are more expensive, these requiring financial costs, reducing profitability, reducing the selffinancing capacity of the economic entity. Net treasury (TN) of the economic entity Treasury as a result of the comparison made between the uses and appropriate resources for short-term financial operations (Cohen, 1994). In any economic entity, treasury plays a major role since all of its economic and financial operations are reflected with entry or exit cash flows values. If working capital at the time of closing the accounting year is higher to the working capital requirements then financing surplus is reflected as a net treasury, reflected in the cash money in bank accounts and cash. Thus the treasury is part of the working capital requirements constituted from excess working capital, consisting of liquid assets stationed between two rotations (La Bruslerie, 2002). Treasury may be even lower as the flow of input and output are more coordinated approach and a perfect regularity (Peyrard, 1986). From both sides of the balance sheet, net treasury can be determined: a) based on the upper sheet, this determination reflects "the fundamental relationship of cash, which is determined by expressing the correlation between working capital, working capital requirements and cash, depending on the size of the revolving fund thus long-term policy decisions investment and financing policy of the economic entity. b) based on the lower part of the balance sheet (the difference between cash and cash loans); c) based on the harmonized balance sheet, presenting as a list.

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RESULTS AND DISCUTIONS Calculation and analysis of net situation Calculation of the two variants of the net situation for the researched economic entity, given the evidence extracted from the entity's financial statement led to results in Table. 1. And evolution of this indicator is plotted in Figure. 1. Table 1. Calculation and analysis of net situation (of the equity) No. crt 1. 2. 3. 4. 5. 6. 6.1. 7. 8.

Indicators

UM

Total net assets Total debts Revenue in advance (deferred income) Net situation (SN) (1-2-3) Total assets – current debts (F) Chain-based index Variation of the indicator Debts > one year(G) Equity (F-G) (5-7)

Analyzed period 2005 2006 10.700.108 10.730.672 3.208.349 3.044.445 -

Lei Lei Lei

2004 8.767.070 1.690.691 -

2007 11.168.378 3.353676 -

2008 14.163.249 4.680.281 -

Lei Lei

7.076.379 7.076.379

7.491.759 7.491.759

7.686.227 7.686.227

7.814.702 7.814.702

9.482.968 9.482.968

% % Lei

100% 0% -

106% 6% -

103% 3% -

110% 10% -

121% 21% -

Lei

7.076.379

7.491.759

7.686.227

7.814.702

9.482.968

10000000 8000000 6000000 Net situation (SN) 4000000 2000000 0 2004

2005

2006

2007

2008

Figure no. 1. The evolution of net situation (SN) Table no. 1 and the graphical representation shows that in the period under review net situation is positive and increasing, reflecting a sound economic management, which maximizes the value of the economic entity (the equity). Increased net situation is increasing the profitability and financial independence of the entity and based on it we could determine the overall risk or liquidation risk. Net assets (equity) are a key indicator of in determining the health degree of the economic entity, in respect to maintaining physical or financial capital. Financial capital maintenance requires obtaining profits by increasing the financial value (monetary value) of net assets, while maintaining physical capital implies that profit is obtained only by increasing the natural production capacity during the period. Calculation and analysis of working capital (FR) Calculating the working capital in the above options for the economic entity has led to the results in Table. 2 and the graphical representation of the structure development of working capital are shown in Figure. 2.

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Table 2. Calculation and analysis of working capital (FR) Nr. crt

Indicators (lei)

1. 2.

Equity Debts on a period longer than one year Provisions for liabilities and charges Permanent capital (Cp) Fixed assets (Ai) Financial working capital (FRF)(4-5) Own working capital (FRP)(1-5) Loan working capital (FRI) (66.1.)

3. 4. 5. 6. 6.1. 6.2 7. 8. 9. 10. 11. 12. 12.1. 13. 14. 15. 16.

Analyzed period 2004

Current assets Prepayments (prepaid expenses) Current liabilities (current debts) Revenue in advance (deferred income) Financial working capital (7+8-9-10) (FRF) Chain-based index ( % ) Variation of the indicator Total assets – current debts (F) Fixed assets (A) Financial working capital (FRF) (F- A) Net current assets, respectively net currente debts (7 + 8 - 9 10) (E)

2005

2006

2007

2008

7.076.379 -

7.491.759 -

7.686.227 -

7.814.702 -

9.482.968 -

-

-

-

-

-

7.076.379 4.970.533 2.105.846

7.491.759 5.797.019 1.694.740

7.686.227 5.436.163 2.250.064

7.814.702 7.183.780 630.922

9.482.968 8.888.157 594.811

2.105.846 0

1.694.740 0

2.250.064 0

630.922 0

594.811 0

3.794.789 1.748 1.690.691 -

4.874.223 28.866 3.208.349 -

5.292.105 2.404 3.044.445 -

3.983.972 626 3.353676 -

5.258.927 16.165 4.680.281 -

2.105.846

1.694.740

2.250.064

630.922

594.811

100 % 0% 7.076.379 4.970.533 2.105.846

81 % -19% 7.491.759 5.797.019 1.694.740

133% 33% 7.686.227 5.436.163 2.250.064

28% -72% 7.814.702 7.183.780 630.922

94% -6% 9.482.968 8.888.157 594.811

2.105.846

1.694.740

2.250.064

630.922

594.811

2500000 2000000 Financial w orking capital (FRF)

1500000

Ow n w orking capital (FRP) 1000000

Loan w orking capital (FRI)

500000 0 2004

2005

2006

2007

2008

Figure no. 2. The evolution of the working capital structure Throughout the period of analysis the values are positive, so a positive financial working capital, but with a decreasing trend, which reflects an uncertain evolution of the current safety margin of the economic entity. In that case, the situation can be considered negative, because the current needs are covered by permanent resources with just a little more, due to increased fixed assets. Last year financial analysis of the working capital decreased by 6% than the previous year, representing 6% of the capital, that is 2% less than last year. As well as the financial working capital, working capital belonging to the entity evolves positively as well but showing the same decreasing trend, because the permanent capital structure is 130

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missing the medium and long term debt. Foreign working capital was virtually represented by medium and long term debt is set to 0. Reducing the working capital is the result of differences between growth rates of items taken in the calculation of the working capital and certifies financial precarious existence of longterm and short term financial balance. However, at the economic entity’s disposition remains a permanent capital surplus after financing fixed assets, to finance a part of the current assets growth. Given that the for the appreciation of the working capital level economic theory recommends the analysis in relation to the specific industry and that for industrial economic entities without specific problems related to stocks, such as the entity analyzed, falling within the normal production is believed that working capital is normally 10% of turnover or 20% of current assets. Thus, it appears that in all the years of analysis, working capital has the following rates: in 2004, 14% of turnover and 56% of current assets; in 2005, 9% of turnover and 35% of assets current in 2006, 14% of turnover and 43% of current assets; in 2007, 6% and 16% turnover of current assets, and in 2008, 6% of turnover and 11% of current assets. Calculation and analysis concerning the need of working capital (NFR) Starting from the economic entity's abbreviated balance analysis, the need of working capital calculation is presented in Table. 3. The evolution of this indicator is plotted in Figure. 3. Table 3. Calculation and analysis concerning the need of working capital (NFR) Nr. crt

Indicators (lei)

1. 2.

Current assets Prepayments (prepaid expenses) Cash at bank and in hand Total I (1+2-3) Current debts (current liabilities) Bank loans and over drafts) Revenue in advance (deferred income) Total II (5+6+7) Need of working capital NFR (4-8) Chain-based index( % ) Variation of the indicator

3. 4. 5. 6. 7. 8. 9. 10. 11.

Analyzed period 2004

2005

2006

2007

2008

3.794.789 1.748

4.874.223 28.866

5.292.105 2.404

3.983.972 626

5.258.927 16.165

628.675

839.144

1.443.984

414.635

976.817

3.167.862 1.690.690

4.063.945 3.208.349

3.850.525 3.044.445

3.569.962 3.353676

4.298.275 4.680.281

-

-

-

-

-

-

-

-

-

-

1.690.690 1.477.172

3.208.349 855.596

3.044.445 806.080

3.353.676 216.286

4.680.281 -382.006

100 % 0%

58 % -42%

94% -6%

27% -73%

-177% -277%

2000000 1500000 1000000

The need of working capital (NFR)

500000 0 2004

2005

2006

2007

2008

-500000

Figure no. 3. The evolution concerning the need of working capital (NFR)

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During the period under review it is found that in the first 4 years the need of working capital were positive, but with a downward trend due to faster growth of debt and expenses in advance of the current assets and cash availabilities. In the last year of analysis, the need of working capital decreased and was negative as well (a deficit of -382.006), marking a temporary surplus of temporary sources in relation to temporary needs. This surplus should be interpreted as an expression of positive statements regarding the financial stability of the economic entity, as determined by the accelerating velocity of inventory and receivables. Calculation and analysis of the net treasury Considering the data from the abbreviated financial statement and balance sheet of the analyzed entity, net treasury calculation taking into account both sides of the balance sheet led to the results shown in Table. 4. The evolution of this indicator is plotted in Figure. 4. Table 4. Calculation and analysis of the net treasury Nr. crt

Indicators (lei)

1.

Financial working capital (FRF) Need of working capital (NFR) Net treasury (TN) (1-2) (a) Cash at bank and in hand Bank loans and over drafts Net treasury (TN) (4-5) (b) Current assets – net current liabilities (E) Net treasury (TN) (7-2) (c) Indicele cu baza în lanŃ ( %) Variation of the indicator (%)

2. 3. 4. 5. 6. 7. 8. 9. 10.

Analyzed period 2004

2005

2006

2007

2008

2.105.846

1.694.740

2.250.064

630.922

594.811

1.477.172

855.596

806.080

216.286

-382.006

628.674

839.144

1.443.984

414.636

976.817

628.674 628.674

839.144 839.144

1.443.984 1.443.984

414.636 414.636

976.817 976.817

2.105.846

1.694.740

2.250.064

630.922

594.811

628.674 100 %

839.144 134 %

1.443.984 172%

414.636 29%

976.817 236%

0%

34%

72%

71%

136%

1600000 1400000 1200000 1000000 800000

Net treasury (TN)

600000 400000 200000 0 2004

2005

2006

2007

2008

Figure no. 4. The evolution of net treasury Taking into account the first model of determining net treasury, it is noted that the size depends on both changes in cash working capital (under the influence of permanent capital and fixed assets) and changes in need of working capital (under the influence of current asset, respectively current liabilities). Thus, the situation prevailing during the period under review relates

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to a positive net treasury and growing gap, being generated by higher rates of loss of financial working capital, compared with lower need of working capital. Starting from the second way of determining the net treasury, its growth is due to the reduction of current assets, respectively net current liabilities. In the present case net treasury is identical to cash availability as following bank credit due to lack of cash. Given the two components that determine the relationship of the calculation of net treasury, respectively the the need of working capital and financial working capital, in Figure. 5. It is observed the structure of the three indicators.

100% 80% 60% Net treasury (TN) 40%

Need of working capital (NFR)

20%

Financial working capital (FRF)

0% -20% 2004

2005

2006

2007

2008

Figure no. 5. The structure of the net treasury, need of working capital and working capital CONCLUSIONS The importance of net situation (equity) in assessing the financial health of the economic entity is amplified in its assessment work, where in the economic evaluation methods are used more than one variants to express the material elements of equity, based on net accounting value of asset, updated or reassessed net assets, adjusted net assets, net asset’s liquidation value, substantial heritage value. As an indicator of solvency, the existence of the working capital is considered an imperative condition by the creditors of a relatively secure financial situation. In traditional financial optic, the margin is justified by the uncertain and dynamic environment in which the economic entity actions, ensuring financial balance are maintained relatively stable. Considered the most relevant indicator of financial balance, the need of working capital (NFR) reflects the part of the current assets that is not financed by cyclical resources or the part of cyclical assets that need to be financed from stable resources. To conduct each current cycle of an economic entity's operations are necessary financial resources to be provided by it. At the economic entity’s level, the treasury is the picture of money availabilities and of short term investments arising from the evolution in current receipts and payments (which are operations of incoming and outgoing cash that the economic entity is carrying out) respectively from placing the excess cash. Net treasury is the most meaningful expression of the deployment of an efficient activity, recording a net treasury, in several successive years, thus demonstrating the success of the economic entity and the possibility of profitable placement of available money to strengthen its market position. REFERENCES 1. Batrancea, I. (2006) - Raportari financiare. Evolutii, Continut, Analize, Editura Risoprint, Cluj Napoca.

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2. Bernstein, L.A, Wild J.J. (2000) - Analysis of Financial Statements, McGraw-Hill, New York. 3. Brealy, R., Myers, S., Allen, F. (2006) - Principes des gestion financière, 8e édition, Pearson Education France; 4. Cohen, E. (1994) - Analyse financière, 3e édition, Editura Economica, Paris. 5. Fabozzi, J.J., Peterson, P.P. (2003) - Financial Management & Analysis, John Wiley & Sons, Inc., New Jersey. 6. Ginglinger, E. and Turq, F. (1993) - Les sept lectures du bilan, Edjtion Nathan, Paris. 7. La Bruslerie, H. (2002): Analyse financière. Information financière et diagnostic, 2e édition, Dunod, Paris. 8. Labille, Jean-Pierre (2007) - Analyse financière, Paris, 3e èdition. 9. Lumby, S., Jones, C. (2003): Corporate Finance: Theory and Practice, 7th edition, Thomson High Holborn House, London. 10. Mihalciuc, C. C. (2009) - Valorificarea informaŃiei financiar-contabile în diagnosticul întreprinderii, Editura Sedcom libris, Iaşi. 11. Petcu, M. (2003) - Analiza economico-financiară a întreprinderii, Probleme, Abordări, Metode, AplicaŃii, Editura Economică, Bucureşti. 12. Peyrard , J. (1986) - Analyse financiere, Vuibert gestion. Paris. 13. Petrescu, S. (2008) - Analiză şi diagnostic financiar-contabil. Ghid teoretico-aplicativ, editia a II-a, revizuita si adaugita, Editura CECCAR, Bucureşti. 14. Tabără, N., Horomnea, E., Toma, C. (2001) - Conturile anuale în procesul decizional, Elemente de contabilitate, analiză financiară şi evaluarea performanŃelor întreprinderii, Editura Tipo Moldova, Iaşi. 15. Trébuchet, J., L. (1995) - Outils de gestion commerciale, Collection Etapes, Nathan, Paris,. 16. Vâlceanu, G., Robu, V., Georgescu, N. (2004) - Analiză economico-financiară, Editura Economică, Bucureşti.

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DEPLOYMENT APPROACHES OF THE INTANGIBLE ASSETS UNDER THE FORM OF INTELLECTUAL CAPITAL WITHIN THE ACCOUNTANCY PROCEDURES OF A COMMERCIAL COMPANY Professor PhD. Iuliana GEORGESCU University "Alexandru Ioan Cuza" , Iaşi, Romania Faculty of Economics and Business Administration [email protected] Assistant Ph.D. Student Irina CHIRITA University „Stefan cel Mare”, Suceava, Romania Faculty of Economics and Public Administration [email protected] Abstract In the actual Romanian context under the aspect of the examined theme can be attributed to the cumulated effects of the transition period. The knowledge baggage and the advance practice, especially through learning from the external partners , took place, simultaneous, on professional plan and managerial plan; in the entrepreneurial action plan, the investments in intangible assets and in intellectual –intensive activities were perceived as risky and prohibitive under the aspect of costs, while , in advanced countries, the competitive notions based on knowledge were first. This research starts from defining the purpose and objectives as the first part of the research will make a brief description of the area that interests us, namely intangible assets and will establish strategy is finally reaching the perception of intangible assets in entity. The paper captures the key elements of intangible assets in order to highlight and reflect their importance. The fact that intangible assets can be and they are important for an entity to be recognized as valuable and accounting procedures of a company. As a work hypostasis in our evolution we will start by identifying the existent models regarding the evaluation of intellectual capital, their implementation in the total of entities and a rigorous analysis of their influential grade on entity value. Keywords: intangible assests, intellectual capital, industry research, equity capital market, own capital JEL Classification: B41, G31, G32, L25, M41, O16

I. INTRODUCTION PURPOSE AND OBJECTIVES IN THIS RESEARCH The purpose of this research is the implementation of intangible assets as intellectual capital in accounting procedures. Among the objectives pursued by this research include -identification of components, group models of intangibleassets; - analysis of the internal business environment regarding the possibility of implementing the models of intangible assets; - analysis of effectiveness of each model that characterizes intangible assets as intellectual capital, in particular; - achieving comparison regarding different models with its specific indicators to identify the most optimal. II. SHORT DESCRIPTION OF RESEARCH DOMAIN According to Skyrme (1997), the knowledge and the intellectual capital are the “hidden” assets of a company, which backs up Stewart’s (1997) idea regarding the creation of competitive advantages through an effective management of this kind of assets. Two trends of thinking led to the development of the concept of intellectual capital, one centered on strategy and the other on measurement. The strategic trend started from the “organization that teaches” and from the relationship between knowledge and the success of value creation. There were taken into account the conceptual evolutions regarding innovation, management of knowledge transfer and key135

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abilities for the success of the strategic intercession. The measurement trend started from the management of human resources and from the techniques of financial measurement of the capital, solving problems regarding measurement of the employee’s and company’s knowledge (Bahra, 2001). At the level of a general vision upon a company, the two trends had intertwined thus leading to the development of the concept of intellectual capital. The next statements are specific to clearly define the concept of intellectual capital:
intellectual capital is the sum of all that the people in an organization know, thus conferring it competitive advantages on the market;
intellectual capital is recognized as being a value in most organizations, but this is not measured and evaluated in no other financial statement of the organization, except for the market value reached at stock exchange;
intellectual capital represents the intellectual material which was formalized, captured and underlined in order to produce even more valuable assets. The intangible character of the new type of capital creates more problems. The intangibility appears due to the fact that it does not appear in any financial document of the company and it cannot be identified through a traditional physical form. A requirement for the systematic development of intangible assets is for these to be identified, classified and reported. Most of the classifications of the intangible assets describe them as difference between the market value and the accounting value of the company. Sveiby (1997) defines the intellectual capital as the sum of three components: human capital, structural capital and the client’s capital. The human capital is formed of the knowledge, abilities and proficiencies of the people from an organization. It is rather in the propriety of people than of the company, being a renewable part of the intellectual capital. The structural capital includes strategy and organizational culture, structures and systems, organizational routines and procedures, as well as assets of intellectual propriety as technologies, inventions, data, publications and the processes that can be patented and protected. Structural capital includes processes, structures, informational systems patents and other knowledge which remain with the company when the employees leave. The client’s capital is given by the value of its relationships with the clients, including the client’s loyalty with the company’s products, based on the company’s reputation, the buying behaviors or the clients’ availability to pay. In the international context, according to one of the most used taxonomies (Joia, 2001), the intellectual capital of an organization includes: Relational capital which includes relationships or alliances with the clients, strategic partners, investors and local communities, as well as the image of brand and trust given to the respective organization by the actors in the business world; Human capital which includes knowledge, abilities, experience and creative potential of the organization’s members; Organizational (structural) capital, the systems and the processes that make possible the functioning of the company and obtaining the expected performances: informatics and communications technologies, organization’s memory (data bases, documents), the own portfolio of intellectual rights (registered marks, author rights and invention patents), other forms of coded knowledge (procedures, manuals of good practice standards). Taking into account the complexity implied by the problems of the intangible assets and the multiple angles of their appreciation, there can be determined four areas which are evidently interested in defining the intangible assets:  accountancy;  legal interpretation of intangible assets;  taxations’ point of view;  evaluation’s point of view.

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Being oriented towards the processes of internal accumulation and transaction of intangible assets, the patrimony approach concentrates on the value aspect of their existence and usage (Joia, 2001); from here results the primordial role given to measurement in the success of any systematic intervention of managing the intellectual capital, which in practice faces two mainly categories of difficulties:  the tendency of avoiding the quantification in value terms of intangible assets;  the tendency of avoiding the official reporting of the results of this quantification. The reticence of calculating the valor dimension of the intellectual capital is explained through the difficulty and the application costs of the existing measurement procedures, but also of selecting the indicators relevant for management. In turn, the reticence of reporting the results of measuring the existing intellectual capital derives from the accentuated relativism in interpreting the obtained values, from the risk of unveiling aspects of strictly internal interest of companies and from the lack of a consecrated format of such reports (Kennedy, 1998). The value dimension of the human capital can be calculated not just using the system of the indicators of durable development, but also taking into view three other reasons (Dumitrana, M., Jianu, I., Dumitru, M., Jinga, G., apud Stroombergen, Rose and Nana, 2002):  evaluation of politics in the education area;  evaluation of what determines the occupation of working force;  understanding the economical growths. III. RESEARCH STRATEGY OF THE INTANGIBLE ASSETS In this research strategy adopted will be of the type incomplete inductive in which we start with the identification of entities nationally, the specifics of each, having as a pattern an already existing property in which we apply models of intellectual capital evaluation and attempt to implement these models for all the entities examined. We will identify whether the premise from which we start, namely the implementation of intellectual capital in accounting structures of an entity from the evaluation of their models with data arguments, help us to implement practically the intellectual capital in accounting. Such a strategy can achieve, for this research several conditions, namely: independence, because each model theories of identification of intellectual capital are specific enough; completeness, is to solve the identified problem. As a work procedure we will chose using schemes, and existing models to determine results. Through the analysis of measuring intellectual capital modes takes place the establishment of a number correspondence, more, a comparison of results of the models applied to analyzed entities to determine the most optimal and to implement intellectual capital in the annual financial statements. As an approach will be the quality, which follows the deep analysis of the situation there and finds a solution to the identified problem regarding intellectual capital. As research techniques we will use the identification of entities of analysis, entities that will be chosen on the basis of predetermined criteria such as the activity profile, the number of employees, age, and others who help us in the implementation issues of intellectual capital in accounting procedures and such research will determine the sample, which will be a systematic type. The information to obtain the necessary data will be taken from various documents presenting entities, the existing accounts in entities, reports, studies whether occasional or regular or archives. These will form the basis of that technical equipment data collection. Observation is one of the techniques present in our research, as a direct technical collection of data that allows us direct contact with the reality of the national average. We can use and apply the interview technique where existing data in the entity are not sufficient, and we need additional data, even one assessment model of Navigator intellectual capital which involves interviewing employees. Measurement technique will help us greatly in exploiting information from 137

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previous analysis in order to bring it to the state in which we can make comparisons, analysis and correlations, to explain the importance of intellectual capital for the entity and thus the identification of research results. Another step in the strategy for this research will be processing, preceded by analysis. The analysis will be one of the comparative type, biographic but also of the content of the communication. The study of documents is absolutely necessary in this research because there are sources of data that prove a fact. Collate data in various tabular forms or in graphical representations will be part of the logical approach of this research to digest information easily and so we can draw different conclusions . The analysis of indicators of measuring intellectual capital are absolutely necessary as their numerical size helps us determinate the level, volume, value and structure of the community. IV. ASSUMPTIONS AND POSSIBLE SOLUTIONS CONCERNING THE IMPLEMENTATION OF INTANGIBLE ASSETS IN THE ACCOUNTING PROCEDURES OF A COMPANY Regarding the fact that organizations nowadays must explore all the resources which they have to ensure success. With the tangible assets, physical, the intangible assets, non-physical, play an important role in the overwhelming majority activity of the organizations. As a work hypostasis in our evolution we will start by identifying the existent models regarding the evaluation of intellectual capital, their implementation in the total of entities and a rigorous analysis of their influential grade on entity value. Existent and studied models nowadays regarding intellectual capital are found under the following form : Navigator through which market value takes the form of Market value = Financial Capital + Further intellectual capital, it is divided into four different areas: human capital, customer capital, process capital and innovation capital. If to these four we add financial capital to obtain the financial capital market of the organizations concerned. Moore (1996) attributed the above models a limited use. In his view, the assessment of a company must prevail measurements made at the end of the process and have the actually recorded earnings in mind. Moore is a value chain model called Enterprise Value Chain (EVC) in which the four processes (subsystems) - Leadership, Customer, People, Operations- are related values of the three determinants Basic Skills ,Consumer Preferences and Shareholder transferred value. The model was later developed and extended by Karl-Erik Sveiby, one of the authors, resulting in the final model known as the Intangible Asset Monitor (IAM). After Sveiby, there are two main purposes and two target groups: goal 1 the transparent presentation of the company in front of the external target group consisting of clients, credit institutions or shareholders. goal 2-internal evaluation purpose of the company used by internal target group made from its management to exercise the function of monitoring and taking correct measures required before any unintended negative effects become significant. In a first argument, it could be argued that both goals can be achieved by using accouting in dual match. There is however a serious objection: the balance sheets, income statements , etc., are made in a monetary expression so that it is impossible to discern those flows to the organization whose associated assets are largely of non-monetary nature and intangible. This research will try to claim that the two goals can be achieved by calculation of intellectual capital in a cash expression through patterns and through indicators that determinate its value. IV.1. PERCEPTION OF INTANGIBLE ASSETS WITHIN AN ENTITY The intellectual capital that evolved (in the past) around an organizational architecture based on a given technology, which must be permanently adapted to organizational changes in order to cope (nowadays) with the aggressions of the external factors, preventing the leak of information 138

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and knowledge between the new levels of the organization (in the future). In this conditions, the intellectual capital becomes a instrument meant to clearly define the priorities from the past from the ones in the present and from the ones in the future of the organization. The coping of the intellectual capital with the continuous changes made in the organization implies: • The understanding and the taking in consideration of the reactions caused by the change; • The creating of the main objectives for a certain period; • The clear stating of the roles and responsibilities of the workers. The identification of a intellectual capital model, mode made by Leif Edvinsson with Michael Malone, in which the intellectual capital is composed by two major elements, meaning human capital and structural capital, model which was followed by a series of other models regarding intellectual capital and which had at the base two sources : egocentric in which the intellectual capital is considered as being the value given by the interaction between the individual capitals of the workers; socio centric given by the same individual value , but this value interacts at a structural level needing the social and global implication of individuals in the new organizational dimension. In Romania, the controlling of intangible assets is continuously considered a theme with a high level o new and complexity, which explains the still limited attention given on conceptual level and applicative level. The relative quick opening towards concerns regarding intangible actives appears as a consequence of the connection to the economic circuit and the international scientific one and the implication of the country in the European integration process . Although, in the internal business environment, the economical evolution based on knowledge is perceived as a priority, waited more from some macro-economical politics and governmental projects of great dimensions than as a result of promotion, in organizations, of intellectual-intensive activities. The difficulties of perception and managing determined by the nature of the intangible actives are generally- viable under type aspect, but they manifest with precision in the actual Romanian context, making important gaps in ratio with the reference practice on an international aspect. The analysis of such gaps can be made starting from the distinction between the enterprises “old economies” and “new economies” (Hand and Lev, 2003), which allows the comparisons between cultures and practices associated to each of them. Table 1. Levels of perceptions on intangible assets in organizations Levels of perceptions

Main points

Ignoring

Intangible assets are not shown as distinctive entities on cognitive maps of organizational actors

Unarticulated perception

The existence of intangible actives is seen only empirically and framed, and the performance potential is just guessed .

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Way of regarding the sphere of organization practice - the knowledge is not perceived as active; - the internal communication from organizations is limited at control purposes and scoring of execution actions; - the knowledge works especially in its own form, independent from the organizational formal frame. -the distinction between tangible actives and intangible ones is obvious, without becoming operational ; - the intangible assets problem is not perceived clearly on the decision agenda; - the control of knowledge is based on improvisation and informal interaction; - some punctual solutions intervene ad-hoc as an effect of some external limits (legal obligations, contractual).

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Perceiving perception The importance of intangible assets is seen on the basis of some external reference (success or failure cases, business environment tendencies etc)

Systemized perception

Intangible assets are used as strategic assets, in an integrating vision, for obtaining performances, lasting and “top”.

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-the solutions to the intangible assets utilization problem are of informational nature of some activities and demand only explicit knowledge (coded) from organizations; - the context induces the inclining of the alignment at the domain’s tendencies, but the capacity of assumption, on long term, of some arrangements in this sense is reduced; - the eventual advantages of knowledge are used, usually, in a n opportunistspeculative way. -organizations perform and function in a way based on knowledge, on the “three I” principle(innovation, learning, partnership interactivity); - are operational the communities of professionals, cooperation networks between experts, “tanks” or “construction sites” of new ideas, integrated systems of controlling knowledge and competences; - organization members assume the title “knowledge workers”(workers of conception work).

A series of features that characterize the actual Romanian context under the aspect of the examined theme can be attributed to the cumulated effects of the transition period. The knowledge baggage and the advance practice, especially through learning from the external partners, took place, simultaneous, on professional plan and managerial plan; in the entrepreneurial action plan, the investments in intangible assets and in intellectual – intensive activities were perceived as risky and prohibitive under the aspect of costs, while, in advanced countries, the competitive notions based on knowledge were first. The domain of intellectual propriety advanced relatively slow towards defining and applying a juridical articulate regime, being needed a lot of limiting elements than the motifs given to those interested in protecting and valuing their own intangible assets. In the conditions of sticking to the world market and to the economic integration at an European scale, remaining behind registered in Romania concerning use practice of intangible assets go with risks in external competition, quality and costs of the integration system, in the dynamic of the professional team and in the international cooperation capacity; these risks are manifested at a national scale, intervening with the rhythm and quality of the economic, scientific and technologic evolution of the country, but also of its position on an external plan. The risk analysis of the current situation regarding the use of intangible actives is structured on risk categories: the risk of improper use at concurrence pressure on the European internal market ; the risk of substantial growth of the costs of European integration of the country; the risk of crossing delay to economic evolution based on knowledge; the risk of persistence “brain exodus ” ; the risk of participation capacity limitations at European programs and international researchevolution programs. V. RESEARCH CONCLUSIONS The various models of measuring intellectual capital with focus on innovation, but not innovation as the innovation process but as part of production and the role of human factor is not one determinant of organizational performance. In every organization there was knowledge in constant change.

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The way in which they manage crises occurring in this period depends on the success of the organization. One crucial factor in managing these crises is the intellectual capital. During the process of assimilation of intellectual capital a conversion is done to the individual identity. Identity transformation is an important social process which employs dissonant, tasks and shares role expectations. The intellectual capital for the XXI century organization must lie on first plan, along with capital market (it is widely agreed that unless an organization sells its products and services can not survive), intellectual capital (which if not made up of a competent human capital and organization devoted to the organization may lead to bankruptcy, despite the market both for goods and services and financial resources)(Wall, A., Kirk, R., Martin, G, 2004). Human capital theory - creates the premises, moving from the concept of "use" to the concept of recovery of human capital. Simplistic vision focused on the use of human resources and remuneration depending on the work issues the fragment role of the human factor in small segments connected together. In the concept given, the use process of the work resources is torn from the necessity of making important the human factor. Through this research, treatment of the human factor in terms of human capital allows shift from the simplistic vision of use to the concept of capitalizing human factor. Last put into a coordinate system capacity to be good human factor and the recognition the necessity of extending the validity area of choice which a practical man has to do in following directions: the creation and development of human resources through education, training; extension of work by health care, the rational location inside the economy, etc. The concept of capitalizing the human factor is essentially a systemic vision, which focuses on actions of all parts of society towards development of measures, provision of investments that would ensure quality to the human factor, the materialization of which is made through managing this process at micro and macroeconomic level. REFERENCES 1. Apetroaie, M. Capitalul Intelectual şi economiile epistemice, Ed. OPINFO , Bucureşti,2004, ISBN 973-86099-7-6 , ISBN 973-87150-3-2 , pp. 74,85, 127 2. Becker S. Garry – Capitalul uman. O analiză teoretică şi empirică cu referire specială la EducaŃie, Editura ALL, Bucureşti, 1997,pp.50 3. Dumitrana, M., Jianu,I. Dumitru, M., Jinga, G. Reporting and reports sustainable development indicators, AMIS, 2007 4. Hand, J.R.M., Lev, B.. Introduction and Overview. In: J.R.M.Hand & B.Lev (eds.). Intangible Assets - Values, Measures, and Risk”, pp.1-18, Oxford University Press: New York , 2003 5. Joia, L.A. . Measuring intangible corporate assets. Linking business strategy with intellectual capital. Journal of Intellectual Capital, 1(1): pp68-84. , 2001 6. Miltiadis D., L., Ordonez, P. Knowledge Ecology in Global Business: Managing Intellectual Capital, Miltiadis D. Lytras, University of Patras, Greece & Patricia Ordonez de Pablos, Universidad de Oviedo, Spain ,Ed. IGI Global,2009 ISBN: 978-1-60566-270-1, pp.156 7. Sveiby, K.E. (2001). Intellectual Capital and Knowledge Management, http://www.sveiby.com/articles/IntellectualCapital.html 8. Wall, A., Kirk, R., Martin, G.. Intellectual Capital – Measuring the Immeasurable? Oxford: CIMA Publising-Elsevier. 2004 9. Zanoni, B.,A. Accouting for goodwill, Ed. Routledge, 2009, ISBN10: 0-415-45149-3 (hbk) ISBN10: 0-203-87380-7 (ebk), pp. 22-85 10. ***Human Capital Investment OECD An international Comparison ISBN 92-64-16067-1 – No. 50053 1998, pp35-80 11. www.oecd.org 12. www.cpavision.org 13. http://www.fpm.com/cases/el3.html 14. http://rphrm.curtin.edu.au/2006/issue1/human-capital.html 141

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VALUE ADDED REPORTING: A CASE STUDY OF ABANS LISTED MANUFACTURING COMPANY LIMITED IN SRI LANKA Arumugam SUBRAMANIYAM Balasundaram NIMALATHASAN University of Jaffna, Jaffna, Thriunelvely, Jaffna, Sri Lanka [email protected] Abstract A business enterprise specifically a company is a conscious, deliberate and purposeful creation for satisfying the domain of aspiration of the society at large. It is an independent and a separate legal entity. The survival stability and growth of such entity within society largely depend on the wealth created by it through the collective efforts of all the stakeholders-shareholders, providers of loan capital, employees and the government. All these stakeholders are the parties to whom the result of operations of business is communicated. Therefore, present study attempts to show how and to what extent the Value Added Statement (VAS) can supplement additional financial information to satisfy all the stakeholders of the enterprise. Further, in order to meet the objectives of the study, data were collected from secondary sources mainly from financial report of the selected company (i.e., ABANS Listed Manufacturing Company) which was published by Colombo Stock Exchange (CSE) in Sri Lanka. Hence, it is clear that ratios using Value Added (VA) indicate that the company little bit efficient in terms of utilization of materials. Keywords: Value Added (VA); Financial Performance; and Value Added Ratios JEL Classifications: M1; M4; M41

1. INTRODUCTION A business enterprise specifically a company is a conscious, deliberate and purposeful creation for satisfying the domain of aspiration of the society at large. It is an independent and a separate legal entity. The survival stability and growth of such entity within society largely depend on the wealth created by it through the collective efforts of all the stakeholders-shareholders, providers of loan capital, employees and the government. All these stakeholders are the parties to whom the result of operations of business is communicated. To satisfy the information needs of these users, the conventional financial accounting system generates data relating to financial performance through Profit and Loss Account or Income Statement giving emphasis on the interest of shareholders (i.e., owners) only. The Profit and Loss Account does not provide any information showing the extent of the value or the wealth created by the company for a particular period. Contribution to the company by other stakeholders cannot be accessed through the Profit and Loss Account. Hence, there is a need to modify the existing accounting and financial reporting system so that a business unit is able to give importance to judge its performance by indicating the value or wealth created by it. To this direction inclusion of the VAS in financial reporting system is a newly developed technique, which is regarded as a part of social responsibility accounting and reporting. 2. OBJECTIVES The following objectives are taken for the study; 1. To highlight the theoretical frame work of the concept of VA and VAS 2. To examine the VAS as a performance indicator for ABANS listed manufacturing company. 3. RESEARCH DESIGN AND METHODOLOGY 3.1 SCOPE As the main objective of the study was to apply the model of VASs with regard to income statement to find out the result and there upon to evaluate performance through value added ratios; 142

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a wider scope was considered not essential. Thus only one company was selected from listed manufacturing companies from Colombo Stock Exchange. 3.2 PERIOD OF THE STUDY The study was taken to show the general trend of performance, therefore, 05 years (20032007) were taken the study period. 3.3 DATA SOURCES In order to meet the objectives of the study, data were collected from secondary sources mainly from financial report of the selected company, which was published by Colombo Stock Exchange in Sri Lanka. 3.4 RELIABILITY AND VALIDITY OF THE DATA Secondary data for the study were drawn from audit accounts (i.e., income statements and balance sheets) of the concerned company; therefore, these data may be considered reliable for the purpose of the study. Necessary checking and cross checking were done while scanning information and data from the secondary sources. All these efforts were made in order to generate validity data for the present study. Hence researcher satisfied content validity. 3.5 MODE OF ANALYSIS The analysis has been made through value added ratio. For appraising the performance and judging the productivity of ABANS listed manufacturing company following ratios are considered for analysis. Table 1. Calculations of Value added Ratios Se. No

Value Added Ratios

Concept

Calculations

01

Value Added to Capital Employed Ratio

This ratio shows the value generation power of each unit of money representing capital employed. To arrive at capital employed figure, net worth and long-term borrowing are to be added together.

Net Value-Added

02

03

Value Added to Sales Ratio

Value Belongs to Employees to Vale Added Ratio

It shows the amount of value added by each unit of money of sales revenue. It measures the degree of vertical integration of a group of companies and also can be interpreted as an index of vulnerability to disruptive action affecting supplies of material and services. This ratio indicates the share of employees to value added of a concern. Value belongs to the employees includes wages and salaries and other benefits given to the employees.

Capital Employed

Net Value-Added

X100

Sales

Value belongs to Employees X100 Net Value Added

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Net Profit to Value Added Ratio

This ratio shows the owner’s share to the total pool; a high value shows that income is concentrated in few hands and vice-versa.

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Netprofit

X100

Net Value Added 05

08

Wages to Value Added Ratio

Value Added to Stock Ratio

This ratio shows the proportion of wages to value added output and is an ideal index of labour productivity as it is free from the influence of input and thus speaks clearly about the value added per unit of wages. This ratio is used in measuring the productivity of stock.

Wages

X100

Net Value Added

Net Value Added

X100

Stocks 09

Value Added Assets

to

Fixed

This ratio calculates the productivity of fixed assets.

Net Value Added

X100

Fixed Assets 10

Taxation to Value Added

This ratio computes the between of taxation as compared to value added. This ratio and trends therein are useful for inter industry and international comparison.

Taxation

X100

Net Value Added

4. THEORETICAL BACKGROUND It explains value added; significance of value added; value added statement; 4.1 VALUE ADDED: CONCEPTUAL FRAMEWORK The concept of value addition basically comes from the very manufacturing process where in the firm’s raw materials are converted into finished goods. A manufacturing firm begins with a certain quantum of raw materials, and then engages itself in a conversion process to yield a product with new utility and market value which is different from the original cost of materials. The excess of such market value over the cost of materials is defined as VA. However in practice materials in VA calculations include all items purchased from outside and actually processed. This concept of value added has been defined differently by various experts, which are as follows. The tem VA may be simply defined in economics as the difference between the value of output produced by affirm in a period, and the value of the inputs purchased from other firms in producing output. In equation form it can be stated as follows: VA = Value of Output (VO) – Value of Inputs (VI) According to Morely (1978) VA is the value, which the entity has added in a period that equals its sales less bought-in-goods and services. VA is the wealth the company has been able to create by its own and its employees’ efforts during a period (John Sizer, 1994). In addition, VA is the increase in market value brought about by an alteration in the form, location or availability of a product or service excluding the cost of bought-in-materials and services (ICAI, 1985). The term VA may be defined as the sale value less the cost of bought-in-goods and services used in producing those sales (Brown & Howard, 1992). The added value of a firm or for any other organization is the value added to materials by the process of production. It also includes the gross margin on nay mechanted or factored goods sold (Brech, 1994). On the other hand VA is said to represent the total wealth of the firm that could be distributed to all capital providers, employees and the government (Evaret & Riahi Belkaoui, 1998). On the basis of above definitions we may conclude that value added is the wealth created by the 144

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business during a particular period of time and the wealth (or value) so created or added is distributed among the different stakeholders who created it. It is also observed that there are various techniques of measuring the value added and thus it is necessary o develop a standard practice for measuring value-added, so that the performance of different enterprises may be judged in a meaningful way and inter-firm as well as intra-firm comparison may be possible. 4.2 SIGNIFICANCE OF VALUE ADDED The value added income concept is a significant tool for appraising the performance of enterprises whose operation affects the social and economic well-being of entire community. It recognizes other contributors and claimants who have contributed in the process of generating value such as employees, governments and providers of loan capital. Every one of them contributors to the value added and gets a proportionate share therein. An enterprise can survive without making profit, but not generating value is an evil to the society and may cause its death. The absence of profit does not mean that the enterprise is contributing nothing to the society because profit constitutes only a small fraction of the total value or wealth the organization generates in a particular period. A sick unit may be considered useful so long as it generates sufficient value to pay salaries and wages to its employees because its closures will create unemployment, which may result in a social crisis. At the time of preparing plans and targets of the company, financial managers usually set a profit target, but the value added could be a more appropriate criterion in this matter. Optimizing added value is more meaningful than optimizing profit, because ‘added value’ determines the reward for employees as well as for providers of capital. Therefore, incentive schemes can be designed in the light of VA. VA amount can also be used for profit planning of an enterprise. Productivity of different means of production can be measured in terms of VA. Moreover, it may be most appropriate criterion for resource allocation. 4.3 VALUE ADDED STATEMENT (VAS): A VOLUNTARY SUPPLEMENT For the purpose of calculating the amount of value added and its distribution, the Value Added Statements (VAS) is prepared. The main concern of this statement lies in deriving a measure of wealth (i.e. value), the entity has contributed to the society through the collective efforts of the various stakeholders. This statement is prepared and published voluntarily with the annual financial reports. VAS may be defined as the statement, which shows the income of the company as an entity and how that is divided between the people who have contributed to its creation. While income statement reports on the income of shareholders, the value added statement reports on the income earned by a large group of stakeholders-providers of capital plus employees and the government. VAS reveals the VA by an enterprise which it has been able to generate and its distribution among those contributing to its generation known as stakeholders (ICAI, 1985). The VAS reports on the calculation of vale added and its application among the stakeholders in the company (Van Staden, 2000). It is actually aimed at supplementing a new dimension to the existing system of corporate financial accounting and reporting through the disclosure of additional information regarding the amount of wealth created by an organization in an accounting period and the way the wealth has been distributed by the enterprise amongst all the stakeholders (i.e. employees, providers of loan capital, government and owners) who have contributed to the ‘wealth created’. Since VAS represents how the value or wealth created or generated by an entity is shared among different stakeholders, it is significant from the national point of view. Therefore, VAS represents a move in a new and different direction for financial reporting. Earlier, accountants have been giving much attention to answer the question- “How should we measure income?” But the VAS asks a different question- “Whose income should we measure?’’ So this approach can raise question of distributive justice and is directly linked with the concept of social responsibility of an enterprise. 145

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5. RESULTS AND DISCUSSIONS All these ratios are computed on the basis of data compiled in Table-1 according to the purpose of our analysis. Table 2. Value Added Ratios for Measuring Performance and Judging Productivity of ABANS Listed Manufacturing Company Name of the Ratio (%)

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Value Ratio 55.22 52.03 54.04 62.79 59.39 67.07 77.01 74.73 91.93 127.64 added to TV 42.60 49.17 55.75 62.32 68.90 75.47 82.05 88.62 95.20 107.77 Capital Employed Value Ratio 32.45 32.62 34.17 33.07 36.86 36.93 31.81 30.48 21.33 13.48 added to TV 37.74 36.09 34.44 32.79 31.14 29.49 27.84 26.19 24.54 22.89 Sales Net Profit Ratio 15.85 10.92 20.41 14.75 15.83 15.96 13.64 8.82 20.94 10.25 to Value TV 15.87 15.62 15.36 15.11 14.86 14.61 14.36 14.11 13.86 13.61 added Value Ratio 36.04 32.99 59.83 6.2 65.92 70.15 78.32 64.80 66.94 65.53 added TV 34.26 38.79 43.33 38.79 34.26 29.72 25.19 20.65 16.11 11.58 belongs to Employee Value Ratio 1.85 1.55 1.84 2.07 0.98 0.68 0.81 0.84 0.84 1.29 added to TV 1.80 1.68 1.56 1.45 1.33 1.22 1.10 0.98 0.87 0.75 Fixed Taxation to Ratio 15.06 10.80 12.64 13.50 5.56 10.25 4.92 2.17 4.93 1.11 Value TV 14.64 13.19 11.73 10.28 8.82 7.37 5.91 4.46 3.00 1.55 added Note: TV – Trend Value Source: Calculated from the figures available in the income statements and balance sheets of the company concerned

Table - 1 depicts the information about the computed ratios of ABANS for the period under study (i.e., from 1998-2007). Value added to capital employed ratio of the company has an increasing trend over the periods of ten years. It indicates that the efficient utilization of capital for the generation of value added. Value added sale ratio also reveals a decreasing trend over the years, which reflects that the company has not an effective sales promotion policy to enhance the performance of the company. Again Net profit to value added ratio of the company also reflects the increasing trend, which indicates that the owner share in the pool has increased over time. On the other hand, VA belongs to employee has almost decreasing trend (except in the years 1999; 2000) over the period under study. Again it is observed that the Value added to fixed asset ratio also decreasing trend over the period. These ratios of ABANS indicate that the efficiency of the company has to increase considerable over time in terms of both capital and labour productivity. It is observed that from table-1 that taxation to value added ratio shows decreasing trend over the period. All ratios indicate that the company little bit efficient in terms of utilization of materials. 6. CONCLUSIONS Hence, it is clear that ratios using VA figure can be regarded as the index of managerial performance and they would be more sensitive to display the vivid picture about the efficiency of management of a firm in a highly complex and competitive business environment. It is observed that the ABANS company little bit efficient in terms of utilization of materials

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TEXT AND REFERENCES 1. Alexander, S.S.(1950). Income Measurement in Dynamic Economy, Five Monographs on Business Income. Report by Study Group-on Business Income, New York, 6. 2. Balasubramaniyam, N.(1993). Corporate Financial Polices and Shareholders Return, Bombay: Himalaya Publishing House, 2-3. 3. Bedford, N.M.(1965). Income Determination Theory - An Accounting Framework, Readings., Massachusetts: Addision-Wesely publishing Company, 3. 4. Brown, J.L., & Howard, L.R.(1992). Managerial Accounting and Finance, The English Language Historian Journal (Fall, 1982), 25-42. 5. Breach, E.F.L.(1994). The Principles and Practice of Management, Longman, Englan, 152. 6. Evraert, S., & Riahi, Belkaoui, A.(1998). Usefulness of Value Added Reporting: A Review and synthesis of the Literature. Managerial Finance, 24(11), 15. 7. ICAI,(1985). Glossary of Terms Prentice Hall of India, New Delhi, September, 8. John Sizer.(1994). An Insight into Management Accounting, Pitman Publishing Ltd, 30 Parkar Street, London. (4th ed), p.35. 9. Maloo, M.C.(1984). Theory of Evaluation of Accounting Idea, New Delhi: S.Chand and Company Ltd, p.158. 10. Morely, M.F.(1978). The Value Added Statement: A British Innovation”, The Charted Accounting Magazine, 12(2), 31-34. 11. Van Staden, C.J.(2000). Revisiting the Value Added Statement: To publish or not to publish: In proceedings of the 12th Asian Pacific Conferences on International Accounting Issues, October, 21-24.

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ANALYSIS OF CONTEMPORARY ROMANIAN PUBLIC DEBT Flavia BARNA West University of Timişoara, Faculty of Economics and Business Administration [email protected] Ovidiu MURA West University of Timişoara, Faculty of Economics and Business Administration [email protected] Abstract: Modern research on sustainability of debt policies that apply statistical tests has started with the contribution by Hamilton and Falvin (1986) who analyzed whether the series of public debt in the USA contains a bubble term. Since then a great many papers have been written that try to answer the question of whether given debt policies can be considered as sustainable. The interest in that question is in part due to the fact that the latter question is not only of academic interest, but that it has practical relevance, too. Hence, if tests reach the conclusion that given debt policies cannot be considered as sustainable, governments should undertake corrective actions. Keywords: fiscal revenues, public expenditure, fiscal policy sustainability, cointegration test, seasonal adjustment. JEL Classification: H50, H20, G18.

INTRODUCTION „Addressing long-term sustainability of public finances is one of the main drivers of our strategy to end the crisis”, said the European Commissioner for Economic and Monetary Affairs, Joaquin Almunia. „We should support the economic recovery, but - in the context of a strong deterioration of public finances – the measures taken to increase the confidence and the support of the demand can yield results only if they are perceived by the public opinion and different markets as temporary and consistent with the long-term sustainability. By developing strategies for the period following the crisis, we will increase the effectiveness of short-term support measures and we will create conditions for a sustained and balanced economic growth.” Long-term sustainability of public finances is a concern to all EU countries, to an extent which however differs greatly, from one country to another. Sustainability weaknesses have become increasingly important in most countries due to economic crisis and more countries are now in a class of higher long term risk. Fiscal strategy to end the crisis, which aims to achieve ambitious and realistic medium-term targets, has to be developed now and implemented in a coordinated manner once the recovery is confirmed, taking into account the specific situation of each country. To support the necessary reforms and to enhance credibility of fiscal adjustment, and this will inevitably spread to a number of years, Member States may also have to develop their own budgetary frameworks. Regarding the Stability and Growth Pact, debt sustainability should acquire a clear and proeminent role within the monitoring procedures. To check the sustainability of budgetary policy in Romania, we initially test if time series of differences of order 1 of the debt stock is stationary. For this we turned to the ADF stationary test (Augmented Dickey-Fuller). We also tested the existence of a relationship of Cointegration between two variables (income and public expenditure) for a disclosure of a long-term equilibrium relationship. The results lead us to conclude that the two time series to Cointegration relationship exists and the budget deficit is sustainable. LITERATURE REVIEW Fiscal policy is the practical expression of the vision of government authorities on the sources and practical means of establishing the public revenues, the allocation of public funds on existing destinations and, possibly, to supplement the resources collected through taxation by 148

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resorting to public loans. The sustainability of fiscal policy is sometimes confused with the financial solvability of the government. In practice however, what the empirical literature ends up testing is whether both public expenditures and government revenues may continue to display in the future their historical growth patterns. This seems really to be the issue here, not so much a question of solvability. If a given fiscal policy turns out to be unsustainable, it has to change in order to guarantee that the future primary balances are consistent with the budget constraint.(1) Theoretically, any value for the budget deficit would be possible if the government could rise its liabilities without limit. Obviously, that is impossible since the government is faced with the present value of its own budget constraint. In the beginning of the 20s, when writing about the public debt problem faced by France, Keynes (1923) alerted to the need for the French government to conduct a sustainable fiscal policy in order to satisfy its budget constraint. Keynes stated that the absence of sustainability would be evident when “the State's contractual liabilities (…) have reached an excessive proportion of the national income” (p. 54). In modern terms, sustainability is challenged when the debt-to-GDP ratio reaches an excessive value. There is a problem of sustainability when the government revenues are not enough to keep on financing the costs associated to new issuance of public debt or, in Keynes's words, when “it has become clear that the claims of the bond-holders are more than the tax payers can support” (p. 55). At that stage the government will have to take measures that allow regaining the sustainability of fiscal policy, that is the State “must come in due course to some compromise between increasing taxation, and diminishing expenditure, and reducing what (…) [it] owe[s]” (p. 59). Blanchard et al (1990) present as a definition of sustainable fiscal policy one that allows, in the short term, that the debt-to-GDP ratio returns to its original level after some excessive variation. Put another way, for a fiscal policy to be sustainable, after having accumulated debt in the past, the government must run primary surpluses in the future. It is worthwhile noticing that the hypothesis of fiscal policy sustainability is related to the condition that the trajectory of the main macroeconomic variables is not affected by the choice between the issuance of public debt or the increase in taxation. Under such conditions, it would therefore be irrelevant how the deficits are financed, implying also the validation of the Ricardian Equivalence issue.(2) Hakkio and Rush (1991, pp. 430) support that an analysis based on ratios is more appropriated for growing economies: “(...) in addition to examining revenue and spending directly, we also use normalize these variables using real GNP and population. This is an important extension beyond previous work since McCallum [1984], among others, deems these ratios - per capita spending and revenue, and spending and revenue as a fraction of GNP - as more pertinent for a growing economy.” The literature exhibits generically two main approaches to test the sustainability hypothesis: tests similar to the one suggested by Trehan and Walsh (1991) and tests like the one credited to Hakkio and Rush (1991). Trehan and Walsh (1991) suggest that in order to test empirically the absence of Ponzi games (3), the authors propose to test the stationarity of the first difference of the stock of public debt. To test for the stationarity of the process, it is possible to use the unit root tests developed by Dickey and Fuller (1979, 1981). Trehan and Walsh (1991) assume also that the real interest rate is not constant, and that a stochastic process may represent it. (4) If the null hypothesis is rejected, then the process is stationary and the sustainability hypothesis may be accepted. If on the other hand the null is not rejected, then the process may only be stationary in the first differences, which can mean sustainability problems. As observed by Trehan and Walsh (1991), the stationarity of the variation of the stock of public debt is a sufficient condition, and stationarity rejection does not necessarily imply the absence of sustainability of the government accounts.

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Hakkio and Rush (1991) initially developed the empirical approach of the sustainability of fiscal policy through co-integration tests. The implicit hypothesis concerning the real interest rate, with mean r, is also stationarity. The empirical results may allow establishing several conclusions concerning the sustainability of the intertemporal budget constraint: i) when there is no co-integration the fiscal deficit is not sustainable; ii) when there is co-integration with b=1, the deficit is sustainable; iii) when there is co-integration, with b < 1, government expenditures ar growing faster than government revenues, and the deficit may not be sustainable.(5) SOME EMPIRICAL EVIDENCES In this paper we tested the sustainability of fiscal policy in Romania; fiscal policy is considered sustainable if the fiscal revenues and the public expenditure are cointegrate (there are 2 non-stationary time series which have a stationary linear relationship). For this purpose we collected and processed data related to income and expenditure for the period January 2003 November 2009, data presented in Table 1 and Table 2: Table 1. Budget revenues during 2003-2009 - mil. RON 2009 2008 2007 2006 2005 2004 2003

ian 6358 7282 3942 3701 3099 2926 2121

feb 9355 10882 5866 6613 5066 4823 3577

mar 11790 14966 8384 9546 7687 6874 5098

apr may jun jul aug 18191 21881 25495 31021 34339 22262 26561 30601 38711 43203 14007 18222 22014 28084 32015 13157 16837 19537 24371 27658 11240 14063 16604 20085 23359 10055 12321 14354 18155 20642 7402 9477 10927 13956 15972 Source: The monthly bulletins NBR.

sep 39109 48237 36208 31229 26526 23514 18332

oct 45450 55831 42488 36507 30884 27092 21415

nov 49965 58554,7 46582 39728 34063 29602 23559

dec 61030,2 48985 40698 36600 32195 25245

Table 2. Budget expenditure during 2003-2009 - mil. RON 2009 2008 2007 2006 2005 2004 2003

ian 6020 7504 3741 2851 3017 2543 1961

feb 13931 13115 8324 5761 5588 5087 3804

mar 21826 19107 12607 9074 8360 7467 5870

apr may jun jul aug 28749 34305 40949 49380 56226 25036 31808 37947 43788 49765 16765 21509 26351 31641 36316 12483 16006 19982 23816 27666 11245 14298 17330 20341 23308 10046 12974 15788 18862 21581 8140 10510 12580 15176 17071 Source: The monthly bulletins NBR.

sep 64664 56610 41471 31779 26123 24294 19467

oct 72046 64323 48881 36066 29520 27769 22529

nov 80822 72 297,1 57582 41013 33410 30805 25325

dec 80 889,9 64374 51236 38782 34074 28145

To test the sustainability of fiscal policy, we went through the following steps:
Step 1: deseasonalisation premium time series using the TRAMO/SEATS procedure.

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Final seasonally adjusted revenues by Season 40000

30000

20000

10000

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

Final seasonally adjusted revenues Means by Season

Figure 1. Seasonally adjusted revenues Source: Eviews 5.0., author’s calculation Final seasonally adjusted expenditure by Season 60000 50000 40000 30000 20000 10000

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep

Oct

Nov

Dec

Final seasonally adjusted expenditure Means by Season

Figure 2. Seasonally adjusted expenditure Source: Eviews 5.0., author’s calculation


Step 2: Testing the stationarity for seasonal adjusted series. A) Expenditure Table 3. ADF Test for public expenditure Null Hypothesis: D(EXPENDITURE_SA) has a unit root Exogenous: Constant Lag Length: 0 (Automatic based on SIC, MAXLAG=11)

Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level

t-Statistic

Prob.*

-12.34931 -3.512290 -2.897223 -2.585861

0.0001

*MacKinnon (1996) one-sided p-values. Source: Eviews 5.0., author’s calculation

B) Revenues Table 4. ADF Test for public revenues Null Hypothesis: D(REVENUES_SA) has a unit root Exogenous: Constant Lag Length: 0 (Automatic based on SIC, MAXLAG=11)

Augmented Dickey-Fuller test statistic Test critical values: 1% level 151

t-Statistic

Prob.*

-9.190654 -3.512290

0.0000

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-2.897223 -2.585861

*MacKinnon (1996) one-sided p-values. Source: Eviews 5.0., author’s calculation

It is noted that in accordance with the ADF test, the series adjusted for seasonal income and expenditure have a unit root (they are processes of type I (1) – stationary on the first-order differences). It is therefore possible to apply JOHANSEN Cointegration test for the study of connections between them..
Step 3: The JOHANSEN Cointegration Study. (6) Table 5. The JOHANSEN Cointegration Test Sample (adjusted): 2003M04 2009M12 Included observations: 81 after adjustments Trend assumption: No deterministic trend Series: REVENUES_SA EXPENDITURE_SA Lags interval (in first differences): 1 to 2 Unrestricted Cointegration Rank Test (Trace) Hypothesized No. of CE(s) None * At most 1

Eigenvalue

Trace Statistic

0.05 Critical Value

Prob.**

0.173656 0.002663

15.66626 0.216024

12.32090 4.129906

0.0133 0.6990

Trace test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No. of CE(s) None * At most 1

Eigenvalue

Max-Eigen Statistic

0.05 Critical Value

Prob.**

0.173656 0.002663

15.45023 0.216024

11.22480 4.129906

0.0086 0.6990

Max-eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Source: Eviews 5.0., author’s calculation

Both the Trace test and Max-eigenvalue test indicates a Cointegration relationship between expenditure and revenue. The form of this cointegration relationship is: Table 6. The cointegration relationship EXPENDITURE_SA(-1) REVENUES_SA(-1)

1.000000

-1.098157 (0.15382) [-7.13930] C 4380.964 (3351.12) [ 1.30731] Source: Eviews 5.0., author’s calculation 152

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Based on the statistical significance of parameter Cointegration and its level close to "1", it can come off the notion that public expenditure and income are cointegrated that it may be presumed some sustainability of expenditure on tax and non-fiscal resources from the revenue. Of course, it is interesting to study the time evolution of the relationship parameter between the two. More detail, this can be based on a relationship of type: Expenditure = α t Revenuest + ε t (1) where ε t - „white noise” (zero average and finite variance) Based on the estimate of this relationship, we obtain the following evolution of the parameter alpha: 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2003

2004

2005

2006

2007

2008

Parametru Alfa

Figure 3. The Alfa Parameter Source: Eviews 5.0., author’s calculation

It is noted that for the whole period of analysis, parameter values fall on a relatively stable path maintaining supraunitare, but close to 1. Applying a test of "structural stability" (Chow Breaking Point Test) we can note that 2006 marks a point of "structural failure" in the connection between public revenues and expenditure: Table 7. Chow Breakpoint Test F-statistic 0.016164 Probability Log likelihood ratio 0.016649 Probability

0.899214 0.897334

Source: Eviews 5.0., author’s calculation

CONCLUSIONS The global economic and financial crisis has sparked an unprecedentedly large, generalized fiscal policy response in practically all major industrial and emerging economies, which will change the fiscal and macroeconomic landscapes for some time to come. A desirable scenario for the medium term would see a sustained and sustainable growth rate which could allow for gradual withdrawal of fiscal stimulus and a decline in debt ratios. This scenario would imply a gradual shift from a policy driven recovery to self-sustained growth and would require a return to the global growth rates witnessed in the exceptional period before the housing bubble burst. Such a scenario, however, could be overly optimistic for at least two reasons. First, it is unlikely that the growth mechanism prevailing before the outbreak of the crisis can be restored. Second, as a consequence of the recession, potential output growth could fall in some if not all economies. The output of the previous section seems to be quite consistent in providing a good empirical support for the thesis that the Romanian fiscal policy during the past 7 years was sustainable. Of course, the proposed analysis has a lot of limitations both at theoretical as empirical level. Between these: the incomplete definitions of various concepts, which don’t cover all the critical aspects; the limited time span and data etc. But despite all these caveats, we are arguing that the evidence makes plausible the thesis that it may be presumed some sustainability of expenditure on the revenues from both fiscal and non-fiscal resources. 153

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ENDNOTES (1) Cuddington (1997) and Hénin (1997) discuss this topic. (2) Caporale (1995) mentions this question. Afonso (1999) presents some empirical results on the feasibility of Ricardian Equivalence in the Euro area. (3) When can a government borrow a dollar and never pay back any interest or principal? We call such an arrangement under perfect foresight a rational Ponzi game. (4) Hénin (1997), supports that in a deterministic context sustainability appears as a stability condition, while as in a stochastic context sustainability is perceived as the existence or not of a stationary process for public debt. (5) Concerning this cointegration analysis approach Bohn (1991, 1995) argues that a sustainable fiscal policy in a certain environment, may bacome unsustainable under uncertainty. (6) The results were generated using the Eviews 5.0 program.

REFERENCES 1. Afonso, A. (1999). Public Debt Neutrality and Private Consumption: some Evidence from the Euro Area. Research and Forecasting Department, Ministry of Finance of Portugal, Working Paper nº 11, June. 2. Blanchard, O., Chouraqui, J., Hagemann, R., Sartor, N. (1990). The sustainability of fiscal policy: new answers to an old question. OECD Economic Studies 15, Autumn: 736. 3. Bohn, H. (1991). The Sustainability of Budget Deficits with Lump-Sum and with IncomeBased Taxation. Journal of Money, Credit, and Banking 23 (3), Part 2: 581- 604. 4. Bohn, H. (1995). The Sustainability of Budget Deficits in a Stochastic Economy. Journal of Money, Credit, and Banking 27 (1): 257-271. 5. Caporale, G. (1995). Bubble finance and debt sustainability: a test of the government's intertemporal budget constraint. Applied Economics 27 (12): 1135-1143. 6. Cuddington, J. (1997). Analysing the Sustainability of Fiscal Deficits in Developing Countries. Policy Research Working Paper nº 1784, World Bank. 7. Dickey, D., Fuller, W. (1979). Distribution of Autoregressive Time Series with Unit Root. Journal of the American Statistical Association 74: 427-431. 8. Dickey, D., Fuller, W. (1981). The Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica 49: 1057-1072. 9. Greiner Alfred, Sustainability of public debt: Some theoretical considerations, Department of Business Administration and Economics, Bielefeld University. 10. Hakkio, G., Rush, M. (1991). Is the budget deficit „too large?” Economic Inquiry XXIX (3): 429-445. 11. Hamilton, J.D. and M. Flavin (1986) On the limitations of government borrowing: A framework for empirical testing, The American Economic Review, Vol. 76: 808-819. 12. Hénin, P. (1997). Soutenabilité des déficits et ajustements budgétaires. Révue Économique 48 (3): 371-395. 13. Keynes, J. (1923). A Tract on Monetary Reform, in The Collected Writings of John Maynard Keynes, vol. IV, Macmillan, 1971. 14. McCallum, B. (1984). Are Bond-Financed Deficits Inflationary? A Ricardian Analysis. Journal of Political Economy 92: 123-135. 15. Trehan, B., Walsh, C. (1991). Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits. Journal of Money, Credit, and Banking 23 (2): 206-223.

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FAIR VALUE - THE UMBRELLA OF THE VALUATION BASES USED IN ACCOUNTING Lecturer Ph.D. Diana COZMA IGHIAN University of North, Baia Mare, Romania [email protected] Lecturer Ph.D. Cristina Silvia NISTOR Babes-Bolyai University, Cluj Napoca, Romania [email protected] Abstract: Recent deliberations by both the International Accounting Standards Board (IASB) and the Financial Accounting Standard Board (FASB) in the United States have focused on how fair values of assets and liabilities should be measured. According to the international framework, the financial statements use different valuation bases: the historical cost, the current cost, the realizable (settlement) value, the present value (the present value of cash flows). The choice of the valuation basis and the capital maintenance concept will eventually determine the accounting evaluation model used in preparing the financial statements of a company. The multitude of accounting valuation models differentiate one from another through various relevance and reliable degrees of accounting information and therefore, the preparation of financial statements must try to equilibrate these two main qualitative characteristics of financial information. Keywords: fair value accounting, historical costs, current costs, realisable (settlement) value, present value. JEL Classification: M 41

INTRODUCTION Due to the ever increasing importance of the concept of fair value, particularly visible lately, we have decided it was relevant to focus our research work on the analysis of this concept, also trying to describe the essential features that characterize it. To achieve this, we have tried to identify the means for quantifying the fair value, starting from the valuation bases provided by accounting norms and ending with an analysis of the practical applications for each valuation basis. Lively debates on defining the concept of fair value existed and continue to exist, especially related to the means of obtaining it. When it comes to the content of the concept, there are some opinions considering its main quality to be the valuation, some stating that it represents a certain application of the market value, and others that consider it to be a convention or an accounting principle showing that the fair value is an estimation and not a finding as it is the case of the market value. Continuing the ideas mentioned above or concluding them, FASB (Financial Accounting Standards Board) confirms within the norms it elaborated in 1999 that the fair value is not a new mean of assets valuation, but a purpose of the valuation, being an “attribute of the value” (Casta J.F. and Colasse B., 2001). The methodology of scientific research used in this paper is based on qualitative research, our purpose being that of providing a general image on the valuation bases used in accounting. One of the most frequently used research methods in this paper is the comparative method that generates a comparative analysis of different valuation bases endorsed by the accounting theory and practice, in order to define their main limitations and qualities. The disadvantages related to historical cost valuation and the necessity of adapting the accounting model to the needs of the investors imposed the finding for new solutions, one of them is to use other valuation bases instead of the historical cost. During the recent years, the accounting regulation bodies devoted the valuation process mainly to fair value that tends to cover all the elements from the balance sheet. The concept of fair value attracted the attention of many theoreticians, practitioners and accounting regulation bodies who expressed their opinions on its definition. According to the definitions one may find in the specialized literature, the concept of fair value is equivalent to the 155

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one of market value with no clear distinction between the two. The origin of this association is the type of asset that required the estimation of another value besides the accounting value. This refers to financial instruments quoted on the capital market that offered at any time a market value represented by their stock exchange rate. Subsequently, the use of the market value in valuating other elements from the balance was a necessity too. As their nature, the means of using them in companies and the conditions on the specific markets were different, the actual market value proved to be impossible to track. The market value is considered to be an application of the fair value and the cost of replacement, the realizable and present value, the main difference between them being the objectivity of the calculation, given the fact that the first is based on the information from the market. When lacking external quotations for the most of the elements in the balance sheets, the fair value has to be calculated in the companies by using models that are difficult to conceive, accomplish and control. In order to quantify the fair value, one will start from the valuation bases used by the accounting valuation. The most frequently adopted valuation basis by trade companies when preparing their financial statements is the historical cost – the original cost of the transaction. The imput values are corrected, if the case, with the amount of allowance or depreciation adjustments. Based on the hypothesis (principle) of stable currency unit, the principle of historical costs is to respect the nominal value of the currency without taking into account the variations concerning its purchasing power. Although it is not clearly stipulated by the national regulations, this principle applies to the Romanian accounting system too. Determining the valuation basis used to present different elements in financial statements represented and still represents one of the most difficult problems in accounting. The general framework IASB (International Accounting Standards Board) accepts four valuation bases, namely: o Historical cost o Current cost o Realizable value o Present (adjusted) value The position of IASB related to the fair value is presented in several IAS (International Accounting Standards) and IFRS (International Financial Reporting Standards) issued in time. These standards refer to certain assets or operations/transactions that request the estimation of the fair value, however there is no norm specified for the means of quantifying the fair value. However IASB has issued an Exposure Draft, “Fair Value Measurement”, for comment by September 29, 2009. The proposed guidance deals with how fair value should be measured where it is required by existing standards. The ED specifies how, not when, entities should measure assets and liabilities at fair value. If adopted, the proposals would replace fair value measurement guidance contained within individual IFRSs with a single, unified definition of fair value, as well as further authoritative guidance on the application of fair value measurement in inactive markets. The Board’s objectives for publishing the proposed IFRS are: (a) To establish a single source of guidance for all fair value measurements required or permitted by IFRSs; (b) To clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly; (c) To enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values. At the European level, as well as in Romania, the same valuation bases are used, according to the accounting regulations applied starting with 2005, corresponding to the European Directives, as well as before that for corporations, starting from 2001. When it comes to the plan of the accounting regulations, the European Directives don’t offer any indications on the definition of the fair value and the means of obtaining it. When discussing 156

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the accounting valuation in general, these regulations stipulate just the fact that besides the historical cost, other valuation bases may be also used. The accounting regulation bodies from the USA classify the valuation bases into five types that cover the content of the IASB bases. These bases are the historical cost, the current cost, the market value, the realizable net value, and the present value of the treasury cash flows. Therefore, SFAC 5 Trade Companies’ Financial Statements Recognition and Evaluation adds to the valuation bases stipulated in the IASB General Framework the present market value defined as the value of cash equivalent that can be obtained by selling assets according to their liquidity. One may notice that the American regulators consider the market value to be a separate valuation basis of the financial statements, not only an application of other valuation bases (requested for example by IASB). As compared to IASB, the American institution of accounting regulation (FASB) issued in 2006 the financial accounting standard FAS 157 “Fair Value Measurements” in order to present the means of quantifying the fair value in financial statements. The reason behind the elaboration of the standard FAS 157 concerning the assessment of the fair value was to reunite the means of calculating the fair value stipulated in several norms. Specifications were also required in order to carry out relevant, credible estimations of the fair value in certain circumstances, especially when lacking market prices. The FAS 157 supports the use of the market inputs (information) in estimating the fair value of an asset of a debt. Also the FASB facilitates the assessment of the fair values by establishing a hierarchy of value. The hierarchy grants the main priority to market inputs that reflect the prices of an active market for assets and identical debts (either discounted prices of some concluded transactions, or offered/requested prices). According to the hierarchy the input with lowest importance are the company inputs determined using own estimations and assumptions. The hierarchy of value divides the inputs to be used for fair value assessment in three categories or levels, as it follows: • Level 1 of estimation, that uses the market references It is useful to be aware of the active market to which the company has direct access. If the company can access several markets, the most attractive market will be chosen. The market prices don’t have to be adjusted for this type of estimation, as it is the case for all the other levels. • Level 2 of estimation This is the case when no market prices can be found for identical assets and debts. The procedure is to gather market information on similar assets and debts that are adjusted according to differences if the information is available. • Level 3 of estimation This level of value assessment is used if no identical or similar assets and debts are found, or if there is no reliable possibility to determine the differences between similar elements. In particular, the multiple evaluation techniques (the approach based on market, price and cost) are used if the required information is available with no additional costs or efforts. The standard FASB specifies that level 3 of estimation entails a professional reasoning when choosing and applying the techniques and the important inputs. Furthermore, if multiple evaluation techniques are used, an analysis of the effect entailed by their use is also required, taking into account the relevance and the credibility of the inputs that are used. In that which follows, this paper will discuss the valuation bases stipulated by IASB that are used in Romania as well. One may assume that the fair value is obtained after applying three of the valuation bases mentioned above, namely: the current cost, the realizable value and the present (adjusted) value. Sometimes, even the rectifications of the historical cost represent a fair value at the date when the elements of the financial statements enter the company. The content and the practical application of the valuation bases are described below:

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Table no. 1 The content and the practical application of the valuation bases Valuation bases Historical cost

Current cost

Realizable value

Adjusted value

Content

Practical application

For the assets, the historical cost is represented by the cash paid, or the amount equivalent to cash, or the fair value of the conterperformace carried out in the moment when the assets were received. For the debts, this cost is the value of the equivalents obtained for the liabilities or, in some cases (taxes) the value expected to be paid in cash or using cash equivalent in order to settle the debt. The historical cost is the original cost and it reflects the value of the element on its initial identification. For the assets, the current cost represents the cost covered by the company to obtain instead of a current value a good similar to the one that is subjected to valuation (the value paid in cash or the equivalent to cash should be paid if a similar good is purchased or produced at present). The debts are evaluated at their cash value or the equivalent to cash required for discounting the liability at present. The realizable value is the value a company would receive if it sold the assets or if it used them to settle a debt at present. For the assets, the realizable value is the cash value or the equivalent to cash a company would obtain by selling them. For the debts, the realizable value is the initial cash or equivalent to cash that has to be paid to settle the debt according to the normal course of the business activity.

The purchase or the production cost, the service fee, the delivery charges, the contribution and utility values (the market value adjusted according to the utility, condition and the place of the asset).

For the assets, the adjusted value is represented by the adjusted value of the net cash flows that will be generated by using the product in the future. For the debts, the adjusted value is represented by the adjusted value of the future net cash outputs expected to be paid in order to settle a debt.

It is obtained by applying an adjustment (depreciation) rate to the evaluated treasury flows. For the assets (except for the outstanding receivable), the practical application of the adjusted value is the use value.

(Net) replacement cost

The market value diminished by the cost related to finalizing and selling the asset.

Therefore, the means of quantifying the fair value is generated by the practical application of the other valuation bases besides the historical cost. In that which follows, this paper will present in detail the mean of calculating the values to be used instead of the fair value. REPRESENTATIONS OF THE CURRENT COST The application of the current (adjusted) cost is the net replacement cost that is also called the depreciated replacement cost, the reconstruction cost or the replacement value. This value represents the cost of maintaining the production capacity of a company, as compared to the evolution of prices specific to certain categories of assets. When calculating the current cost, the asset taken into account has to allow the maintaining of company production, conditions where establishing a certain value in a context of permanent technical progress is a difficult task. The procedure of evaluating the net replacement cost is the following (Matiş D. & colectiv, 2005): 158

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-

The “new” cost is estimated, valid at the date of the evaluation for an asset identical or similar to the one subjected to valuation, with the possibility of having two solutions:  Either to collect information about the prices of the recent transactions on the market specific to these assets or the price lists of the suppliers;  Or, in the absence of updated market information, to adjust the historical cost of the asset with an index that reflects the corresponding currency depreciation, and the evolution of prices for raw materials, materials and manual labor entailed by that asset. - The new cost calculated as described above is subjected to the corresponding discounts that reflect such aspects as asset’s location, its actual physical wear, the condition for current use, the influence of external factors. Using this difference between the new cost and the asset depreciation, a new net cost of the asset is obtained, a value valid to the date when the evaluation is carried out. REPRESENTATIONS OF THE REALIZED VALUE The application of the realizable value is the market value that represents the price that can be obtained for an asset if there is an exchange market specific to that asset and open for everybody (Tournier J. C., 2000). According to the professional evaluation standards, the market value, which is estimated including for accounting registration, represents the estimated amount for which an asset will be exchanged at the valuation date between a decided buyer and a determined seller in a transaction where the price is calculated in an objective manner, following a corresponding marketing activity, where the two sides acted knowingly, prudently and with no constraining factors involved. (International Evaluation Standards, IVS 1 The market value as a valuation basis, chapter 3.1). The market value is usually obtained by collecting from the market discounted prices for assets identical or similar to the one subjected to evaluation, these prices are adjusted by adding or decreasing amounts according to differences of type, model, age and exploitation conditions between the evaluated asset and the asset it is compared to. If it’s the case, the market value estimated as described above is subjected to deductions related to the costs of completing and selling the asset. Some of these costs are the following: production costs to be fulfilled for the goods in production or for semi-products that are still in the technological process, transportation expenses related to the selling process, advertising expenses and selling commissions. The net price thus obtained is presented in the Romanian accounting regulations as the estimated price that can be obtained while carrying a normal activity, minus the estimated costs related to product completion, if the case, and the required estimated costs entailed by the selling process (OMFP 3055/2009). In the French variant of the General Chart of Accounts which stipulates a net amount of additional expenses, the market value, also called the venal value established at the date of the accounting inventory, is the net amount that can be obtained by selling an asset after a transaction concluded in normal market conditions, minus the output cost. The output costs are represented by the external costs directly referred to asset output, except the financial expenses and the expenses related to tax on generated result. Certainly, one should not forget about the difficulties entailed by calculating the realizable net value. As mentioned above, this value represents the differences between future income obtained after selling a product (if this product is sold) and the expenses involved in this process. In other words, this value is the net amount received after selling an asset. There is no doubt that the process of calculating the realizable net value would be difficult to carry out as long as the product was not sold. According to some authors (Feleagă N. and Feleagă L., 2006) every member of the accounting service and every manager has his own point of view regarding this matter. Furthermore, what is the expected rhythm of adjustment for this price? During an exercise, a 159

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company may want calculate the benefit several times. Some products can remain in the stock of a company for many years. Each time a company has to calculate the income, it has to assess a price for every element of the assets to be sold, with all the aspects involved. REPRESENTATIONS OF THE ADJUSTED VALUE The adjusted value is a present estimation of the value according to the future cash flows to be obtained in the course of a normal business activity; that is by updating a value expected to be available subsequently. For the assets (except for the outstanding receivable), the application of the adjusted value is the use value, that corresponds to the adjusted treasury entry and outputs values estimated to be obtained by using the asset, including a potential treasury flow at the end of the period of use (Matiş D. and collective, 2005). According to another paper, the use value is applied especially to capital assets and represents the amount of the estimated expected economic advantages obtained by using the asset. Another value adds to these advantages obtained during the life cycle of the assets called the residual value obtained from selling the asset (Tournier J. C., 2000). Such a presentation of the use value is also offered by the accounting standards in their current form. According to IASB, this value reflects the adjusted value of estimated treasury flows expected to be obtained by continuing to use an asset and its disposal at the end of its useful life cycle (IASB, International Accounting Standards Board, IFRS 5). The use value represents the adjusted value of some possible inputs and treasury flows expected to be generated by an asset or by a cash generating entity (IAS 36 Assets depreciation). The estimation of the use value of an asset includes the following stages: the estimation of the future treasury entries and outputs generated by continuing to use the asset and up to its final exit; the application of the appropriate adjustment rate to these expected treasury flows. The following aspects have to be taken into account when estimating the future treasury flows required to calculate the use value:  The projections of treasury flows have to be based on rational documented hypotheses that represent the best estimation of the management concerning all the economic conditions that will exist during the rest of the period of time when the asset is to be used;  The projections of treasury flows have to be based on the most recent financial budgets (previsions) that were approved by the management department; the projections established base on these budgets have to cover a period of maximum five years, except the case when longer periods can be justified;  The projections of treasury flows have to take into account the period covered by the most recent budgets, after applying to their values a constant growth or a decrease rate for the years to come, and except the situation when a growing rate has to be adjusted; this growth rate doesn’t have to be higher than the average long term growth rate for the products, sectors of activity or country (countries) where the company operates or on the market where the asset is used, except the case when a higher growth rate can be justified (Feleagă N. and Feleagă L., 2006). The estimations of the future treasury flows and the adjustment rate reflect coherent hypotheses on the price increase generated by the inflation. Consequently, if the adjustment rate includes the price increase effect generated by the general inflation, the treasury flows are estimated in current prices. If the adjustment rate does not include the price increase effect generated by the general inflation, the treasury flows are expressed using constant prices. The assessment of the future treasury flows have done for an asset, taking into account its current condition. The estimation of the future treasury flows doesn’t have to include any future treasury inputs or outputs expected to be received: from a process of reorganization the company did not start at that time; from the future investment expenses that will improve

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and raise the level of performance of an asset as compared to its initial level of performance; from financing activities; or from operations related to tax on result. The adjustment, as a specific method applied both for assets and liabilities, is about transforming an expected amount to be cashed or paid into present (adjusted) value. To adjust a future amount is to apply an adjusting factor of 1/ (1+ d) n. The gain (profitability) of the capital (that is many times received from the financial market as an interest) included in its adjustment factor, imposes penalties on the amounts to be obtained, because, apart from the inflation, their value is lower today due to the potential risks that can affect them in the future, as well as the risk of losing the opportunity to invest the same amount today on another market with an expected profitability, d. In the case of outstanding receivables and payables the adjusted value is obtained by applying the method of adjusting estimated amounts to be obtained in the future using a capital gain rate. CONCLUSIONS Presently, no agreement has been reached on using a certain valuation basis or another. Each valuation basis presents both advantages and disadvantages and even if the advantages are clearly superiors to the disadvantages, most of the times the application of other valuation bases besides the historical cost cannot be justified by the cost-benefit relationship. In that which concerns the fair value assessment one has to state that the accounting theory and norms did not make a clear distinction between the fair value, its application and interpretation, therefore the fair value doesn’t seem to be a well founded concept. According to the specialists (Deaconu A., 2009), the fair value is a general term, a desideratum, similar to the objective of the accounting activity which is to provide a accurate image of the facts. It is neither a valuation base included in the conceptual accounting framework, nor a certain type of value. The fair value is a merely accounting concept the professional valuators and bodies representing them tried to analyze and master, trying to find clear applications in practice. Therefore it is required to clarify the content of the fair value instead of stopping to use it, for it improves the informational accounting system. When it comes to the possibilities of applying this value in practice, one has to resort to substitutive models when the market doesn’t offer sufficient information to assess the fair value as a market value. It is true that it implies a higher degree of subjectivity from the accounting professional. The solution for this is an adequate qualification on evaluation an accounting professional must have when elaborating financial statements (otherwise, he would have to refer to the services provided by a professional valuator). Although slow, the transition to fair value seems to be an unstoppable trend, given that more and more specialists consider it to be the best method for asset valuation. This also results from the pressures exerted by accounting regulating bodies, which strongly support fair value in the standards they issue. The debates around the controversial issue of using fair value are far from over, and they will go on for a long time, since the concept of fair value is closely tied to the one of accurate image, and both concepts are still evolving and influencing each other. BIBLIOGRAPHY 1. Casta, J.F. and Colasse, B. (2001) Juste valeur enjeux techniques et politiques, Economica, Paris, pp. 5-14. 2. Christian, Laux and Christian, Leuz The Crisis of Fair Value Accounting: Making Sense of the Recent Debate, Chicago Booth, Working Paper No. 33 available online at http://ssrn.com/abstract=1392645. 3. Deaconu, A. (2009) Fair Value. Accounting Concepts, Ed. Economica, Bucharest. 4. Ionascu, I. (2003) Dynamics of the Tenets of Contemporary Accounting Systems, Ed. Economica, Bucharest. 161

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5. Matiş, Dumitru & collective (2005) Accounting Bases. Practical and Theoretical Aspects, Alma Mater, Cluj Napoca. 6. Niculae, Feleagă and Liliana, Feleagă (2006) Valuation Models and Rules in International Accounting, Theoretical and Applied Economy no. 4, available online at http://www.ectap.ro/articole/69.pdf. 7. Stephen H, Penman (2007) Financial Reporting Quality: is fair value a plus or a minus?, Accounting and Business Research Special Issue: International Accounting Policy Forum, pp. 33-44. 8. Tournier, J.C. (2000) La révolution comptable – du coût historique à la juste valeur, Ed. d΄Organisation, Paris. 9. International Valuation Standards, IVS 1 Market Value Basis of Valuation 10. IFRS, International Financial Reporting Standards (2005), Ed. CECCAR, Bucharest. 11. Ministry of Public Finances, Accounting Regulations Synchronized with European Directives, approved through the Order of the Ministry of Finaces , no. 3055/29 October 2009, OG no. 766/10 November 2009. 12. Exposure Draft “Fair Value Measurement”, issued by the International Accounting Standards Board, available online at http://www.iasb.org/NR/rdonlyres/C4096A25-F830401D-8E2E-9286B194798E/0/EDFairValueMeasurement_website.pdf

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THE INTERNAL CONTROL SYSTEM OF THE CREDIT INSTITUTIONS Lecturer Ph.D. Student Mariana VLAD „Ştefan cel Mare” University of Suceava, Romania [email protected] Associate Professor Ph.D. Mihaela TULVINSCHI „Ştefan cel Mare” University of Suceava, Romania [email protected] Abstract: Effective internal controls are the foundation of safe and sound banking. A properly designed and consistently enforced system of operational and financial internal control helps a bank’s board of directors and management safeguard the bank’s resources, produce reliable financial reports, and comply with laws and regulations. Effective internal control also reduces the possibility of significant errors and irregularities and assists in their timely detection when they do occur. A bank’s board of directors and senior management cannot delegate their responsibilities for establishing, maintaining, and operating an effective system of internal control. The board must ensure that senior management regularly verifies the integrity of the bank’s internal control. Although internal control and internal audit are closely related, they are distinct from each other. Keywords: internal control system, internal banking control, credit institutions, types of internal controls. JEL Classification: M10, G21, G24, G32

INTRODUCTION In order to define the internal control term and respectively the notion of internal banking control we started with the control concept. As a result of the analysis of the control concept we are observing that this concept is „an attribute of the management, a function of management, an instrument of knowing the reality and a mean of correcting the errors” (GhiŃă şi Pereş, 2009). The control is most widely used signifying verification, frequently associated with a “permanent or periodical analysis of an activity, of a situation in order to follow its progress and to take improvement measures” (Morariu, Suciu, Stoian, 2008). From the perspective of the control exercising we can discern: internal control including the whole range of controls from within the entity and external control which include the ensemble of the controls addressing the entities from the exterior of the entity. If the control is a management’s function, the internal control “is not a function, but an ensemble of instructions”, “which one can identify in the structure of every function and every activity of the management and falls within the responsibility of every employee”.(Morariu, Suciu, Stoian, 2008) Due to this cause one cannot affirm the existence of an internal control service. Nevertheless, if we would try to define the notion of internal control we are observing that it was intensely modified in order to manage the changes intervening in the life of an enterprise (the continuously increasing complexity of the enterprises, the dispersion of the activity centers, fraud occurrence) by “establishing essential rules which have to be obeyed in order to reasonably conduct an activity“.(Morariu, Suciu, Stoian, 2008) Jacques Renard, defines the internal control in the following way: “The internal control represents the ensemble of security measures which are contributing to holding the control over the enterprise. Its goal is on one hand to ensure protection and patrimony and information quality and on the other hand to apply the instructions coming from the direction and facilitates the improvement of the performances. It manifests itself through organization, the methods and the procedures of each activity of the enterprise in order to maintain the perenniality.” (Renard, 2003) Another definition is given by KMPG company: „An internal control system encompasses the policies, processes, tasks, behaviors and other aspects of a company that, taken together (KMPG, 2000):facilitate its effective and efficient operation by enabling it to respond appropriately to significant business, operational, financial, compliance and other risks to achieving the 163

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company’s objectives This includes the safeguarding of assets from inappropriate use or from loss and fraud, and ensuring that liabilities are identified and managed;
help ensure the quality of internal and external reporting. This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the organization;
help ensure compliance with applicable laws and regulations, and also internal policies with respect to the conduct of business. We can affirm that „the internal control is a whole system of controls, financial and otherwise, established by the management for the smooth running of business; it includes internal cheek, internal audit and other forms of controls.” (Hamed, 2009) The internal control is defined by the actual regulatory framework(BNR, 2009) as „a continuous process, intended to provide a reasonable assurance to achieve the performance goals – efficiency and effectiveness of the activities, information goals – reliability, integrity and on time financial information purveyance and conformity goals - compliance with the laws and regulations applicable and also with the policies and internal procedures. In order to be expedient, the internal control needs the implementation of the following functions: the function of risk control, the compliance function and the internal audit function. The internal control also includes the organization of the accountancy, the information processing, risk assessment and risk measurement systems.” From the definition one can observe that the central bank, as supervising authority and at the same regulatory authority described the internal control in the prospective of a internal control global system at credit institution level. The fact that the internal audit is a function of the internal control system does not imply that the internal audit overlaps with the internal control. They are tightly linked but distinct on each other. As stipulated by the law, the credit institutions must have an independent internal audit function which has to be permanent and effective whose goal is: (i) to ensure the fact that the policies and the processes of the credit institutions are respected inside all the structures and activities, (ii) to review the policies, processes and control mechanisms in such a way as to remain sufficient and adequate to the activities performed. Therefore we define the internal banking control as „the systems, policies, procedures, and processes effected by the board of directors, management, and other personnel to safeguard bank assets, limit or control risks, and achieve a bank’s objectives” (Internal Control Comptroller’s Handbook, 2000). Following that the internal audit to be that department included in the internal control system whose main task is o ensure permanently that the control system is effective and otherwise to be able to detect and correct the errors. TYPES OF INTERNAL CONTROLS IN THE CREDIT INSTITUTIONS In the case of credit institutions, the internal control is a combination of both financial and other controls. Financial controls are carried on by both the competent departments and by the internal audit department within the credit institution, acting to increase the efficiency, to preserve the patrimony, to know the legal aspect of the financial operations, to establish the liabilities in case of fraud. The financial controls can be typed in (Tulvinschi, 2008):
Preventive financial controls: are carried on prior to the operation, by checking the documents concerning the rights and obligations referring to expenses and income registration. These documents are processed within the central work departments or within the administrative units by the staff authorized or by the president order.
Concurrent financial controls: are carried on by the employees at their level, on the documents processed in the moment of banking operations entailing patrimonial employment of the bank according to the working procedures (effecting an external payment on behalf of a bank’s client) and by automated data processing special programs in order to detect the fraud coming both from within the bank and from 164

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outside the bank (access codes for employees who are effecting and authorizes payments, the security system of the software processing the cards, etc.).
Subsequent financial controls: driven by the chief accountant and the staff responsible from a branch, by authorized departments and mostly by the internal audit department. This type of control endorses the branches and by specialized department from the central which are performing and registering operations engaging bank’s patrimony. As a result of this control, there are detected shortcomings and losses, causes or responsible are identified and measures for similar subsequent infringement are submitted. Irrespective of the moment of exertion of a financial control the types of controls mentioned above are endorsing mainly (Hamed, 2009) the following aspects: controls for recording accounting transactions properly, controls for proper safe guarding company assets like cash stock bank debtor etc, early detection and prevention of errors and frauds, properly and timely preparation of financial records the balance sheet and profit and loss account, to maximize profit and minimize cost. Other controls exerted within the credit institutions are: quality controls, supply control, marketing control, etc. THE ELEMENTS OF THE CREDIT INSTITUTION’S INTERNAL CONTROL SYSTEM Any control systems rely mainly on the dimension of the credit institution, on its complexity and risk profile. Each effective control system must include (BNR, 2009): (i) the role and the liabilities of the management concerning the internal control; (ii) the identification and assessment of the significant risks; (iii) control activities and the separations of the liabilities; information and communication; (v) supervising and error corrections activities.

Figure 1. Internal control system components. The role and the liabilities referring to the internal control is named in the literature as „control environment” that is „composed of actions, policies and procedures that are reflecting the overall attitude of the manager of the Boards of Directors and of the owner of the entity towards the internal control and its importance for the entity.”(Loebbecke, 2003) This environment establishes the discipline and the structure of the control system and must comprise: (Internal Control Comptroller’s Handbook, 2000)
The organizational structure of the institution. (Is the bank’s organization centralized or decentralized? Are authorities and responsibilities clear? Are reporting relationships well designed?)

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Management’s philosophy and operating style. (Are the bank’s business strategies formal or informal? Is its philosophy and operating style conservative or aggressive? Have its risk strategies been successful?)
The integrity, ethics, and competence of personnel.
The external influences that affect the bank’s operations and risk management practices (e.g., independent audits).
The attention and direction provided by the board of directors and its committees, especially the audit or risk management committees.
The effectiveness of human resources policies and procedures. The identification and assessment of the significant risks implies the use of the ensemble of the measures adopted in order to determine and to assess the phenomena, the factors and the events having a negative influence on the activity using rules, methods, procedures and specific tools. The assessment must take into consideration all levels of the credit institution, all its organizer levels, must cover all the activities and to consider the occurrence of new activities, having in sight both the internal and external parameters (Figure 2).

Figure 2. The parameters influencing the identification and the assessment of the significant risks. The process of risk assessment must comprise the identification of both the risks that can be controlled by the credit institutions and the uncontrollable risks. In case of the controllable risks, credit institutions must decide whether to undertake totally the risks or the extent of reducing using control procedures. In case of uncontrollable risks, credit institutions must decide if accepts, denies or reduces the activities affected by the risks. The decision must be taken by specialists of the credit institution that are not responsible for the achievement of the commercial and financial performance. Therefore, an effective evaluation of the risks helps the entities to determine the risks, the controls needed and the manner of managing them. The control activities and the separation of the liabilities. The control activities are the policies, procedures and the practices elaborated to follow on one hand, if the bank’s staff respects the attributions and the liabilities and on the other hand the manner of operation of the directives of the management regarding the business level in the bank. The control activities ensures the manager that the risks blocking the bank to achieve its goals. As a consequence, these control activities have to be defined for each organizational level of the credit institution in two steps: setting up the policies and control procedures and the verification of the compliance of the policies and procedures. The policies are a part of the daily routine of the credit institution and implies at least the following stages (BNR, 2009):
Analysis at the management structure level; 166

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Operative analysis at the structural level of the credit institution;
Verification that are intending to restrict the access to the assets, for instance : debts, cash, restricting the access to the client’s accounts etc.;
The analysis of the abidance by the limits imposed to the risk exposure and observing the manner of how the non-compliance situations are solved;;
approvals and authorizations, in case of transactions above certain amounts;
the checking – the four eyes principles: task separation, cross verification, the double checking of the assets, double signature;
verification and reconciliation of transactions, particularly where there are differences between the methodologies or evaluation systems used by the structures responsible for initiating transactions - front office - and by the structures responsible for recording and monitoring of transactions initiated - back office. Internal control system provides a proper separation of powers, aimed at preventing conflicts of interest. For example: (i) a person's dual responsibilities in areas such as acting in front office and back office, (ii) approving disbursement of funds and actual drawing, (iii) credit documentation evaluation and monitoring customer credit after contracting. Areas that may be affected by potential conflicts of interest must be identified and subject to independent monitoring carried out by persons not directly involved in those activities whose information is based on the established reporting lines properly. This division of tasks can reduce a person opportunity to commit and conceal fraud or error. To ensure safety and quality objectives of the operations, credit institutions have guided by the principle of division of four criteria (NiŃu, 2002): the authorization, execution, control and supervision tasks to three people or structures. The approval requires that a person to be empowered by management to authorize a transaction or just certain transactions. To exercise this activity, lists have to be drowned up containing the operations that will be allowed and list of persons authorized by the Board of Directors. Given that the vast majority of banking transactions are automated, enabling the system in such a paperless environment is based on “confidential code assigned to certain persons or certain computer terminals, codes by which those people can perform a particular operation.”(NiŃu, 2002) The execution of banking operations includes on one hand its effective implementation of and on the other hand the recording. In the case of credit institutions two steps are automated, which means that “the transaction is entered at a terminal in the computer system and it runs the technical operation, generate records and issue confirmation enforcement operation.”(NiŃu, 2002) The banking operations control is designed to ensure that transactions are authorized by a person empowered to do so and that they were properly treated. In the banks' computer systems this step is made easier because, in general, information systems provide a series of security guarantees, based on secret access codes, known only by persons empowered to carry out a transaction. In addition, any operation of “introduction” of a transaction is followed by a validation transaction (the principle that any operation is temporary and becomes final only after a code validation by an authorized person) and a control operation (any operation should be listed and made subject to approval by a responsible person, and will validate the transaction.) Supervision. Bank is built on a pyramidal basis, there is decentralization and delegation of powers, which involves both a duty to control, and the one to supervise. Supervision can take the following forms: (i) to make sure permanently about the level of training and qualification of staff, (ii) to make sure that regular checks are carried out under the procedures, (iii) to make spot checks, (iv) periodically evaluate the statistics on activities, development plans and budgets, (v) maintain control regarding important decisions. Internal control information and communication systems allows all personnel to understand their role in the control system, how their roles relate to others and their responsibilities. In terms of information credit institutions must have reliable information systems covering all their activities and organize information management in compliance with the legal incidents. It should also ensure 167

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the existence of financial data, operational and compliance, adequate and complete, to conduct business and to have information on market events and conditions that are relevant for decision making. Information must be credible, relevant, complete, timely, accessible and provided in a consistent format. These systems produce reports information on bank operations, the financing arrangements, and on how it complied with the Board, as managed by the management activity. Information systems are transmitting information inside the bank and to external parties, such as regulators, shareholders, etc.. . Monitoring activities and correcting deficiencies. Internal control systems must be monitored in order to assess the quality of performance over time. Monitoring the effectiveness of internal control system must be part of the daily activities of credit institutions and should include separate assessments of internal control system in general, being made by both the staff responsible for each structure of the credit institution and by the internal audit. The deficiencies identified in the internal control system must be immediately notified to the persons responsible for environmental managers, who must take measures to remedy them promptly. Those that are classified as major deficiencies must be reported for the management level and to the supervisory boards of credit institutions. To establish a detection system of internal control deficiencies and take steps to address these deficiencies is responsible for the management sectors. DISCUSSION The general structure of an internal control system being previously described the problem that rises is to establish when an internal control system is effective and when is not. We must emphasize that inside an organization, the managers are the main responsible for a normal functioning of the internal controls, but an efficient functioning of a control system is not only depending on the managers, the executive staff having its crucial role. Therefore the individual on each level of an organization are influencing the internal control, being in some extend in everyone’s responsibility. Nevertheless, the internal control, no matter how well designed and operated, can provide only reasonable assurance of achieving an entity's control objectives. The likelihood of achievement is affected by limitations inherent to internal control. O A limitation inherent in any system is the element of human error (misunderstandings, fatigue, and stress). Errors also may occur in the use of information produced by IT. Additionally, controls, whether manual or automated, can be circumvented by the collusion of two or more people or inappropriate management override of internal control. Custom, culture, and the corporate governance system may inhibit fraud, but they are not absolute deterrents. An effective control environment, too, may help reduce the risk of fraud.” (Hamed, 2009) CONCLUSIONS The main ideas from this paper are: Firstly that an effective internal control helps an organization achieve its operations, financial reporting, and compliance objectives. Effective internal control is a built-in part of the management process (i.e., plan, organize, direct, and control). Internal control keeps an organization on course toward its objectives and the achievement of its mission, and minimizes surprises along the way. Internal control promotes effectiveness and efficiency of operations, reduces the risk of asset loss, and helps to ensure compliance with laws and regulations. Internal control also ensures the reliability of financial reporting (i.e., all transactions are recorded and that all recorded transactions are real, properly valued, recorded on a timely basis, properly classified, and correctly summarized and posted). Secondly that the internal control can provide only reasonable assurance – not absolute assurance - regarding the achievement of an organization's objectives. Effective internal control helps an organization achieve its objectives; it does not ensure success. There are several reasons

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why internal control cannot provide absolute assurance that objectives will be achieved: cost/benefit realities, collusion among employees, and external events beyond an organization's control. As a conclusion we can notice that the managers are using the control system to check if the units are functioning as planned, i.e.:
if the banking operations are effective and efficient;
if the trading are correctly registered;
if the financial statements are balanced;
if the management risk systems are effective;
if the credit institution is compliant with the laws and regulations and with the policies and internal procedures. REFERENCES 1. Comptroller of the Currency Administrator of National Banks from USA, Internal Control Comptroller’s Handbook, 2000, http://www.occ.treas.gov/handbook/intcntrl2.pdf 2. GiŃă M., Pereş I., ş.a., GuvernanŃa corporativă şi auditul intern, Editura Mirton, Bucureşti, 2009 3. Hamed Philee, A clear look at internal controls: theory and concepts, 2009, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1342048 4. Loebbecke A., Audit o abordare integrată, Editura Arc, Bucureşti, 2003 5. Morariu A., Suciu Gh., Stoian F., Audit intern şi guvernanŃă corporativă, Editura Universitară, Bucureşti, 2008 6. Nitu I., Control şi audit bancar, Editura expert, Bucureşti, 2002 7. Renard J., Teoria şi practica auditului intern, Editura Ministerului FinanŃelor Publice, Bucureşti, 2003 8. Tulvinschi M., Auditul financiar – abordări teoretice şi practice, Editura Sedcom libris, Iaşi, 2008 9. The KPMG Review, Internal Control:A Practical Guide, 2000, disponibil http://www.ecgi.org/codes/documents/kpmg_internal_control_practical_guide.pdf 10. ***Regulamentul nr.18 din 2009 privind cadrul de administrare a activităŃii instituŃiilor de credit, procesul intern de evaluare a adecvării capitalului la riscuri şi condiŃiile de externalizare a activităŃilor acestora, M. Of. nr. din 23 sep 2009.

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THE INFLUENCE OF THE FISCAL POLICY AND THE AUTOMATIC STABILIZERS ON THE ECONOMY Lecturer Ph.D. Irina-Ştefana CIBOTARIU Stefan cel Mare University of Suceava, Romania [email protected] Ph.D. Mirela MATEI Petroleum-Gas University of Ploiesti, Romania [email protected] Abstract: The current economical and financial crisis has a powerful effect on the public finances, as in the reduction of the economical activity lead to the reduction of the budgetary income, increase of deficits and of public debt. Furthermore, the support given to the banks having problems in the main industrialized counties, materialized in pumping liquidities into the system but also the taking over of uncertain assets will be finally reflected also on the public debt. The anti-cyclic policies consist of an assembly of macro-economical measurements that want either the increase of the aggregated demand or the encouraging of the global offer. In this paper, a synthesis was attempted of the conceptual approaches, in terms of defining the automated stabilizers, a synthesis including both the classic/traditional approaches and the current ones. Currently, the mix of anti-cyclic policies, of which these automatic fiscal stabilizers are part of, moved from the use with predilection of these towards fiscal simulation programs of a large scale. Secondary effects of these policies and of the fiscal stabilizers will me materialized in a never seen increase of the public debt, and in difficulties of covering the retirement expenditure given the global aging of the population in the developed countries. In order to reduce the effects of the current crisis, the state calls for fiscal stimulation measurements, those being a combination of public expenses and tax reduction for companies that want to recover the economical activity, the increase of the work places’ occupation degree and the caring of the business environment. Keywords: Automatic Stabilizers, Anti-ciclic Policies, Fiscal stabilizers, Stabilization Policies; JEL Classification: G30, G28, G32, G01;

INTRODUCTION The anti-cyclic policies were developed based on “a better knowledge of the economy’s interdependencies and the increase of the economical evolution’s informing capacity”, and consist of an assembly of macro-economical measurements taken in order to minimize the impact on the economical re-launch in the descendent phases of the economical phases, or adjusting the amplitude of the perturbing cyclic phenomena. In general, the mix of anti-cyclic policies wants both the influence of the global demand and of the aggregated offer, and the movement of these policies’ weight center takes into consideration a series of aspects belonging to the economical cycle’s phases, the phenomena and economical processes’ knowledge degree or the ability of the political factor to impose certain solutions. THE FISCAL ANTY-CYCLIC POLICIES The anti-cyclic policies based on influencing the global demand start from the Keynesian conception according to which the economical activity flows are due first of all to the unwanted gap between the global demand and aggregated offer. The fiscal policy may contribute to the modification of the accessible income, as it was in the case of the unique taxation rate application in Romania starting with 2005. The curve of the regular demand of a certain good is deduced under certain hypotheses concerning the society members’ income, and must be deduced again if the income modifies. The increase of the income available to the population and economical agents contributed to the making of an increased economical growth rhythm from 2005 to 2008, but in the same 170

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time in the absence of real increase measurements of the aggregated offer contributed to the increase of the current account deficit by a never seen increase of imports. The fiscal policy may act in the economical conjuncture by modifying the taxation degree in order to stop or stimulate investments and production. Therefore, in periods of economical welfare, an increase of taxation leads to the reduction of available income, having as main effect the reduction of the economical growth rhythm, while in times of recession a reduction of taxation makes the available income grow and based on this a stimulation of the global demand is mare. The public expenditure may act as well on the global demand by state acquisitions, infrastructure investments, social assistance etc. Therefore, in the recession stage, the budgetary expenses are increased with the risk of assuming a budgetary deficit that can be absorbed in its expansion phase, with the reduction of budgetary expense. The anti-cyclic policies based on the stimulation of the aggregated offer wish to stimulate the producers by offering material and fiscal advantages, subvention giving with impact on the volume, structure and quality of merchandise and offered services. FISCAL STABILIZERS What are automatic stabilizers? Automatic stabilizers are taxes and transfers such as unemployment compensation and food stamps that automatically change with changes in economic conditions in a way that dampens economic cycles. For example, when the economy turns downward, the amount spent on food stamps automatically goes up as more people apply or eligibility rules are eased. The extra spending the food stamps generates helps to soften the downturn for the individuals receiving the help, and also benefits the businesses and employees where the money is spent (and the multiplier process spreads the benefits more widely). Similarly, unemployment compensation, which obviously rises as jobs are eliminated, goes up when conditions deteriorate and this also provides a boost to demand. The traditional concept of the economical automatism, derived from the liberal conception is not far away from Adam Smith’s invisible hands principle, when using the fiscal policy as an economical stabilization technique. The observation is valid because in the economical prosperity periods, the collection of taxes increases, while in times of recession, with the decreasing of income and consume also the state budget collections decrease, especially when applying the proportional percentage rate taxation, as in the case of our country’s unique rate. The governmental expenses also have a stabilizing influence on the economy, especially when established as GDP ratios for certain domains. Therefore, it may be said that with the economical development, the economists tried to find solutions to control or modify the economical cycle, therefore the concept of “automatic stabilizers” being developed. N.F.Keiser (1956) made an analysis of this concept in order to find its origins. He made an inventory of all the criteria by which an automatic stabilizer can be identified, as presented in the specialty literature by that time. So, W.P. Egle (1952) stipulates the following criteria for an automatic stabilizer: • It is permanently installed; • Is endowed with very well defined purposes and stipulations; • Is tightly connected to the indices sensible to the economical cycle, that is - the mechanism stats to act anti-cyclically as soon as this index shows the need for action. • According to Albert Hart, the automatic stabilizers are recognized by the following criteria: • They lead the budget towards exceeding in the growth stage of the economical cycle and towards deficit in case of recession; • They minimize the cash stock of the population in periods of prosperity and increases it in case of recession; 171

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They tend to increase the population’s demand for cash in periods of prosperity and reduces it in periods of decline; They act without waiting for the deciders’ actions.

The stabilization policies are of many types, according to N.F. Keiser, and the automatic stabilizers represent only one of these stabilization policies that include: • The automatic stabilizers (such as social insurance payments, income and profit taxes) incorporated in the economy, operating in present and tending to increase the income in case of decline and diminish it in case of economical boom; • Flexible formula stabilizers (such as an automated modification of the taxation rate) acting at the apparition of a danger signal (such as unemployment); • Discretionary stabilization policies (such as the control of the central bank loan) endowing with power agents, councils, persons; • Institutional stabilizers (such as the Central Bank, syndicates, review of the fiscal structure etc), tending to strengthen the economy. It is difficult to design a person to which the automatic stabilizer concept was attributed, but in the specialty literature four bibliographical sources are quoted when talking of this concept: • The US Economical Development Committee; • Friedman (1948); • Hart (1953) • Musgrave and Miller (1948). The general concept of economical automatism was generally associated to the market forces in which the factors of the perfect competition govern the production, distribution and goods exchange at levels that approximate the complete use of the available resources. Although this concept is far from the modern meaning of the automatic stabilizer, there are similarities between them, that is- they both exclude the discretionary administrative or legislative intervention. Another important moment in developing the automatic stabilizer concept was, according to N.F. Keiser (1956) the development of the fiscal policy as a stabilization technique, the use of the imbalanced budget to reach full occupation and, therefore, the use of automatic stabilizers as an auxiliary method. The emphasizing of the fiscal policy’s role as an anti-cyclic mechanism was made in the 30s, the credits being given to J.M Keynes and its attack on the classic principles of public finances’ balance and total occupation. J. Tam and H. Kirkham (2001) explain that the budgetary sale includes a structural component (which does not modify with the economical cycle) and a cyclic component: Budgetary sale = structural component + cyclic component The action of the automatic fiscal stabilizers involves the fact that the government is to maintain the taxation rates constant during an economical cycle. The alternative is to modify the taxation rates every year, so to maintain constant the value of taxes and expenses and insure a balance of the economical cycle every year. The automated fiscal stabilizers represent the variation of the budgetary sale as result of an exogenous shock on the GDP. For example, such an exogenous cyclic shock, such as restraining demand in the public sector will tend to reduce the fiscal income, and in the same time it will generate an increase of expenditure with unemployment payments. The automatic increase of the public expense will help to the minimization of the shock’s effects adversely initial on the aggregated demand. The stronger the automatic stabilizer’s effects, the less necessity for legislative discretionary action during the economical cycle. J. Tam and H. Kirkham (2001) state that there is a wide point of view spread, referring to the fact that these stabilizer act quicker than other stabilization instruments. Therefore, the automatic fiscal stabilizers do not involve interior lags, usually seen at the discretionary 172

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modifications of fiscal policy. In addition, they involve exterior lags that are smaller than in the case of monetary policies. Numerous studies tried to demonstrate the effects of the automated fiscal stabilizers. So, T.J. Kneiser and J.P. Ziliak (2002) studied the effects of the fiscal reforms in the 80s USA, on the automated stabilization of the consume. Their conclusion was that the progressive rate income tax system introduced in the US in the 80s stabilized the consume with circa 15% in the case of asymmetric shocks on income. In some cases, the automatic stabilization effect was even increased, inherent to a progressive rate taxation system. Cohen and Follette (2000), using a model of the Federal Reserve Bank, suggest that the automated fiscal stabilizers cushion the imperfections on the demand, but cannot compensate for the shocks on the offer. Christiano and Harrison (1999) made a simulation model of a real economical cycle, by which they showed that the benefits of the automated stabilizers in the fiscal system exist especially due to their effects of reducing the GDP’s volatility. Romer (1999) stated that the automated fiscal stabilizers contribute with 0.85% to the GDP increasing rate. P.H. Pearse (1962) analyzes the impact of the automated fiscal stabilizers in the case of the British economy. He concludes that the stabilizing effect is bigger as the flexibility of the fiscal effectiveness increases, the marginal inclining towards the consume increases and the part on income flows attributable to the undistributed profits is smaller. The current economical and financial crisis, by its virulence, cancelled greatly the capacity of the automatic stabilizers to answer to it, as they did in the last 50 years for the flows affecting the world economy, reason for which the most affected states moved on to wide fiscal stimulation programs. The fiscal stimulation is a combination of public expenses and tax reduction for companies that want to recover the economical activity, the increase of the work places’ occupation degree and the caring of the business environment. The government/state’s intervention in the economy must be taken into consideration, which can be made deliberatively or discretionary, with effects that are not always good. The Stability and Growth Pact assures the corresponding principles for the fiscal policy behavior in the euro zone. These principles specify mostly the mode of adjusting the structural budgetary sale towards reaching a mid-term objective consisting in “a surplus or almost zero position”, whose level is specific to each country. These mid-term objectives were set at a level that insures the fiscal sustainability, and a sufficient maneuver margin to avoid the overpass of the 3%GDP level, given the normal economical flows. Indeed, the countries that reached their mid-term objectives are free to allow the automatic stabilizers to work and therefore contribute to the diminishing of the economical cycle. The more countries in the euro zone are in this position, the more action liberty will be for the automated stabilizers at the level aggregated by the zone contributing at the well functioning of the EMU. The advantages of the automatic stabilizers’ functioning are known. Unlike the discretionary measurements, these are not affected by the temporary gaps of the decisional process. However, their action is not determined by the political factor, and their economical impact is automatically adjusted with the economical cycle. Furthermore, the experience of the previous decades recommends a prudent behavior. The recent experience sustains the advantage of automatic stabilizers, but indicates in the same time that the budgetary expenses superior to 40% GDP do not generate additional benefits in terms of stability. The functioning of the automatic stabilizers on the expenses part can be misinterpreted as argument to overcome the public expenditure limits, situation that can be tough to reverse. Nonetheless, there is the significant uncertainty referring to the GDP deviation measurement from ots potential level and, as such, the measure in which the automatic stabilizers already affect the economy. The “euro zone” countries with significant budgetary deficits and public debt increased percentages must put the accent on respecting the consolidation requirements, stipulated in the 173

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Growth and Stability pact, in order to reach its mid-term objectives. The reach of these objectives will allow the free and complete functioning of the automatic stabilizers in the given countries, therefore contributing to the minimization of the economical cycle flows. So, those countries must resist to the temptation of calling for the fiscal policy and the fine-tuning of the short-term economy, because these might negatively affect the economical growth potential on long-term and the fiscal sustainability. Therefore, the “euro zone” countries should take into consideration the previous years’ lessons and promote prudent and solid fiscal policies of a consistent manner. Nonetheless, a discretionary fiscal stimulus may also generate inflationist pressures. In the current context when the euro zone inflation is at high levels, the additional stimuli on behalf of the fiscal policy will continue to amplify the risk at the price stability address. Even the small fiscal stimuli may have negative, durable effects, in the case when these contribute to the increase of the inflationist anticipations. CONCLUSIONS The explicit, or deliberate intervention of the state/government in the macro-economical adjustment is known as discretionary policy, while the implicit, non-deliberate intervention sends to the concept of automated stabilizers. Reasons of cost, efficacy or institution seem to recommend the use of implicit macro-stability policies, that is- the projecting and implementation of automatic (fiscal) stabilizers. Technically, these represent automatic procedures of negative feedback. If the economical philosophy of a state can lead to a small degree of public intervention by explicit regulation, than the economical dynamics may be very well managed by an implicit regulation, that is- by the automatic stabilizers. Of the fundamental virtues of these stabilizers, we recall: • the anti-cyclic character, assuring the negative feedback of the adjustment; • the oversized character, assuring the adjustment’s efficacy; • the structural character, assuring the adjustment’s persistence. Therefore, one of the lessons of the current economical and financial crisis can be to reduce the discretionary character of the economical adjustment policies and introduction, financially and fiscally, of the fiscal automatic stabilizers. In the developing countries, there still exists the concept that a relaxed fiscal policy, with high budgetary deficits, is needed to assure the economical growth. But, the specialty literature shows, without any doubt, that the discretionary fiscal policies increase the volatility and uncertainty of the future GDP evolution, and on higher inflation rates - of over 8%, the fiscal policy increases the unpredictability of the inflation’s evolution, especially in those countries where the monetary policy is subordinated de facto. The fiscal policy promoted in Romania should take into consideration the increase of the public finances’ stabilizing role, especially in maintaining a descendent trajectory of the inflation rate and the current account deficit within sustainable limits. REFERENCES: 1. Chirstiano, L.; Harrison,S., (1999), Chaos, sunspots and automatic stabilizers, Journal of Monetary Economics, 44(1); 2. Cioponea, M.C., (2007), FinanŃe publice şi teorie fiscală, Editura FundaŃiei “România de mâine”, Bucureşti; 3. Cohen, D., Follette G., (2000), The automatic fiscal stabilizers: quietly doing their thing, Federal Reserve Board of New York Economic Policy Review; 4. Egle,Walter,P.(1952), Economic Stabilization: Objectives, Rules and Mechanisms, Princeton University Press, p. 425; 5. Friedman, Milton, (1948), A Monetary an Fiscal Framework for Economic Stability, American Economic Review, XXXVIII, 245-264; 6. Georgescu, M.A., (2009), Administrarea finanŃelor publice şi a bugetului, Editura Pro 174

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Universitaria, Bucureşti; 7. Hart, Albert, G. (1953) Money, Debt and Economic Activity, 2nd Edition, New York, Prentice Hall, pp. 425; 8. Keiser,Norman,F., (1956), The Development of the Concept of “Automatic Stabilizers”, The Journal of Finance, Vol. 11, No. 4, pp. 422-441; 9. Kneiser, Thomas.J.; Ziliak, James, (2002), Tax Reform and Automatic Stabilization, The American Economic Review, Vol. 92, No. 36, pp. 590-612; 10. Moşteanu, Tatiana (coord.), (2003), Politici fiscale şi bugetare pentru reformarea economiei şi relansarea creşterii economice, Editura Economică, Bucureşti; 11. Musgrave, Richard A.; Miller, Merton, H., (1948), Built-in Flexibility, American Economic Review. XXXVII, 128; 12. Pearse, P.H., (1962), Automatic Stabilization and the British Taxes on Income, The Review of Economic Studies, Vol. 29, No. 2, pp. 124-139; 13. Romer, C., (1999), Changes in business cycles: evidence and explanations, Journal of Economic Perspectives, 13 (2), 23-44; 14. Ştefură, Gabriel, (2007), Bugete publice şi fiscalitate, Editura UniversităŃii Al.I.Cuza, Iaşi; 15. Tam, Julie; Kirkham, Heather (2001), Automatic Fiscal Stabilizers: Implications for New Zealand, Treasury Working Paper, pp.223-226; 16. Văcărel, Ioan, (coord.), (2006), FinanŃe publice, EdiŃia a V-a, Editura Didactică şi Pedagogică, Bucureşti; 17. http://www.wall-street.ro/editorial/271/Lectii-oferite-de-criza-financiara-sieconomica.html

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SECTION 4 STATISTICS, DATA PROCESSING (INFORMATICS) AND MATHEMATICS

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STATIONARY AND NON-STATIONARY TIME SERIES Associate Professor Ph.D. Elisabeta R. ROŞCA University „Ştefan cel Mare” of Suceava, Romania [email protected] Abstract The paper „Stationary and Non-stationary Time Series” presents in a theoretical approach, the concept of time series, its characteristics which are: variability, homogeneity, periodicity and interdependence of time series terms, from which result the methods of estimation and analysis of time series, specific for each component (trend, periodical component-cyclical or seasonal, random component). As time series terms have or havn’t an evolution in time, it is stationary and non-stationary. In the case of stationary time series in the paper are defined the white-noise processes and the autoregressive processes. Since most processes are non-stationary by transformations we obtain stationary time series and in the paper are presented the restrictions for which an autoregresive process of moving average ARMA( p, q ) is stationary. In the paper are approached also non-stationary processes by deterministic type and by stochastic type as the way to achieve stationary which mean the trend estimation and its elimination from the initial time series. Keywords: stationary time series, non-stationary time series, white-noise process, autoregressive moving average process, autocorrelation function. JEL Classification: C10

INTRODUCTION The time series is a set of numerical observations registered in different time moments or intervals such as: annual profits, quarterly production, weekly sales, daily exchange rate a.s.o. The analysis of time series means first the analysis of the nature of variation in these series. The resulted information offer an image concerning with variables behaviour in time and serve to making forecasting of the terms values of time series. The analysis of time series begins with their graphic representation which shows a great variety of movements, some of them with systematic nature such as production growth, others with a more or less systematic variation in connection with a year periods and others with a random occurrence. In the analysis of time series is necessary to measure the systematic movements of data, to identify a certain tendency in their evolution, a certain periodicity which occurs on long term-ciclicity or within a year-seasonality, a certain irregularity which mean to analysis the four components of series which are the trend and cyclical, seasonal and random variations. Among the methods used for the analysis of the components of time series, the method based on the moving averages has a special importance both for statistical and econometrical approach. In this paper we want to identify the characteristics of time series, the already mentioned components and, depending on the existence or non-existence of the trend, the characteristics of stationary and non-stationary time series. CHARACTERISTICS OF TIME SERIES The time series consists from two parallel rows of numbers in which the first row shows the variation of time characteristic and the second the change of the analysed variable from a time unit to another. So we define the time series as a succession of real values given by the relation: y1 , y 2 ,..., y T or (Yt )t =1,...,T (1) where y t represents the level of Y variable at a given moment or for a time period noted with t and T is the number of terms from its background. Each value of series is the achievement of a random variable Yt . All the random variables (Yt )t =1,...,T defined a random process. A time series is discrete if t∈Z

or is continuous if t ∈ R.

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In the estimation and analysis of time series are important their characteristics which are: variability, homogeneity, periodicity and interdependence of time series terms. In the analysis of social and economical time series we must assure the following conditions: the homogeneity of time series, the interdependence within the series, the statistical comparability of series terms. The time series terms variability results from that each term is obtained by the centralization of some individual different data as a development level because the action of some essential causes and also because of an great enough number of non-essential causes whose association usually change from one period to another. So, the estimation and analysis of time series need the measurement of the degree and the form of essential factors influence and the degree of deviation from the general tendency determined by the non-essential, random factors influence. The time series terms homogeneity shows that such kind of series consists from the same type of data which are the result of the same laws action. The analysis of time series needs for each series to verify its terms homogeneity which mean all the time series terms to be expressed in the same unit of measure and for the value indicators to take into account also by the prices evolution. In the case of some long economical and social time series is possible to appear breaks of slope or level as result of some essential modifications of the analysed phenomenon in the considered time interval. In such cases, the average estimation in the all data series isn’t relevant because the average is a significant value only if the series terms are qualitatively similar. When in the preliminary analysis there is more qualitatively different subperiods is recommended to divide the series in subseries, to determine first averages on subperiods and subsequently an average for the whole series. We consider a series with n terms, which is symbolized by (E, n ) and which presents k − 1 breaks of level. So we have the series: (E i , p i ); i = 1 ÷ k . We define the following relations: k

k

i =1

i =1

E = U Ei ; n = ∑ pi

(2)

The analysis of time series which presents breaks of level needs the following steps: the identification of subseries and the estimation of their synthetic indicators and if is possible, the identification of the periodicity of appearance the breaks of level within the series. So, the time series will be studied concerning with their stability comparing with a certain trajectory (as a rule, shows interest the analysis of series stability comparing with a straight line parallel with the time axis) or with the series trend. A great value of the variation coefficient can result from the existence of breaks of slope and/or level within the series and in this case it is recommended to divide the series in subperiods or it can shows that the data series didn’t presents a regular trend in its evolution. In case in which from the graphic representation of the data series results breaks of slope or level, the question is the analysis of the degree of similarity among subperiods. In this purpose for each subperiods (E t , p t ), t = 1 ÷ k are estimated: mean, variance, standard deviation and, if it is necessary, variation coefficient. For the whole series (E, n ) is calculated, starting from the series terms or from the subperiods indicators, the appropriate averages. In the aim to establish if among subperiods there are substantial differences it can be used more methods such as: - decomposition of total variance of the series in partial variances (and the estimation of their average) and the variance among subperiods (due to break factors) and the establishing of the weight of variance due to break factors (as much as this is bigger the differences among subperiods are bigger); - using the analysis of variance by estimation the variation determined by the break factors, variation within the period, total variation and the interpretation of the value of statistics F . The time series terms periodicity results from the choice of time unit at which the data are registered, depending on the content and the measurement possibilities of each indicator. So, some variables are recommended to be measured in small units of time (for example, exchange rate is daily registered, inflation rate, employment monthly a.s.o.) and others in great units of time (for example, turnover, company's net income, macroeconomic indicators of results such as: gross 178

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domestic product, net domestic product, net exports a.s.o. are yearly registered). Depending on the nature of influence factors that determine the appearance of oscillations in the evolution of the time series terms and the periods dimension at which is manifested repeatability are known cyclical and seasonal variations. So, some time series highlight situations when macroeconomic variables present oscillations around the trend, usually sinusoidal type, caused by internal factors of economy, by the interrelationships among the different sides of this, repeated at unequal time intervals and bigger than an year, called cyclical oscillations (1). The time series which highlights the situations when some macroeconomic variables are influenced by the change of seasons are estimated and analysed as time series with seasonality (for example, tourism demand, level of harvest at agricultural crops, construction activity a.s.o. are recorded monthly or quaterly). Frederick C. Mills has presented in his work “Statistical Methods” two methods of determination the cyclical oscillations which are: residual method and Method of the National Bureau of Economic Research (USA). The application of the residual method in the analysis of cyclical oscillations involves the following steps: - correct choise of long term trend for the analysed series; - elimination the seasonality; - determination the trend; - determination of the deviation from the trend of actual data, being eliminated the seasonal variation; - determining the "cycles" or percentages of deviations from the trend of the actual data. Method needs the determination of two indicators which are: - the percentage of trend (T % ) , obtained by the reporting the actual values of the series (Yt ) to the adjusted values Yˆ , using the formula:

( )

t t =1,...,T

t =1,...,T

Y ⋅ 100 (3) Yˆ - residue cyclically in relative expression (RC % ) , which expresses the percentage of deviation from trend of each values of series, computed with the formula: Y − Yˆ RC % = ⋅100 (4) Yˆ Graphical representation of percentage of trend gives a suggestive image of cyclical component deviation from trend line. Residual method don’t allows a prediction of cyclical variation, but only the analysis of evolution of real series. When monthly or quarterly data are available and graphic representation of the series suggests the presence of seasonal phenomenon, the application of residual method requires the elimination in advance from the actual data of seasonal variations using one of the known methods for determination of monthly (quarterly) seasonality indices and the influencing the empirical values with these indices. In subsequent calculations is used the deseasonalized time series. Method of the National Bureau of Economic Research (USA) is a more complex method having the aim to answer at two questions which are: - if in the concrete time series exists a form of variation that repeats (with smaller or larger deviations) in the consecutive economical cycles of the general economic activity (commercial or industrial) and which are the characteristics of this variation. This question concerns the behavior of various time series in the consecutive phases of the enlivening and depression of economic situation taken as a whole. - if in the concrete time series exists an own undulation movement and which are its characteristics. This question refers to the determination of the cyclical component from the time series and it can be solved using the residual method. Essentially, the application of this method supposes the achievement of a reference model by its using to be established, in their historical evolution, the lower and upper points of the industrial and commercial activity. Subsequently, the specific cycles overlap the reference cycles, T% =

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with the aim to establish the compliance or lack of compliance among the phases of general economic cycle and specific courses. There are three main reasons to study the seasonality which are: 1. determination the seasonality allow to establish the previous development model of the phenomenon and by this we obtain valuable information connecting with the predicted evolution of a phenomenon or process, into a present period. 2. determination the seasonality is useful for the achievement of the forecasting calculation of the seasonal variations, essential for the short-term decisions. 3. once established the existence of the seasonal component we can eliminate its effects from time series, operation called deseasonalisation. The determination of the seasonal effects allows therefore or the elimination of these influences and the study of the remained variations or the study separate of the seasonal variations. The basic method of analysis the seasonality is that after we have established that the seasonal factors are manifested additive or multiplicative, the values of components are estimated for each season of the analysed period, by determination of the seasonal deviations or the seasonal indices. In the case of non-stationary time series, such as there are the most economical and social time series, the estimate of seasonal deviations needs previously trend determination with an analytical model or with method of least squares and identification subsequent identification of seasonal oscillations. The time series terms interdependence results from the fact that they are successive values of the same variables recorded at certain intervals or moments of time, which make that the value of each term depends by the level from the past. Such a dependence can be surprised by the functional relation: y t = f ( y t −1 ,..., y t − k ), k ≥ 1 (5) where k represent the number of terms from past which have a significant influence on the value yt . In the analysis of a time series we must make the distinction between: - temporal connection, which supposes the ordering of a variable values by their temporal succession; - causal connection, which supposes that if an event A occurred after the event B , then the elimination of the event B will determine necessarily the elimination of the event A . Analysis of time series is based on the simultaneous existence of the temporal and causal connection. Are defined two events which are: A - value of variable Y to be y t at the moment t ; B - value of variable Y to be y t −1 at the moment t − 1 . We consider P ( A) and P (B ) the probabilities of achievement the events A and B and P ( A / B ) conditional probability, so that A to be preceded in time by B . We describe the probabilistic causal connection by the following formula: P (Y = y t Y = y t −1 ) f P(Y = y t ) (6) Interdependence among the time series terms is shown by the autocorrelation of time series terms which explains the objective tendency of development the phenomena. Autocorrelation among time series terms creates difficulties in estimating parameters of the adjustment equation, therefore its existence should be identified from the graphic representation of the time series and the establishing of its level by estimating the autocorrelation coefficient. The calculus relation is:

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n− k

ρk =

( y t − y1 )( y t + k − y 2 ) ∑ t =1 n −k

n− k

 2 2  ∑ ( y t − y1 )   ∑ ( y t + k − y 2 )   t =1   t =1 

=

cov( y t , y t + k )

(7)

σ ( y t )σ ( y t + k )

where k represents the number of periods in which are separated the pairs of values and y1 and y 2 are calculated with the relations: n−k

n− k

∑ yt y1 =

t =1

and y 2 =

∑x t =1

t +k

(8) n−k n−k In the case of stationary time series or for n large enough, case in which y1 = y 2 , the autocorrelation coefficient is given by the relation: n −k

ρk =

∑(y t =1

t

− y )( y t + k − y )

n− k

∑ (y t =1

t

− y)

(9) 2

If the values ρ k are graphic represented depending on k , the graphic so obtained is named correlogram and it illustrated the principal characteristics of the autocorrelation phenomenon of the time series terms.

STATIONARY TIME SERIES Considering the given values of time series ( yt ) with t = 1 ÷ n , than: 1. this series defined a stationary process in a restricted sense, if E ( y t ) = cons tan t for any t and the correlation matrix of series y1+τ , y 2+τ ,..., y n+τ don’t depend on τ ; 2. this series is named white-noise if it is a stationary process with null average and the 1, if k = 0 autocorrelation coefficients satisfy the property ρ k =  . 0, if k ≠ 0 Considering the time series given by the relation (1) we introduce the following definitions: - a process {Yt }t∈Z is strictly stationary if for any (t1 ,..., t n ) ∈ T n , with t1 p t 2 p ... p t n ⊂ R

defining the time axis and any h ∈ T so that t i + h ∈ T , the processes {Yt + h }nt=1 and {Yt }nt=1 have the same distribution; - a process {Yt }t ∈ Z is a stationary process by m order if for any (t1 ,..., t n ) ∈ T with n n t 1 p t 2 p ... p t n and any h ∈ T so that t i + h ∈ T , for the following two processes, {Yt }i =1 and {Yt + h }i =1 i

i

i

verify equal averages:

(( ) ,...(Y ) ) = E ((Y )

E Yt

m1

i

mn

tn

t1 + h

m1

(

,..., Yt

n

+h

) ) mn

i

(10)

where the parameters m1 ,..., m n ∈ N * verify inequality m1 + ... + m n ≤ m . In the case of stationarity of first order, in which m = 1 and m1 = 1 obtains equal averages: E (Yt ) = E (Yt +h ) = µ . In a stationary process, its characteristics (average, variance a.s.o.) are constant in time. A stationary process noted {Yt }t∈T , where T = R, N or Z have the following properties: 1. E (Yt ) = m , ∀t ∈ T ;

2. var (Yt ) = σ y2 , ∀t ∈ T ;

3. cov(Yt , Ys ) = E (Yt Ys ) − m 2 = γ ( t − s ) , ∀(t , s ) ∈ T 2 .

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The third property of the stationary process leads at a new definition of the seasonality of a stochastic process which is: a process {Yt }t∈Z is stationary of the second order or is slight stationary if this satisfies the following three properties: 1. E (Yt ) = m , ∀t ∈ T ; 2. var (Yt ) = σ y2 , ∀t ∈ T ;

3. cov(Yt , Yt + h ) = γ (h ) , ∀(t , h ) ∈ T 2 . In the case of a stationary process of second order the achievements of covariance function are determined by the difference in time and not by the actual values of time series. Stationarity of second order is called also stationarity in covariance (2). In the case of non-stationary series by data transformations we can obtain a stationary time series. If the series is non-stationary and non-homogeneous both the mean and variance are varied over time. In such a kind of series first recourse to the transformation of the series by logarithm, which is a special case of Box-Cox transformation. In the case of series given by the relation (Yt )t =1÷T this is:  Yt λ − 1 , λ ∈ (0,1)  Tλ (Yt ) =  λ log Y , λ = 0 t 

(11)

Choosing the optimal value of the parameter transformation needs the using of more values of this and choose the one that ensures the lower value of the sum of squares residues or it can use the maximum verosimility method. Transforming data through logarithm apply if the variation coefficients of the original series are constant in time, so the average and the standard deviation have proportional sizes to time. After logarithm, for the series so obtain apply the proceeding of stationalizing applied to a homogeneous non-stationary series. For example, the time series {Yt , t ∈ R} , defined by the relation Yt = b + at + ε t , where ε t is a white-noise isn’t stationary because the average of process defined by EYt = b + at isn’t independent by t . To obtain a stationary series apply the first order differential operator, resulting the series: Vt = Yt − Yt −1 = a + ε t − ε t −1 (12) In the case of transformed series we have the following characteristics: 1. average of transformed series is time independent, because EVt = a ; 2. variance is independent of the time variable because var(V t ) = var(a + ε t − ε t −1 ) = 2σ ε2 ; 3. series covariance is time independent, because: cov(Yt , Yt + h ) = E (ε t − ε t −1 )(ε t + h − ε t + h −1 ) = − E (ε t ε t + h −1 ) − E (ε t −1ε t + h −1 ) − σ ε2 , h ∈ {− 1,1}  = 2σ ε2 , h = 0 0, h ∈ Z − {− 1,0,1} 

(13)

Series obtained from this transformation has not the characteristics of white-noise. So let’s consider that (ε t ) is a white-noise process and (σ y2 ) is the variance of this process.

When we refer at two or more white-noise process we use symbols such as (ε 1t ) and (ε 2 t ) . So, with these notations we can build a model of time series with the form: q

x t = ∑ β i ε t −i

(14)

i =0

For each period t , xt construct from the values ε t , ε t −1 ,..., ε t − q multiplied by the value

associated β i . A sequence formed in this way is named moving average of q order and it is noted MA(q ) . By combining a moving average process with a linear differential equation we obtain an autoregresive moving average model. Considering the differential equation of p order with the form: 182

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p

y t = a 0 + ∑ a i y t − i + xt

(15)

i =1

and {x t } a process of moving average of q order, that is MA(q ) , we can write: p

q

i =1

i =0

y t = a 0 + ∑ a i y t −i + ∑ β i ε t −i

(16)

We follow the convention of normalizing the unit so that β 0 is always equal with the unity.

If the given characteristic roots of the relation (16) are all inside an unit circle than {y t } is called

autoregresive moving average model ( ARMA) for y t . The autoregresive part of the model is the differential equation, given by homogeneous portion (15) and the part of moving average is the sequence {x t }. If the homogeneous differential equation contains p lags and the model for xt q

lags, the model is named ARMA( p, q ) . If q = 0 , the process is called pure autoregresive, noted AR( p ) and if p = 0 , the process is a pure moving average process, noted MA(q ) . Let’s try to identify the necessary and sufficient conditions for an autoregresive process of order 1 AR(1) to be one stationary process. We consider the process: y t = a 0 + a1 y t −1 + ε t (17) Also we consider that the process started in the period zero, so that y 0 is the initial deterministic initial condition. The solution of such equations is: t −1

t −1

i =0

i =0

y t = a 0 ∑ a1i + a1t y 0 + ∑ a1i ε t −i

(18)

If we can use the term limit value (18), than the sequence {y t } will be stationary. For any given y 0 and a1 p 1 , results that t must be enough. Indeed, if a survey is generated by a process which has recently begun, the recorded values can not be stationary and from this reason researchers based on the assumption that the data generation process took place in an infinitely long time. Without the original value y 0 , the sum of homogeneous and particular solutions for y t is: ∞

y t = a0 / (1 − a1 ) + ∑ a1i ε t −i + A(a1 )

t

(19)

i =0

where A is an arbitrary constant. Stability conditions are the following: 1. homogeneous solution must be zero. The sequence must begin at infinity in the past or the process must always be balanced (so that arbitrary constant to be zero); 2. characteristic root a1 must be less than unity, in absolute value. Generalizing these tow conditions for all the processes ARMA( p, q ) , results that a necessary condition that these processes to be stationary is the homogeneous solution to be zero. Also, is demonstrated that for any moving average process MA , given by the relation (16), 2 necessary and sufficient conditions for it to be stationary are that: (1) ∑ (β i ) and

(2) (β

s

+ β 1 β s +1 + β 2 β s + 2 + ...) to be zero (3).

Considering an autoregressive moving average process, given by the relation (15), with xt given by the relation (14), if roots of homogeneous form (15) are inside of an unit circle and the sequence {x t } is stationary, than the process {y t } is stationary, this being the condition of stationarity of the autoregresive coefficients.

NON-STATIONARY AND NON-HOMOGENEOUS TIME SERIES Most of economic data series are not stationary, they havn’t constant average and display phases of relative stability followed by periods of high variability. Many of present econometrical 183

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research are based on the extended Box-Jenkins methodology in the behavior analysis of these type series. Usually, the using of autoregressive methods needs these series stationalization. Also the most macroeconomic variables are non-stationary. The sample averages are not constant and/or there is o strong tendency of heteroskedasticity. We can identify same keycharacteristics of the great variety of time series from this domain which are: 1. many time series of macroeconomic variables contain a clear trend (for example, gross domestic product and its components, profit rates, inflation rates a.s.o. have positive trends which may be followed by periods of decline and therefore it is difficult for such variables have a constant mean, so they are not stationary); 2. some series seem to oscillate (for example, exchange rates don’t show a clear tendency of increase or decrease: in some periods currency is assessing, in othres are depreciating and this random motion is specified non-stationary series); 3. any impact registered by a series has a highly degree of persistence; 4. many time series variability isn’t constant in time. Such kind of series are conditionally heteroskedastic if the unconditional variance (or on long-term) is constant, but there are periods in which variance is relatively high. 5. some series are similar in development with others. Such simultaneous movements should not surprise but we must understand that the forces which influence the national economy have a similar influence on the international economy. Analysis of a time series identifies two types of non-stationary series which are: 1. processes of deterministic non-stationary type - TS (Trend Stationarity); 2. processes of non-stationary stochastic type - DS (Difference Stationarity). Each of these two processes have certain characteristics and trend removal and conversion into stationary processes require different techniques. A non-stationary process by deterministic type is reprezented by the relation: y t = Pt + ε t (20) where Pt is a polynomial of a certain degree in relation to variable time and ε t is a stationary process. If the polynomial is first-degree, case in which Pt = α + β t and ε t is a white-noise, then the process is characterized by the relation: y t = α + βt + ε t (21) Such a process has the following characteristics: 1. the process average is dependened by the time, dependency characterized by the relation: E ( y t ) = α + βt ; 2. the process variance is constant in time, this being equal with the variance of whitenoise which is: var ( y t ) = var (α + β t + ε t ) = σ ε2 ;

3. covariance of this process is zero: cov( y t , y t ' ) = 0. In the case of such a process the tendency has a deterministic nature and the variance is constant over time. Passing this deterministic non-stationary process type by a stationary process is done by estimating the trend and elimination it from the original series. Therefore, the stationalization is achieved in two phases namely: 1. are estimated polynomial parameters Pt by using the method of least squares. If the trend has obtained a linear model: yˆ = αˆ + βˆt. t

2. stationary series is obtained by removing the estimated trend in the first stage, namely: εˆ = y t − yˆ t = y t − αˆ − βˆt . Such a stationary series can be represented by an autoregressive process of a particular type. A non-stationary stochastic process has the representation: y t = ρy t −1 + β + ε t , where ε t is a stationary process and ρ , β are real constant.

(

)

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When ρ = 1 non-stationary stochastic process allows the representation: ∆y t = β + ε t . As we shown most economic series are not stationary, having the following characteristics of non-stationarity: the series has an average which is not constant over time, this following usually a linear path with positive or negative slope (series is non-stationary homogeneous type), such series characterizing by constant changes from one period to another; there are series which have variation non-constant from one period to another, case in which the series is non-stationary by non-homogeneous type, both variance and average being variables over time. For establishing whether the time series is stationary are applied different statistical tests between the methods most commonly used being the analysis of autocorrelation function (4). If the series respects one of the following criteria, it is non-stationary and must be stationalized by differentiation: 1. autocorrelation function values are in the vicinity of one or are negative; 2. a number of successive values of autocorrelation function are relatively equal. When one of the two cases is done, than the series {y t }t =1÷T is differentiated and we obtain ∆y t = y t − y t −1 , t = 2,...,T . For the new series is resumed the analysis of stationality on the base of estimation the autocorrelation function. Among the criteria of choosing the most adecquate autocorelation model we include: classical criteria, by which is chosen that model which has the highest value for R 2 adjusted or the lowest variance or dispersion residues; indicators based on information theory, providing the autoregressive model selection for which the criterion Akaike or Schwartz has the lowest value. The formal identification of the trend presence in time series is realized by statistical tasting, as we saw or by graphic representations.

CONCLUSIONS We see from this brief overview of the characteristics of time series the importance of identifying them, analytical or graphical, their components and then the presence or not the trend. Variability in time series results from the fact that on the analysed phenomenon act essential causes which determines the general tendency of the time series terms and non-essential random causes, which determines the degree of deviation from trend. Variability has determined the application of some tests for identification the type series (stationary or non-stationary), frequently used to determine the stationarity being the analysis of autocorrelation function. If the series is nonstationary, the stationalization is the first step in selecting the most appropriate model for the trend. For stationary or stationarized time series are identified the parameters of autoregressive models, is chosen the most appropriate model that can be used later in analysis and forecasting. In this paper we tried to establish conditions for stationarity of a time series in an autoregressive moving average process.

ENDNOTES (1) Cyclical oscillations are determined by the periodicity of succession of different economic processes such as the periodic renewal of the production unit of society, the formation and the cyclical reproduction of primary resources (fixed capital, power resources and raw materials, labor), the introduction in the exploitation of some new resources, the development in leaps of science and technological innovation, the periodic restructuring of national economy, the social revolutions, wars a.s.o. (source: Biji, E. M., Lilea, E., Roşca, R. E., Vătui, M., Statistică aplicată în economie, Edited by Universal Dalsi, Bucharest, 2000, p., 362). (2) An example of stationary series is the white-noise ε t , for which are valid the three properties: 1. E (ε t ) = 0 ,

∀t ∈ T ; 2. var (ε t ) = σ ε2 , ∀t ∈ T ; 3. cov(ε t , ε h ) = 0 , ∀t ≠ h . (source: Andrei, T.,

Bourbonnais, R., Econometrie, Edited by Editura Economica, Bucharest, 2008, p. 341)

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(3) If the condition (2 ) is valid for all values of s and β 0 = 1 , than the condition (1) is redundant and a moving average process of finite order MA will be always stationary. For a process of finite order, the condition (2) is true for all values s ≥ 0 , where s is the number of periods. (source: Enders, W., Applied econometric time series, 1st edition, Edited by John Wiley & Sons, Inc., USA, 1995, p. 76-77). (4) Stationalization of time series is the first stage in using the Box-Jenkins procedeure for selecting the most appropriate model of trend. Briefly, the steps of this procedure are: calculate indicators for stationalized analysis (when the time series is non-stationary it will be stationalized by proper transformations, for example, logarithm the series values or apply a Box-Cox transformation, than differentiate the data series thus obtained). If it is a stationary series is identifying the type of model, the parameters of model are estimated using an autoregressive known method such as: the method of least squares, the maximum likelihood method, the method of moments a.s.o., are tested the characteristics of estimated autoregresive models, are choosed the best model, are achieved various analysis and forecasts. (source: Andrei, T., Bourbonnais, R., Econometrie, Edited by Editura Economică, Bucharest, 2008, p. 368).

BIBLIOGRAPHY 1. Andrei, T., Bourbonnais, R., Econometrie, Edited by Editura Economica, Bucharest, 2008. 2. Andrei, T., Stancu, S., et al., Statistică. Teorie şi aplicaŃii, Edited by Editura Economica, Bucharest, 2002. 3. Baron, T., Biji, E. M., Tövissi, et al., Statistică teoretică şi economică, Edited by Editura Didactica si Pedagogica R. A. Bucharest, 1996. 4. Biji, E. M., Lilea, E., Roşca, R. E., Vătui, M., Statistică aplicată în economie, Edited by Editura Universal Dalsi Bucharest, 2000. 5. Biji, M., Biji, E. M., Statistică teoretică, Edited by Editura Didactica si Pedagogica, Bucharest, 1979. 6. Enders, W., Applied econometric time series, 1st Edition, Edited by John Wiley & Sons, Inc., USA, 1995. 7. Fleming, C. M., Nellis, G. J., The Essence of Statistics for Business, 1st Edition, Edited by Prentice Hall International (UK), 1991. 8. Isaic-Maniu, Al., MitruŃ, C., Voineagu, V., Statistica pentru managementul afacerilor, Edited by Editura Economica, Bucharest, 1999. 9. Jaba, E. (coord.), Balan, C., et al., Econometrie aplicată, Edited by Editura Universitatii „Al. I. Cuza” Iasi, 2008. 10. Jaba, E., Statistică, Edited by Editura Economica, Bucharest, 1998. 11. Keller, G., Warrack, B., Bartel, H., Statistics for Management and Economics. A Systematic Approach, Wadsworth Publishing Company, Belmont, California, 1988. 12. Korka, M., Begu, L. S., Tuşa, E., Manole, C., Bazele statisticii pentru economişti, Edited by Editura Tribuna Economica, Bucharest, 2005 13. Lecaillon, J., Labrousse, C., Statistique descriptive, Éditions Cujas, Paris, 1988. 14. Levin, I. R., Statistic for Mangement, 4th Edition, Edited by Prentice-Hall, Englewood Cliffs, New Jersey, 1987. 15. Mills, C., F., Metode statistice (vol. I şi II), Directia Centrala de Statistica, Bucharest, 1958. 16. Niculescu-Aron, I. G., Mazurencu-Marinescu, M., Metode econometrice pentru afaceri, Edited by Editura ASE Bucharest, 2007. 17. Roşca, R. E., Modelarea seriilor cronologice, in the volum „Statistica în cercetarea economico-socială”, Edited by Editura Junimea Iasi, 2001. 18. Roşca, R. E., Modele econometrice în analiza componentelor seriilor de timp, in the volum of Scientific Session with International Participation, vol. III, Edited by Editura Universitatii Suceava, 2005. 19. łarcă, M., Tratat de statistică aplicată, Edited by Editura Didactica si Pedagogica R. A. Bucharest, 1998. 186

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DEVELOPING WEB APPLICATIONS USING THE MDA PARADIGM Lecturer Ph.D. Mihai-Constantin AVORNICULUI “Babeş–Bolyai”University Cluj-Napoca, Romania [email protected]

Abstract: Data intensive web based systems, that in the most of their uptime do data processes have become a part of our everyday life. Several systems of this type appeared on the internet: webshops, online ticket shops, banks, etc. These are used everyday by users around the worls. The use of model drive approach brings several advantages that ease up the development process. Working prototypes that simplify client relationship and serve as the base of model tests can be easily made from models describing the system. These systems make possible for the banks clients to make their desired actions from anywhere. The user has the possibility of accessing information or making transactions. Keywords: Web application, MDA, MVC, Banking services JEL Classification: C 88

INTRODUCTION In recent years Web applications have become a part of our everydays. On Internet have appeared many applications like these. Modeling such a system is a very complex task, because to be able to develop a felxible and upgradeble system we have to take in account the existing and the future technologies too. The model-driven approximation has many advantages even when is used to create Web applications, because we can quickly generate a working prototype from the models which describe the plan, and on the basis of these models we can make model-revisions. In a short time this paradigm has become very popular and so is involved in many areas of life bringing a new line of sight in application development too. Because of the Web applications’ diversity it is becoming more and more difficult to choose the required technologies and platforms. It is possible that at the end of the development, after installation, the application outgrow the proposed framework. The problem in this case is that maybe we have to change the platform and this may mean that the whole application must be reimplemented. In better case changing the platform can be easily achieved, but the used technics may become out-of-date and so they will not be compatible with new technologies. This fact may imply several problems, for example after a while the solution’s support will leave off. On the other hand new developers may get into the team, who don’t know the older technics and so the improvemnet will be more difficult. Practice shows that the application’s logic should be formed irrespectively of technological details.Even if we use traditional application development methods, it is familiar that after the model was finished and once implemented, in the next steps will not be used but simply set aside. So, between the model and the code it can’t be developed a relationship, so the change within the model doesn’t appear into the code and vice versa. Because of this the model will be unable to perform his original function, to provide determinative informations about the system.

THE MVC ARCHITECTURE To eliminate the aforementioned problems, during the design process we must place particular emphasis on the separation of the content and the visualization, thus we can reuse these components. During the development of a Web-based application the most frequently used design pattern is the Modell-View-Controller. This one efficiently increases the application’s usability and helps us to understand the accurate operation of the program. 187

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This pattern is simple and efficient and the resulting code is reusable.

Input (Web Browser)

HTTP request

Controller

Call

Model

Forward Result (Web Browser)

HTTP respons e

DB

Result

View

Figure 1. The MVC architecture On server side the Controller receives the requests, forwards them to the model which executes the requested task. According to user commands respectively to the Model’s result, it is practical to let the Controller choose the fitting View. Using the MVC we have the following benefits (Adamkó and Kollár, 2008): • Modularity: allows to replace either component • Reusability: we can reuse the already existing code • Easy expandability: the Controller and the View can be expanded along with the Model • Centralized controller: with the help of the Controller the manageability becomes easier In case of Web applications we can’t only lean on MVC design patterns, because we may forget the apllication’s several other features. As a result the application may be difficult to develop and to maintain. Practice has confirmed, that MVC patterns can successfully used for developing web applications combined with other well known tools.

THE MODEL-DRIVEN ARCHITECTURE The Model-driven architecture (MDA) is a new application development approximation which in recent years has become a paradigm too. The most important assumption of this paradigm (Schmidt, 2006) is that the designing and the development in fact mean creating models with different level of abstraction. An MDA specification is composed of a platform independent (PIM) model and one or more platform specific models (PSM). According to MDA paradigm, first of all will be finished the examined system’s computational independet model (CIM) which illustrates the business logic without reference to the machine. During the design of Web applications, after finishing the CIM we need to create the models below (Valverde, 2007; Adamkó and Kollár, 2008): • Structural model: which describes the objects of speciality concept and the structural relations between them • Navigational model: which presents the Web application’s reticulated structure 188

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•

Component model: wherein is written those classes’ organization into bigger logical units, which represent the functionally cohesive concepts • Presentational model: which is an abtsraction of the user interface and it is in elementary relation with diplayed components In fact a PIM is a full specification which is platform independent. A PIM model must be transformed to a PSM model which insures the infrastructure of system architecture. This transformation means the implementation of PIM, i.e. the executable application’s generation. The PIM allows the solution’s visual modeling on a higher level of abstraction. Thus when a new technology appears isn’t necesary to rewrite the application, we only have to regenerate it. The figure 2. demonstrates the concept of the MDA: Ideal MDA tool CIM Transformation

PIM

Conceptual level

Automated Conversion

PSM Reverse

Code generation Source code

Figure 2. The concept of the MDA The most difficult is to convert the PIM model to PSM model, because several tools don’t completely support the conversion (Avornicului, 2010).

THE DEVELOPMENT PROCESS As in case of any other application the first step is the requirements’ analyses. With the help of Use Case diagrams as well as Activity diagrams we define the basic functionalities of the system. The differing roles of the application’s users are represented by the actors while their activities are represented by the use cases. The second step is the conceptual modeling of the application’s data structure and access paths. After the platform is finished using an independet model, we make the platform-specific model by the help of a model transformation. This one can be used to generate code.

THE DESIGN STEPS The planning process is composed of several complex workflows. In case of a Web application the analyses and the design are closely linked activities. During the stpes of design, analyses and requirement definition we have to make the models below: • Use case models • Conceptual model 189

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• Navigation model • Component model • Presentation model In the course of an iterative process these models will increasingly include the speciality requirements. The analyses of requirement will be drawn up under the form of use cases. Our conceptual model will be trained from these, and will give the relationships which are determinant from the viwepoint of the specilaity. This can be viewed like a platform independent model. From this one will be derived the navigation model and the component model, and we will not yet take into consideration the technology and the implementation’s aspects. The purpose of the representation model is to replicate the component model’s elements to other ones which bind to different well known grafical user interfaces. The platform-specific model will be derived from these. In the following we present a case study in which we follow the stages of designing the mentioned application.

CASE STUDY: ONLINE BANKING SERVICES Using the application the clients have the possibility to open charge accounts, to pay in money, to transfer money to another account whithin the bank, as well as to abolish their own account. One client can open only one account but one account may be owned by more people. Our first step is the requirement’s analyses. This is that step during wich we define what kind of application we have to make. If we made a Web application, we may have several problems: • A Web application may have one or more entry points • The resources and the technologies change too fast • There is no well developed systematic guide-line The use cases help us to explore the system requirements. In our case the use case diagram may be like this one below: Charge account abolition Charge account opening

Charge account operation



Account control

Account holder control

User

Transaction

Money deposit

Transfer

Bank database



Sum control

Figure 3. The user’s functions Usualy the requirements are summarized by not only one people because this is a complex task. Making the conceptual model will be the second step. In this phase the goal is to make a model which include the relevant conceptions to the Web application. 190

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During this phase we define the classes, the important attributes and methods. To make the speciality’s structural model we usualy use classes and packages. AdministratorForm WebForm +NewAccount(): bool +Transfer(): bool +PayIn(): bool +AccountAbolition()

+showDialog(): DialogResult

NewAccountForm -getAccountNumber() +BtnNewClient_Click() +getAccount() +getOwner()

-frmNewAccount

-Account Person NewClientForm +getAdress(): string +getName(): string +getIdentityNr(): string

-frmNewOwner

-Name: string -CNP: longInt -Adress: string -Tel: longInt -email: string -Account: string

ChargeAccount

+Owner

-Account

-AccountNumber: string -Balance: real -Owners: string[10] +ChargeAccount() +getAccountNumber() +getBalance() +getOwners() +PayIn() +CoverReview()

1..*

+Person() +getName() +getHomeAdress() +getAccount()

Figure 4. Structural model The third step is designing the navigation, which is a crucial step in making a web application. In this step we produce the application’s structure and the designers have an inportant role, because they have to decide which classes will be used and what sort of navigation paths will set up. These will be set up according to requirements fixed in the conceptual model as well as in use cases. The next figure demonstrates the navigation diagram in case of our system: AdministratorForm

WebForm

+NewAccount(): bool +Transfer(): bool +PayIn(): bool +AccountAbolition()

+showDialog(): DialogResult

NewAccountForm -getAccountNumber() +BtnNewClient_Click() +getAccount() +getOwner()

-Account

Person

NewClientForm +getAdress(): string +getName(): string +getIdentityNr(): string

-frmNewAccount

-frmNewOwner

-Name: string -CNP: longInt -Adress: string -Tel: longInt -email: string -Account: string

ChargeAccount

+Owner

-AccountNumber: string -Balance: real -Account -Owners: string[10]

1..*

+Person() +getName() +getHomeAdress() +getAccount()

Figure 5. Navigation diagram 191

+ChargeAccount() +getAccountNumber() +getBalance() +getOwners() +PayIn() +CoverReview()

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As shown in figure 5, in order to reflect upon the navigability within the application, class diagram was used in which classes and relations are used. Relations express navigability within the application. During the previous steps we have made the most abstract model of our application. The next step is creating the component model. The components can be used in all that places where the classes appear. The figure below contains that classes which fit the account module: Composite Structure Accounts WebForm

AccountIndex I_AccountIndex

+showDialog(): DialogResult

I_Account

I_AccountIndex I_AccountIndex AdministratorForm

NewAccountForm

+NewAccount(): bool +Transfer(): bool +PayIn(): bool +AccountAbolition()

-getAccountNumber() +BtnNewClient_Click() +getAccount() +getOwner()

NewClientForm +getAdress(): string +getName(): string +getIdentityNr(): string

Figure 6. The account’s components One component may appear in several roles within the conceptual model. The next step is creating the presentation model. Using a PIM-PSM transformation we replicate the components to a given platform. In this model new structures are not introduced, but ole components are reorganized. In UML components are universal. Components can be used only in places where classes exist. Following the MDA paradigm we can use numerous transformations to achieve a PIM-PSM transformation. According to the component, navigation and presentation models we derive XForm-type pages. The XForm is a dynamic and scripting language independent system which is integrated in another language (Valverde, 2007). The advantages of XForm (Valverde, 2007; Adamkó and Kollár, 2008): • Developing the MUC model • Is a decorative language • Is compatible with XML standards • Is extensible Its only disadvantage is that isn’t spread enough to be natively implemented in browsers. By the help of XForms we can make forms that allows the client to easily create XML documents, by filling and sending these forms. In this way the data input is easy to realize.

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CONCLUSIONS The model-driven application development brings the solution’s specification closer to formulate the problem. The MDA paradigm is able to organize and develop data-oriented Web applications. In case of a Web application the individual development phases are complex and not always systematic. The described steps in this article can be applyed efficiently to develop a comprehensive Web-based system.

REFERENCES 1. Adamkó A., Arató M., Fazekas G., Juhász I. (2007) 'Performance Evaluation of LargeScale Data Processing Systems' Proc. of the 7th International Conference on Applied Informatics 2. Adamkó A., Kollár L.(2008) 'MDA-based development of data drive Web applications' Proc. of the 4th International Conference on Web Information Systems and Technologies 3. Avornicului C., Avornicului M. (2006) 'Aspects of using MDA paradigm in sistem development', Proceeding of International Conference on Business Information Systems, Iaşi 4. Avornicului C., Avornicului M. (2010) 'Managementul şi proiectarea sistemelor informatice de gestiune' Editura Risoprint, Cluj-Napoca 5. Hazra T. K.(2002) 'MDA brings standards-based developing Modeling to EAI Teams', Application Development Trends, May 6. Kennedy A. (2004) 'Model Driven Architecture and Executable UML – The Next Evalutiopnaryx Steps in System Development? ', Szoftvertechnológiai Fórum, Budapest 7. Raffai M. (2005) 'Az UML 2 modellezı nyelv' Szakkönyv Kiadás alatt, Palatia Kiadó, Gyır 8. Schimdt D. C. (2006) 'Model-Driven Engineering', IEEE Computer, 39(2) 9. Valverde, F., et al. (2007) 'A MDA-Based Environment for Web Applications Development: From Conceptual Models to Code' in 6th International Workshop on WebOriented Software Technologies (Pending Publication) 10. www.omg.org/docs/formal/03-03-01.pdf

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CONSIDERATIONS ON INTERPRETATION OF SAME CASES IN CONNECTION WITH ARTICLE 10 OF PATENT LAW NO. 64/1991 Eng. Ph.D. Sudent Tiberiu-Octavian CUJBĂ “Ştefan cel Mare” University of Suceava, Romania Faculty of Electrical Engineering and Computer Science [email protected]

Abstract Invention is subject to Patent Law no. 64/1991. As a result of his activity, if the conditions required by law, the inventor receives a patent. For like to create a technique to be declared invention it must meet following conditions: is new, is the result of an inventive step and have industrial application. In connection with first condition, we present some significant cases and reviews of rigor.. Failure patenting an invention of the author's fault is the main cause ignorance of Patent Low having bad track. .Situations analyzed represent colors look the same, namely, that the inventor need to patent his invention and only then you can to popularize by different means which have access. Keywords: novelty, patent, priority, review, invention. JEL Classification: K23

1. INTRODUCTION This paper addresses some aspects of the field of intellectual property right. Today, intellectual property right has three branches: Coyiright (which aims at the creative literary, musical, artistics etc.), The industrial property right (which targets scientific and technical inventions in the field) and Trademark Law with geographical indications (which aims at distinguishing insignia graphics and names given products, industrial firms, etc.). Relationships that arise between people following the appearance and use of inventions forming the subject of the industrial property right.and are covered in our country by Law no. 64/1991 for patenting inventions. For an invention to be patented it must meet the condition of novelty. Sometimes, the inventor, first made public his invention and only after it demanded intrduce invention brervet, situation unsupported by current legislation. Cases in which a character loses his new invention (attending a conference, attending an exhibition or publication of an article that reveals the secret to having invention, it has not applied for patent) are analyzed in this work. We see the fault of the inventor, it is possible that the invention not be patented because it lost the character of novelty., The time practical experience in industrial property law has led to some legal regulations as regards the condition of novelty for an invention to be patented After he made the invention, the first step you need to do it is the application for a patent. Emphasize that the popularization through various means of invention before the patent application may lead to failure the condition of novelty under Article10 by Patent Law.

Premises in tackling creativity Exigencies of contemporary life and increasingly acute need to solve complex problems in all sectors of activity creativity in education have become priority, account appears to need stringent requirement for company, for all sectors. This explains the fact that, lately the attention given to creativity and education it is enhanced because:  appeared institutes, foundations, associations, circles, aiming to support creativity in various fields;  a series of treaties, books, manuals and studies specialized in various fields have made instead of chapters and subchapters devoted to creativity;  is organizing public events - congress symposia, discussion, meetings, exhibitions, radio and TV shows - on creativity. 194

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2. THE INVENTION According to the Rumanian legislation throgh Patent Low no. 64 of 11 October 1991 (1) agreement and legislation in most industrial developed countries, invention patentable is the scientific or technique creation that meets the following conditions: - is new; - is the result of an inventive step; - is susceptible of industrial application. Patented invention may relate to a product, process or method. The invention having as object a new variety of plant (2), a hybrid or a new breed of animals shall be patentable if they are new, distinct, homogeneous and stable. No patentable inventions contrary to public policy and morals. No patentable inventions consider giving in defined above: ideas, scientific discoveries, mathematical methods, software itself with economic solutions or organizing, charts, methods of education and training rules of the game plans and urban systems and methods physical phenomena in itself, culinary recipes, aesthetic creations. Invention patent protection is a title which admits the holder or his successor in exclusive rights to use the invention in Romania, the entire duration of validity (3). State Office for Inventions and Trademarks (OSIM) is the only governmental body empowered to registering patent applications for learn, consider these requests and decide on granting the patent on the three conditions of patentability, in accordance with the Regulation implementing Patent Law nr.64/1991(4). The concept contract, patent is a contract, the inventor is required to give his invention, to make available his invention and the state undertakes to provide the inventor for a certain period determined, the exclusive right to use the invention in exchange for advantages that it acquires the company from using the invention Invention patent is granted for a period of 20 years calculated from the date on which a regular national filing. He is in force as long as on pay annual maintenance fees (anuria). If an invention of perfecting validity duration of the patent granted is limited to that granted the patent granted for an invention that improves, but would not be less than 10 years. Patents are part of the National Register of Patent. A patent may relate to one invention May be granted a patent for more invention (invention group) only if is based on a single inventive concept (criteria of uniqueness of the invention). Such inventions may relate for example: - a process (a method) and a technical means (device, machine, plant) for its implementation; - product and a process for obtaining it; - a product of its obtaining process and technical means for implementation of the process; - items and technical means for accomplishment. A patent application referring to several inventions that do not meet the criterion of unity in the conventions is considered fragmented and it may be revised by the applicant (upon request by OSIM or on its own initiative) in several cereals unit - divisional applications - with the benefit of of date its initial deposit (non-unitary demand).

3. THE NOVELTY The classification of inventions by novelty shoulders: f1 – inventions made by associating solutions; f2 – inventions made by modifying the shape of the object or its elements; f3 – inventions made by changing dimensions; 195

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f4 – inventions made by use of a product or a known method; f5 – inventions made by replacement of materials; f6 – invention by replacing in a car or installation of a device with another equivalent; f7 – inventions made by altering the chemical composition or proportions of materials; f8 – inventions made by changing the parameters of technological operations; f9 – inventions made by changing the order of operations and stages in technological processes; f10 – inventions made by constructive simplification or elimination phase; f11 – inventions made by modifying the schema electrical, electronic, hydraulics, fluids, kinematics, of automation of a process. This paper aims to make a number of considerations on the specific cases on the quality of the new condition imposed by the legislature as conclusive required for the grant the patent, the inventor sought with all consequences arising from in acquirement of that right (5). First to see them the Patent Low no. 64/1991, republicshed: „Art.10 – (1) An invention is new if it is contained in the state of the art : (2) State of the art includes all knowledge that has become publicly available a written or oral description, by use or in any other way, until the date of filing patent application. Art.11 – (1) In applying of art. 10 the invention disclosure is not taken account if occurred in period of 6 months before the date of filing the patent application and if directly or indirectly as a result of: a) an obvious abuse about in an applicant or his predecessor his rights; b) that the applicant or predecessor in title has displayed the invention in an exhibition level official or officially recognized under the Convention on International Exhibitions signed in Paris on November 22, 1928, with subsequent revisions. (2) The provisions of paragraph apply only if the registration application for patent to learn the applicant stated that invention has actually been exposed and if, in term and in conditions stipulated by the regulations implementing this law, submit a document to support his declaration.” First case: The famous inventor Professor dr. ing. Vitalie Belous from Iassy, confesses (6) „ Just from personal experience can reveal if my first invention, which, because of ignorance the legislation was not patented because it appeared in a specialized magazine, being disclosed as such.” Commentary: The loss of novelty character of law required by Article 10 paragraph (2), valid and into the old legislation has been produced by the article signed by prof.dr. ing Vitalie Belous (7) as this article was published at a termen (8) offenders before placing patent application, having as object of the invention, the same device, which is had done speaking scientific journal secret invention thus revealed that Article 38 paragrph 2) of Regulations for application Patent Law, quote: ”Art 38 – 2) In the application of Article. 10 paragraph. 2) of the Patent Low, publicly available knowledge means the information to which the public has access, wherever in the world, through: a) the various media or on different channels of information from patent documents or other information.” And stil: „Art.38 – 5) Public access provisions of paragraphe 2) means and that comprehensive paper or public presentation of their oral information about is in a public library with unrestricted access”. As noted in the introduction first step was made after making of Invention is the patent registration application. Prezentation of the invention in an article published in a specialized magazine resulted in loss of character of novelty, invention secrecy is unveiled. As a result, the invention disclosed, was included in the state of the art starting from the date of publication in the magazine article specialitate. Demand patent was rejected because they object to the registration date was included in the prior art invention. Show him the way to establish the novelty is made by comparison with the state of the art world found in the database of OSIM. The second case: In a lawsuit (9) pending at 1970, the Municipal Court of Bucharest was asked cancellation Patent nr.49513 because the invention was disclosed by the subject held a

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scientific session and by a photo of the prototype of the invention, which subsequently recorded his OSIM. Commentary: The loss of character of novelty, which the application for annulment of the patent. was done by revealing the secret of invention, regulation „Article. 38 - 2) b) Oral description, in meaning of article 10 paragraph. 2) of the Act, may consist into a presentation at a conference in broadcasting in the equipment for playing sound recordings, such as tapes, discs or similar”. However, this case had a favorable denouement inventor, because on the evidence given court cancellation of the patent application except that the innovations were not disclosed: the photo the generic does not disclose the innovations of invention andsummary essay held the session concerned the analysis of the possibilities of rational use of car and not to its constitut elements (10). Disclosure of the invention is by establishing regular national filing, and is important to protect its patent. This case is similar to first. Participation in a conference rpresupune, most often published essays prezantaste a printed volume that is treated in scientific practice with a specialized magazine, was later quoted in the references of other authors. Sometimes oral explanations and answers to questions are extensive and can reveal the secret of the subject invention if it consituit informing presented However, I as I saw, the court found insufficient evidence to prosecute. and the inventor has been patented as the defense of the invention proved that the secret was not revealed. At the time of application for patent, an invention that was not included in the state of the art world. Third case: The issue of Romanian Television informative TVR1 of August 10, 2009, Telejurnal, broadcast hours 20-21, was presented with title story Filter innovative as follows content: after taking part in The 37 th International Exhibition of Inventions Geneva, 1-5 April 2009, student Birtok-Băneasa Corneliu from Deva was awarded the Silver Medal for the invention „Filter superabsorbent reverse” because of which reduce fuel consumption by 20% the test motor. In support of the inventor were questioned two drivers, who testified to confirm the performance of the invention. At the end reportage was made to specify that Birtok Băneasa Corneliu has decided submit the patent application with OSIM Bucharest having as object the invention award Geneva. Commentary: Keeping the innovations required by artcle. 10 paragraph. 2) of the Act is possible, in this case, in terms of Art. 11 - 1), b) and 2) of the same law. To support the statement earlier in the review, we note that the date of exposure to The International Exhibition of Inventions of Geneva (April 1, 2009) (11) till broadcast reportage TVR 1 (August 10, 2009), date on which the inventor has decided to apply for patent. It had been 4 months and 10 days of the time allowed by law invoked by 6 months (11) actually whereby the invention retains its character of novelty (12), because secret, the first form of protection of the invention (13), is regarded as not being disclosed, under this law. Of course, in this case are more extensive procedures, the need for the applicant to submit OSIM within months of filing the patent application, Certificate of exhibition in accordance with Art. 28 paragrph 2) of Regulation.

4. CONCLUSIONS
Considerations presented highlights in special one obstacles gnosiology in technical and creative process that is knowing patenting legislation inventions, with particular reference to some cases where the invention cann’t be patented, because non-compliance with Art. 10 of the Patent Law, novelty loses its character the fault of the author As a true invention is made than the time when is industrial implemented, it is obvious that the author need to know all relevant legislation, not only of patenting, industrial property. All inventors know how difficult it is to write your first description of the invention, technical and legal act pretentious. With the increasing number of written descriptions.time consumed for this fall, from several weeks to several hours, drawing no longer constitutes a real obstacle in the development of creation.
You can add to that patent cases whose inventors could not benefit of their work and which are currently provided remedies (14)

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Relationships that arise between people because of fulfillment and use creations resulting from the inventive process, are regulated by legal rules subject to intellectual property law. Mostnew legislation enshrine the fact that, currently, boundary between copyright and industrial property that tends to fade (15) which leads to the conclusion that the principles of Art. 10 of Patent Low.
See that exhortation: „To rush you inventors inventions”, often argued in the literature (16), is still valid, to meet the requirements of article 10 of Patent Low.
Finally, remember and another point, enabling the compliance status of new called invention, according Article 10 to the law of patenting inventions namely, that the new legislation cela education must take into account providing the institutional framework for the development of divergent thinking, which is the path leading to the creative process, generating quality of new inventions imposed, as one of the prerequisites for certification under Patent Low. ow are general in extended field of intellectual property. ENDNOTES (1) Republished within the meaning of Art. IVof low no. 28/2007 for amending and completing the Patent Low no 64/1991, published in the Official Gazette of Romania, Part 1, no. 44 of 10 January, 2007 and rectified in the Official Gazette of Romania, Part. I, no. 351 of 23 May, 2007, the texts being given a new numberig. Patent Law no. 64/1991 was republished in the Official Gazette of Romania, Part. I,no. 752 of 15 October, 2002, susequently amendent by: Law no.57/2003 on the Fiscal Code, published in Official Gayette of Romania, Part. I, no. 927 of 23 December, 2003; Gouvernement Emergency Ordinance no. 190/2005, concerning necessary measures to be taken within the European integration proces, published in the Official Gazette of Romania, Part. I, no.1179 of 28 December, 2005, approved with the corresponding amendments and completions by the Low no. 332/2006, published in the Official Gazette of Romania, Part. I, no. 629 of 20 July, 2006; Low no. 278/2006 for amending and completing the Criminal Code, as well as for amending and completing other laws, published in the Official Gazette of Romania, Part.I, no.601 of 12 July, 2006. (2) Ciprian Raul RomiŃan, ProtecŃia noilor soiuri de plante prin mijloace de drept penal. Propuneri de lege ferenda. Drept comparat. Revista română de dreptul proprietăŃii intelectuale nr. 1/2004. (3) Art.31 - (1) of Patent Low 64/1991. „Duration of patent is 20 years”. (4) The decision no. 547 of May, 21, 2008, published in the Official Gazette of Romania, Part I, no. 456 from June 18, 2008, for approval of the application of the Patent Law no. 64/1991, republished . (5) Ioan CameniŃă, ProtecŃia invenŃiilor prin brevete, Editura Academiei, Bucureşti, 1977, p.64. (6) Vitalie Belous. CreaŃia tehnică în construcŃia de maşini. Inventica,. Editura Junimea,Iaşi, 1986, p. 52. (7) Vitalie Belous, Frână centrifugală autoreglabilă,. Bul. Inst. polit. Iaşi, tom. VI, fasc. 3-4, 1960, p.345-350. (8) Article 28 – (9) of Regulation enforcement Patent Low 64/1991, State of the art which:…” is the relevant date of document”. (9) Ioan CameniŃă, op. cit., p. 70. (10) Ioan CameniŃă, op. cit., p. 71. (11) Le 37E Salon International des Inventions des Techniques et Pproduits Nnouveaux, Geneve, 1-5 avril 2009, Catalogue officiel , Classe P, p. 123. (12) Art.11 – (1) of Patent Low 64/1991. (13) Răzvan Dincă. InvenŃia secretă, RRDPI no. 2/2009, p.75-79, “The first form of protection of the invention is the secret” and consequential, disclosure of secrets is first step for state of the art coverage, which means the loss of novelty character. (14) Low no. 214 of 14.10.2008, the Government Emergency Ordinance no. 100/2005 on enforcing intellectual property industries. (15) Yolanda Eminescu, Dreptul de autor, Editura Lumina Lex, Bucureşti, 1994, p.14. (16) www.osim.ro

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BIBLIOGRAPHY 1. Belous, V. CreaŃia tehnică în construcŃia de maşini. Inventica, Editura Junimea, Iaşi, 1986 2. CameniŃă, I. ProtecŃia invenŃiilor prin brevete, Editura Academiei, Bucureşti, 1977 3. Catalogue Officiel 37E Salon International des Inventions des Techniques et Pproduits Nouveaux, Geneve, 1-5 avril 2009 4. Cernomazu, D. Inventică şi design Editura UniversităŃii „Stefan cel Mare”, Suceava, 2002 5. Dincă, R. InvenŃia secretă, Revista româna de dreptul proprietăŃii intelectuale nr. 2/2009 6. Eminescu, Yolanda Dreptul de autor, Editura Lumina Lex, Bucureşti, 1994 7. Legea nr.64/1991 privind brevetele de invenŃie 8. Legea nr. 214 din 14.10.2008, privind completarea OrdonanŃei de urgenŃă a Guvernului nr. 100/2005 privind asigurarea drepturilor de proprietate industrială 9. Regulament de aplicare a Legii nr. 64/1991 privind brevetele de invenŃie 10. www.osim.ro

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SECTION 5 LAW AND PUBLIC ADMINISTRATION

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THE LOCAL BUDGET, SUPPORT FOR SUSTAINABLE DEVELOPMENT – CASE STUDY: THE LOCAL BUDGET OF THE MUNICIPALITY OF PLOIESTI Senior lecturer dr. Cornel Constantin LAZĂR Faculty of Economic Sciences, Petroleum-Gas University of Ploieşti, Romania [email protected] Lecturer dr. Mirela LAZĂR Faculty of Economic Sciences, Petroleum-Gas University of Ploieşti, Romania [email protected]

Abstract The local budget represents an important planning and management instrument of the financial activity at the level of administrative-territorial units, an instrument that supports and puts into practice sustainable development policies at local level. In the present paper, we have performed a statistical analysis of the dynamics and structure of the public revenues and expenditures of the Municipality of Ploiesti between 2004 and 2008 and we wish to highlight the main aspects of the local financial policy, the progress made and the difficulties that occurred, the extent to which the budget of the Municipality of Ploiesti is or is not an efficient financial instrument from the sustainable development perspective. Keywords: local budget, public revenues, public expenditures, financial resources, sustainable development JEL Classification: H - Public Economics, H72 - State and Local Budget and Expenditures

INTRODUCTION The achievement of the economic, financial, social, ecological etc. objectives at local level greatly depends on the level and the structure of the financial resources, on the one hand, and on the way in which the local public expenditures per destination are distributed, on the other hand. The public revenues and expenditures of the local communities are included in the local budget, which represents an important planning and management instrument of the financial activity at the administrative-territorial units, which also reflects the level of autonomy of the local administration to the central government [4]. The changing of the budget into an efficient managerial instrument, meant to support the sustainable development of the community, implies a series of changes in the administrative practice of the public local finances, which should offer the possibility and the stimulation for the authorised expenditures to be made, with a view to achieving the targeted objectives at a high level of performance. The efficiency of this highly important managerial instrument for local communities can be demonstrated by quantifying and monitoring the changes in the dynamics and the structure of the local revenues and expenditures and by undertaking a complex analysis based on a coherent system of statistical indices [1].

THE STATISTICAL ANALYSIS OF REVENUES OF THE MUNICIPALITY OF PLOIESTI BUDGET BETWEEN 2004 AND 2008 The public financial resources of the local budget of the Municipality of Ploiesti had, between 2004 and 2008 as a whole, a linear, rising evolution; on categories of revenues, however, they had an oscillating evolution, with ups and downs from one year to another, determined both by the evolution of the municipality’s economy and by the changes that occurred in the public local finances legislation. Total public revenues of the Municipality of Ploiesti (in nominal terms - current prices of each year) increased from 189575 thousand lei RON in 2004 to 432767 thousand lei RON in 2008 (Table no. 1). 201

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From the shown data, results a continuous increase of the fiscal revenues, while non-fiscal revenues, from the capital and from the state budget, are both increasing and decreasing.

Table 1. The evolution of the public revenues, between 2004 and 2008 (current prices of each year) 2004 2005 2006 Revenues - total 189575 219903 233557 Own revenues 116018 141539 152363 Current revenues 180757 213013 226358 -Fiscal revenues 160117 198323 207659 -Non-fiscal revenues 20640 14690 18699 Capital revenues 3500 6510 6200 Subsidies from the state budget 5318 380 999 Data source: The Decisions of the Local Council of the Municipality of Ploiesti regarding 199/2004, 191/2005, 242/2006, 263/2007 and 287/2008 [3].

- thousand lei RON 2007 2008 349803 432767 226217 283828 312402 378141 295277 352511 17125 25630 2868 5870 34533 48756 the local budget no.

The nominal dynamics of the total public revenues of the Municipality of Ploiesti indicate their increase, 2,3 times in 2008 as compared to 2004. In real terms, however – taking inflation into consideration [5], the public revenues in 2008 increased only 1,7 times, as compared to 2004 (Table 2 and Figure 1).

Table 2. The real dynamics of the public revenues, between 2004 and 2008 2004 100,0 100,0 100,0 100,0 100,0 100,0 100,0

Revenues - total Own revenues Current revenues -Fiscal revenues -Non-fiscal revenues Capital revenues Subsidies from the state budget

2005 106,4 111,9 108,1 113,6 65,3 170,6 6,6

2006 106,1 113,0 107,8 111,6 78,0 152,5 16,2

2007 151,6 160,2 142,0 151,5 68,2 67,3 533,6

2004 =100 2008 173,8 186,3 159,3 167,6 94,5 127,7 698,0

The real dynamics highlights the fact that the greatest increase was recorded in the analysed period, for the state budget revenues (almost 7 times), while the own revenues increased only 1,9 times. At the same time, if we check the evolution of non-fiscal revenues in real terms for the whole period between 2005 and 2008, we will notice that they recorded levels that were inferior to those in 2004, even if the nominal dynamics indicates a 1,2 times increase in 2008 as compared to 2004. %

240 210 180 150 120 90 60 30 0 2004

2005

2006

Nominal dynamic

2007

2008

Real dynamic

Figure 1. The dynamics of the public revenues of the Municipality of Ploiesti between 2004 and 2008 202

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Even if the real dynamics of non-fiscal revenues was negative, there was recorded, however, a slight increasing tendency, as at the end of the analysed period their level got close to that recorded in 2004 (94,5%). An oscillating evolution was recorded for the capital revenues, their dynamics oscillating from 170,6% in 2005 (as compared to 2004) to 67,3% in 2007. Apart from the favourable dynamics of the public income volume of the Municipality of Ploiesti, there occurred major changes between 2004 and 2008 in their origin source structure.

Table 3. The structure of the public revenues, between 2004 and 2008 Revenues - total Own revenues Current revenues -fiscal revenues -shares and amounts broken down from tax on income -tax on buildings -tax on lands -amounts broken down from value added tax -tax on vehicles -non-fiscal revenues Capital revenues Financial operations Subsidies

2004 100,0 61,2 95,4 84,5 27,1 11,7 2,1 34,1 1,8 10,9 1,8 0,0 2,8

2005 100,0 64,4 96,9 90,2 29,2 14,2 1,9 35,4 1,8 6,7 2,9 0,0 0,2

2006 100,0 65,2 96,9 88,9 33,6 12,6 2,2 34,3 1,3 8,0 2,7 0,0 0,4

2007 100,0 64,7 89,3 84,4 38,6 12,7 1,7 25,4 2,0 4,9 0,8 0,0 9,9

-%2008 100,0 65,6 87,4 81,5 41,7 10,5 1,5 23,1 1,9 5,9 1,3 0,0 11,3

The most significant change consists in the increase of the share of the own revenues in total revenues, namely from 61,2% in 2004 to 65,6% in 2008. This increase highlights the decentralization of the public services and the consolidation of the local autonomy, the restructuring of the social protection mechanisms of the underprivileged segments of the population. Important changes took place in the public revenues achieved from shares and amounts broken down from tax or income, its share in the total revenues increasing from 27,1% in 2004 to 41,7% in 2008. Also, in the analysed period the share of the revenues resulted from the state budget (subventions) increased significantly, from 2,8% in 2004 to 11,3% in 2008. In the same period, there were also some falls in the share of some important sources in the budget of the Municipality of Ploiesti. Thus, the share of the public total revenues of the amounts broken down from value added tax decreased, from 34,1% in 2004 to 23,1% in 2008 and of nonfiscal revenues from 10,9% to 5,9%. As a result of the analysis of the Municipality of Ploiesti budget revenues, as well as of the structural changes that occurred between 2004 and 2008, there results that the highest share in the whole period was from current revenues (87,4% in 2008), followed by the revenues from subsidies (11,3%). These two components of the local budget revenues had an inversely proportional evolution, in the sense that the current revenues decreased while the revenues from subsidies increased. Within the current revenues, the most important source is represented by the fiscal revenues (more than 90%), while non-fiscal revenues were, almost throughout the entire period, below 10%. As concerns the structure of the fiscal revenues (figure 2), it is remarkable the fact that, in 2008, more than half (51,2%) resulted from shares and amounts broken down from tax on income and almost one third (28,3%) from amounts broken down from value added tax, while less than 20% resulted from local taxes and dues (the due and tax on buildings, the land tax and due, the tax on means of transport).

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20,5%

32,1%

51,2% 28,3%

40,4%

2004

2008

Shares and amounts broken down from tax on income Amounts broken down from value added tax Other revenues from local fiscal taxes and duties

Figure 2. The structure of fiscal revenues of the budget of the Municipality of Ploiesti in 2004 and 2008 The graphic representation highlights, apart from the actual structure of the fiscal revenues, the significant structural changes that took place in 2008 as compared to 2004. Thus, there can be noticed a substantial increase of revenues from shares deducted from the tax income, from 32,1% to 51,2%, an increase that came together with the decrease of the share of the other two components. THE STATISTICAL ANALYSIS OF THE EXPENDITURES MUNICIPALITY OF PLOIESTI BUDGET BETWEEN 2004 AND 2008

OF

THE

The public expenditures, by their size but also by the way they were distributed on destinations, play a decisive role in the increase of the quality of life within the local communities, thus representing, at the same time, an essential premise to guarantee sustainable development. At the same time, the way in which the expenditures were distributed highlights the policy of the local council, the priorities it has in the economic and social field. Fortunately, in the case of the Municipality of Ploiesti, as it is the county capital but especially because it is a powerful industrial centre, the public expenditures represented, in general, not only for the analysed period, a support for the local development (Table 4).

Table 4. The evolution of the public expenditures, between 2004 and 2008 (current prices of each year) 2004 2005 2006 Expenditures - total 189574 219903 233557 Public authorities and external actions 8111 13013 16061 Education 57185 69840 79531 Health 1846 2532 1410 Culture, recreation and religion 5000 6732 11607 Insurance and social assistance 11233 13873 15360 Dwellings, services and public development 22036 34871 33167 Environment protection 7400 7020 6914 Fuel and energy 31400 29000 31500 Transport 30120 25752 30963 Other expenditures 15243 17270 7044 Data source: The Decisions of the Local Council of the Municipality of Ploiesti regarding 199/2004, 191/2005, 242/2006, 263/2007 and 287/2008 [3]. 204

- thousand lei RON 2007 2008 327803 432767 22366 26280 102161 122959 1245 1460 22787 25985 19100 23075 41410 46628 11751 60044 22700 38074 55959 58624 28324 29638 the local budget nr.

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The same as in the case of revenues, the public expenditures of the Municipality of Ploiesti had an increasing evolution between 2004 and 2008, their level increasing, as a whole, from 189574 thousand lei RON in 2004 to 432767 thousand lei RON in 2008. The rising tendency of the expenditures level recorded as a whole was not found in the same proportion, there were even recorded some decreases in the case of some categories. The nominal dynamics of the total public expenditures of the Municipality of Ploiesti indicates they increased 2,3 times in 2008 as compared to 2004. In real terms, however, – taking into consideration inflation [5], the public expenditures in 2008 increase only 1,7 times as compared to 2004 (Table 5 and Figure 3). As we have said before, not all the expense categories have the same tendency or the same pace as the total ones. Therefore, in real terms, the highest increase was recorded in the case of the expenditures for the environment protection; their level increasing 6,1 times in the analysed period, followed by the expenditures for culture, recreation and religion, whose volume was almost 4 times higher in 2008 than in 2004.

Table 5. The real dynamics of the public expenditures, between 2004 and 2008 2004=100 2004 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0

Expenditures - total Public authorities and external actions Education Health Culture, recreation and religion Insurance and social assistance Dwellings, services and public development Environment protection Fuel and energy Transport

2005 106,4 147,2 112,0 125,8 123,5 113,3 145,2 87,0 84,7 78,4

2006 106,1 170,5 119,7 65,7 199,8 117,7 129,6 80,4 86,4 88,5

2007 142,1 226,6 146,8 55,4 374,5 139,7 154,4 130,5 59,4 152,7

2008 173,8 246,7 163,7 60,2 395,7 156,4 161,1 617,8 92,3 148,2

There are also categories of expenditures where decreases were recorded; thus, the expenditures that represented subventions granted for the thermal energy delivered to the population decreased 7,7% in the analysed period, and the most drastic decrease was recorded in the case of the health system expenditures (-39,8%). %

240 210 180 150 120 90 60 30 0 2004

2005

2006

Nominal dynamic

2007

2008

Real dynamic

Figure 3. The dynamic of the public expenditures of the Municipality of Ploiesti, between 2004 and 2008 The above-mentioned statistical data highlight the following tendencies: 205

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° the increasing dynamics, almost exponential, of the environment protection

expenditures;

° the fairly accentuated increasing tendency of the expenditures regarding culture,

recreation and religion;

° the slightly increasing tendency, of the linear type, of the expenditures regarding

education and dwellings, services and public development,

° the decrease of the expenditures for the health system.

The fast dynamics of the expenditures level in the field of environment protection, especially in 2008, is the result of the impressive sums allocated by the municipality (49,4 million RON out of the total of 60 million RON destined for the environment protection) for the modernisation of the waste water collecting and treatment system in the Municipality of Ploiesti. Another chapter of the local budget expenditures that recorded a massive increase was that of the expenditures regarding culture, recreation and religion, expenditures that represented mainly transfers to the institutions of culture (“Toma Caragiu” Theatre, “Paul Constantinescu” Philharmonics, the Municipal Sports Club and the Administration of the “Constantin Stere” Memorial Park). There were important changes, between 2004 and 2008, in the structure on destinations of the local public expenditures (Table 6).

Table 6. The structure of the public expenditures, between 2004 and 2008 Expenditures - total Public authorities and external actions Education Health Culture, recreation and religion Insurance and social assistance Dwellings, services and public development Environment protection Fuel and energy Transport Other expenditures

2004 100,0 4,3 30,2 1,0 2,6 5,9

2005 100,0 5,9 31,8 1,2 3,1 6,3

2006 100,0 6,9 34,1 0,6 5,0 6,6

2007 100,0 6,8 31,2 0,4 7,0 5,8

-%2008 100,0 6,1 28,4 0,3 6,0 5,3

11,6 3,9 16,6 15,9 8,0

15,9 3,2 13,2 11,7 7,9

14,2 3,0 13,5 13,3 3,0

12,6 3,6 6,9 17,1 8,6

10,8 13,9 8,8 13,5 6,8

The most significant of these changes refer to the increase of the share of the expenditures that were destined to the environment protection of almost 4 times, namely from 3,9% in 2004 to 13,9% in 2008, those destined to culture, recreation and religion from 2,6% to 6,0%, as well as the reduction of the share of the expenditures regarding fuel and energy (subsidies granted for the thermal energy delivered to the population) from 16,6% to 8,8%. These changes reflect, on the one hand, the economic, financial, social etc. policy promoted by the local council and, on the other hand, the changes in the legislation regarding the local public finances. Important shares in the total of public expenditures of the Municipality of Ploiesti are to be found in the expenditures regarding the transport and dwellings fields, as well as in services and public development (Figure. 4). An important aspect as concerns the distribution of the public expenditures of the Municipality of Ploiesti is represented by the fact that most part of them (approximately 30%) is allocated for the education system (because the greatest part of the basic and complementary financing of the pre-university education system comes from the local budget), while the least part (below 1% in most cases) for the health system.

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23,1% 28,4%

30,2%

15,9%

32,5%

2,6%

6,0%

11,6%

16,6%

13,5%

10,8% 8,8%

2004

2008

Education

Fuel and energy

Culture, recreation and religion Dwellings, services and public development

Transport Other expenditures

Figure 4. The structure of the public expenditures of the budget of the Municipality of Ploiesti in 2004 and 2008 Figure 4 highlights the mentioned aspects, thus bringing out to light, in a very suggestive way, both the structure of the public expenditures of the Municipality of Ploiesti and the structural changes that took part in the analysed period. We may also notice from the graphic an important increase (from 23,1% in 2004 to 32,5% in 2008) of the share of the “other expenditures” category. In this category we included - apart from the expenditures for the health system which, as we have said before, are insignificant - the expenditures for the public authorities and external actions, expenditures for other general public services, expenditures representing transactions concerning the public debt and loans and those for the public order and national security. Of these, the greatest share is held by the expenditures for the public authorities and for external actions, which increased from 4,3% in 2004 to 6,1% in 2008. Another important aspect related to the public expenditures is the one concerning their average level per capita. Throughout almost the whole analysed period (except for 2006), the average level of the public expenditures per capita in the Municipality of Ploiesti was superior to the average level recorded at national level (Table 7).

Table 7. The public expenditures average level per capita in the Municipality of Ploiesti, as compared to that at national level, between 2004 and 2008 -lei RON per capita 2004 2005 2006 2007 2008 National Level 717,0 868,3 1176,4 1179,0 1580,2 Municipality of Ploieşti 807,7 941,0 1008,4 1423,7 1887,7 Data source: Calculations made, based on the population data and local budgets at national level from the Romanian Statistical Yearbook 2008 [2], INS Bucharest and based on the data regarding the local budget from the Decisions of the Local Council of the Municipality of Ploiesti [3].

The public expenditures average level per capita in the Municipality of Ploiesti, as compared to the average country level, was not only higher but it also recorded an increasing evolution; thus, in 2004 this indicator was 12,6% higher in the Municipality of Ploiesti than the one at national level, and in 2008 it exceeded the national level by almost 20%. Between 2004 and 2008, the dynamics of the public revenues – both in nominal and in real terms – slightly outran the dynamics of the public expenditures, the local budget of the Municipality 207

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of Ploiesti ending each year on surplus, which does not represent a negative fact, but it would have been better if the available sums had been spent totally. However, taking into consideration that, in some years, the dynamics is equal and the exceeding from the other years are very little, we may speak about a balanced budget in the case of the Municipality of Ploiesti.

CONCLUSIONS The local budget of the Municipality of Ploiesti recorded, to a large extent, a positive evolution for the last five years; the statistical analysis highlighted a series of important aspects, both as regards the revenues and concerning the expenditures, as follows: Revenues ° the public financial resources had, as a whole, an increasing evolution between 2004 and 2008, their level increasing 1,7 times in real terms; ° the fiscal revenues recorded an increase of 1,7 times during the period under analysis, while non-fiscal revenues decreased by 55%; ° the highest increase was recorded in the subsidies from the state budget, which increased 7 times in 2008 as compared to 2004; ° the increase of the share of their own revenues in total revenues from 61,2% in 2004 to 65,6% in 2008 highlights the increase of the local autonomy; ° the decrease of the current revenues share (fiscal revenues and non-fiscal revenues) from 95,4% in 2004 to 87,4%, a percentage that was accompanied by the increase of the subsidies share from 2,8% to 11,3%; ° in 2008, more than 90% of the current revenues was fiscal; ° more than half of the fiscal revenues is represented by shares and amounts broken down from tax on income and almost one third by amounts broken down from value added tax ° the revenues that resulted from the local taxes and duties represented less than 20% from the fiscal revenues; Expenditures ° the public expenditures also recorded a 1,7 times increase in real terms in the analysed period; ° the highest increase was recorded in relation to the environment protection expenditures, their level increasing 6,1 times between 2004 and 2008; ° the fairly accentuated increasing tendency of the expenditures regarding culture, recreation and religion (4 times); ° the slightly increasing tendency, of the linear type, of the expenditures regarding education and dwellings, services and public development, ° the decrease of the expenditures for the health system in the analysed period by almost 40%. ° the average level of the public expenditures per capita in the Municipality of Ploiesti, as compared to the average country level, was higher for the entire analysed period (+20% in 2008), thus recording an increasing evolution; ° between 2004 and 2008, although the dynamics of the public revenues – both in nominal and in real terms – slightly outran the dynamics of the public expenditures, we can say that the local budget of the Municipality of Ploiesti is a balanced one. Therefore, we may conclude that the Local Budget of the Municipality of Ploieşti represented, in the analysed period, a support of the local sustainable development, taking into consideration the important expenditures made for the environment protection as well as in the social field. There are, however, some negative aspects as well; we refer to the drastic cut-down of the expenditures for the health system. At the same time, although the volume of expenditures and revenues of the Municipality of Ploieşti is impressive, much higher than that of other local 208

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communities, they are still far from being sufficient for the sorting out of the general issues at local level, not to mention those that aim at sustainable development.

REFERENCES 1. Lazăr Cornel, Mirela Matei, Jean Andrei – FinanŃe, Editura UniversităŃii din Ploieşti, Ploieşti, 2007 2. ***Anuarul Statistic al României, INS Bucureşti, 2008 3. ***Hotărârile Consiliului Local al municipiului Ploieşti privind bugetul local nr. 199/2004, 191/2005, . 242/2006, 263/2007, 287/2008 4. ***Legea nr. 273/2006, Legea finanŃelor publice locale 5. ***www.insse.ro

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COMPARATIVE STUDY ON FINANCIAL AND ADMINISTRATIVE DECENTRALIZATION IN EUROPEAN COUNTRIES Lecturer Ph.D. Ana-Maria BERCU Alexandru Ioan Cuza University of Iasi, Romania Faculty of Economics and Business Administration [email protected] Assistant Ph.D. Student Mihai-Bogdan PETRISOR Alexandru Ioan Cuza University of Iasi, Romania Faculty of Economics and Business Administration mihai.petrisor @uaic.ro

Abstract Our paper proposes a comparative analysis of the degree of administrative and financial decentralization in the European countries. Decoupling local government from a centralized system to a decentralized one involved with their investment decision-making powers backed by important financial resources. Increased local government capacity and accountability meant the effective and efficient management and administration of local public funds. However, most times their own financial resources proved insufficient leading to completion of the budget amounts. Our research shows that, although legally the local authorities were entrusted with decision-making powers in managing local public funds, lack of financial resources makes their dependence on central authority are still extremely strong. Keywords: financial decentralization, local autonomy, public administration, administrative capacity, local budget

JEL Classification: H 72, H 83

1. INTRODUCTION More decentralization means more democracy and more effective government since the decision is taken closer to the citizen in his double quality, of client that has access to medical services of the local hospital or send their children to school have service education, and for that shareholder is also public property of the state and the citizen who, through his contributions, provide functionality. Administrative decentralization involves the redistribution of authority, responsibility and financial resources to provide public services between different levels of government. It is the transfer of responsibility for planning, financing and managing certain public functions from central government and its agencies at local levels of government, autonomous public authorities or corporations, as well as at regional or functional authorities. Administrative decentralization is an effective means for decision makers to address local needs in terms of strategy. Fundamental mission aimed at administrative decentralization strategy is to increase public confidence in the act of governance, promoting transparency and accountability of decision, and not least, providing quality public services. In this framework, include the issue of financial decentralization defined in the literature (Voinea, Gh., 2008) as local authorities the right to have money and resources to use them to perform the duties prescribed by law, to develop and monitor implementation of the budget. Local development depends largely on the ability of government to administer and manage financial resources to cover local costs, the most effective use of own funds, but also those received from the state budget as transfers and subsidies, allowances and amounts broken. Comparative study aims to address administrative and financial decentralization in European countries and identify factors that influence it, identifying features and ways of managing and administering the financial resources at local level, the risks incurred and benefits obtained. Examples are highlighted through relevant analysis of financial indicators for each state analyzed, but also through a critical approach to the administrative and financial decentralization in our country.

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2. FINANCIAL AND ADMINISTRATIVE DECENTRALIZATION IN HUNGARY Hungary decided in 1990 a territorial division into eight administrative regions. This division was abandoned in 1994. Powers regions were taken at provincial public administrative office of the province and the law in 1996 increased the role of local authorities in regional development, which corresponds to the fact of decentralization. Local governance is exercised through elected authorities, mayor and council. A unique element of Hungarian local government is the existence of the institution's city manager, which can usually be a senior civil servant and dealing exclusively technical and professional aspects of the administrative act. While the mayor has the role of political factors and representation, city manager is appointed and one elected body whose primary function is the implementation in daily work strategies and general directions set by the mayor and by the decisions of local council. Hungary was one of the first countries in transition, along with Poland, which reformed local government. The 1523 local councils have worked as agents for implementing the government decision through a system of 19 county councils were abolished. Law on Local Self reinforced responsibilities of the 19 regional bodies (megye, counties). To replace local councils, citizens were granted the right to create local government (önkormany). This process was driven largely by a political imperative understandable - the abolition of the old system, but led to excessive fragmentation of the territory and therefore led to the creation of many local governments (currently there are 3,200 local governments in which nearly 1670 fewer than 1,000 inhabitants). Local Autonomy Law was the first of a package of eight laws that now creates the Hungarian system of autonomy for local governments. This legal framework establishes that the governments are not local central government agencies. Local governments are obliged to provide basic education, health, social security, waste disposal, drinking water, public lighting and maintenance of public roads and cemeteries. They are also obliged to ensure respect for national and ethnic minorities. Other tasks relate to the provision of local transport, snow removal, fire protection, public safety and providing cultural and sporting services.

Table no. 1. Distribution of Local Government Revenues in Hungary Total 100.0% Own Source Revenues 22.6% Grants 31.7% Shared Revenues 14.6% Capital Investment Financing 10.3% Transfers from Social Security Fund 17.5% Others 3.3% Source: Stephen Temes - "Local Government in Hungary", Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2000/25/Chapter_8.PDF , p.370

Table no. 2. Distribution of Local Government Expenditures by Categories in Hungary Total 100.0% Personnel Expenses 28.6 Employer’s Contributions 13.4 Material Expenses 26.4 Expenses of Accumulation and Revival 31.6 Source: Stephen Temes - "Local Government in Hungary", Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2000/25/Chapter_8.PDF , p.373

Data presented in Table. No. 1 and Table. No. 2 show that Hungary local expenditures accounted for approximately 20% of public sector expenditure and 35% of public sector investment (Dethier, JJ, 2000). Taxes collected locally are only 22% of total revenues, or about 3% of GDP. 211

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Local governments also receive a share of personal income tax based on the amount collected in their jurisdiction, and 50% of tax on transport, but these two sources of income are only 14% of total local revenues. As a result, local authorities depend heavily on transfers from central budget to finance their spending. Before 1996, transfers and own revenues, including loans, were insufficient to cover total costs. They have led to shortages, which were eventually covered by central government. At that time, some local governments have called for additional resources from central government. These has derived in part from an imbalance between irresponsible spending of public money and establish a fair income, but also the lack of transparency in the use of public money, and that central government is ultimately court responsible for many financial obligations of local governments. In 1995, Hungary has experienced a major economic crisis and has implemented a stabilization program. It included three elements which introduce greater discipline in managing local public finances. First, incentive schemes were used to force municipalities to reduce costs. Transfers from the central budget were reduced by about 3% of GDP, and efforts were made to improve and simplify the transfer system. However, it is unclear whether this led to results. Secondly, local government's annual borrowing has been subject to a limit (equal to 70% of their revenues minus cost of public debt). Thirdly, Parliament enacted a bankruptcy law that prevents local rescue plans by central government, local government prohibits the use of assets as collateral, to local authorities to negotiate with their creditors and allow the central government to appoint a commissioner for the control of local finances during bankruptcy proceedings. This led to a substantial reduction in capital expenditures and the current, but reduced and local government deficits. Although local governments were able to meet fiscal targets in recent years, there is evidence showing lack of effectiveness in delivering public services by local authorities (Dethier, JJ, 2000). First, there is still a systemic imbalance in the structure of intergovernmental finance. Costs and revenues are not properly grounded and equalized. Transfer system creates inappropriate incentives, which often lead to additional grant application to manage budget deficits. Although the amount of subsidy deficit remained around 7 billion HUF in 1996 and 1997 (around 0.1% of GDP), the number of local governments seeking such a grant has increased by almost 25% (Dethier, JJ 2000). Second, fragmentation in service delivery implies that economies of scale are not properly exploited, leading to high costs and poor service in many areas. Efforts have been made to promote low-cost services, creating functional associations and regional development units. Such associations are, however, constrained by limited legal status and their inability to collect or own income or receive state subsidies as a single entity. Roles and responsibilities of different levels of regional development are still unclear. This creates problems of coordination and undermines efficiency in service delivery. Thirdly, although local costs have declined as a share of GDP, in response to lower shipments and impose new constraints loans accessed by local governments, all expenses will not be possible to maintain the required level. This is due that local asset depreciation has not been properly incorporated into the decisions to spend public money for that renewal of assets has been delayed repeatedly, and for the continued need for substantial additional investment. By way of example, the health sector, where most hospitals are owned by local governments, the buildings need renovation or replacement requires almost HUF 140 billion (or 1.7% of GDP) in late 1997 (Dethier, JJ, 2000, data analyzed according to World Bank Report 1999).

3. FINANCIAL AND ADMINISTRATIVE DECENTRALIZATION IN POLAND Produced in local government reform has not only changed Poland, essentially, but it has also strengthened democratic processes. Unit of local government stated in the Constitution of Poland is common. The Constitution also gives the possibility of creating other local government units whose functions are stipulated in various organic laws.

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As a result, there was the next stage of decentralization of public power, which has generated a new territorial reform of the country. Were created 16 voivodeship, 307 county and 65 cities with county status. Autonomy is an important element of the operation of local government in Poland. Municipalities and counties are not subject voivodates. The only dependency that may occur take the delegation of powers, as required by law. It largely provides transmission executive powers to local government units. Stipulations on this matter are reflected in dozens of organic laws, established local government, and hundreds of acts in which we find references related to local government. Delegation of powers from central to local government is based on the principle of subsidiarity of the state. In other words, the basic position of the village belongs; because it is closest to the people it works for them and under their direct control. Public affairs are managed by the county general (and inspection services, police, firefighters, hospitals, environmental education, cultural institutions, etc.). Regional government (the prince) has assumed jurisdiction under the policy on balanced development voivodates. In cities with county status, the skills are performed by municipal and county municipal government. Moreover, the State Administration (central and territorial) engaged on domestic and foreign policy of the state administration of public affairs and national character (Marchlewski W. L. Chiriac, P. Tomczak, 2007). As regards local government revenues, financial activities of municipalities, counties and voivodates is performed according to the law on public finance and revenue law on local government units.

Table no. 3. Municipal Revenue Structure in Poland Total 100.0% State Grants 38.3% (general and specific) Shared Revenues 24.2% Independent Revenues 35.2% Credit, Bonds a Other 2.3% Source: Andrzej Kowalczyk - "Local Government in Poland", Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2000/25/Chapter_5.PDF, p. 235 *According to Polish law, loans and revenue bonds are not part of local authorities

In Table 3, local government revenue structure is observed. Share the most important source of income for local budgets, is represented by transfers from the state budget (38.3%). Another important category is represented by the composition of those revenues while revenue flows from the state budget, local government charges that they receive a certain percentage of (percentage prescribed in local government law) which becomes income to local budgets. Own local government revenues as a percentage neglected, 35.2% of total revenues of local government. Distribution costs in local government budgets as economic structure have an identical situation in most states, namely, a percentage above 70% for current expenditure (76.3%) and the rest for capital expenditure (23.7 %) (Table no. 4).

Table no. 4. Distribution of Municipal Expenditures in Poland Total expenditure 100.0% Current expenditure 76.3% Capital expenditure 23.7% Source: Andrzej Kowalczyk - "Local Government in Poland", Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2000/25/Chapter_5.PDF, p. 237

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On the functional structure of public spending (Table no. 5) component that stands out in terms of high percentage allocated is education (37.6% of total expenditure of administration). Other areas have lower rates, below 10%, except for social assistance and administrative expenses were allocated 11% percent.

Table no. 5. Expenditure Assignment by Municipalities in Poland Total 100.0% Education 37.6% Health Care 7.2% Social Care 11.0% Sport, Culture 5.0% Administration 11.6% Housing, Municipal Economy 27.3% Other 0.3% Source: Andrzej Kowalczyk - "Local Government in Poland", Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2000/25/Chapter_5.PDF, p. 238

Given the administrative-territorial division of Poland, we detail the types of income to the level at which administrative analyst. Thus, a joint income of Poland consists of: income taxes, revenue; Shares of some taxes that are part of state budget; General subsidy; revenue budget units of the communes (municipal and subsidiary of village households); transfers from the state budget for realization of delegated powers by municipalities or state government of delegated powers under other laws; revenues from municipal property management. Municipal revenue (Marchlewski W. L. Chiriac, P. Tomczak, 2007) can be further detailed: a) own income from that: the rate of participation of municipal income tax of individuals, PIT (39.4% of income tax of individuals); participation rate in municipal income tax of legal persons, CIT (6.71% of total revenues from income taxation of legal persons); revenue from property taxes, agriculture, forestry, from bequests and donations; income from state tax, administrative and operational; 5% of income from realization of delegated powers from central state administration, b) general subsidy consists of: the rate equivalent; common equivalent share for the population whose average is lower than national average; share for education and general education; c) donations to carry out the delegated powers to finance their own powers of municipalities. Income of a county under the administrative-territorial division of Poland consists of: 1% its stake in the revenue part of state budget revenues from taxes on income county residents, PIT; revenue units in the county budget, county payments to households and county subsidiary; transfers from state budget to undertake the task by guards and inspections provided for in the law on local government district; transfers from state budget to carry out the delegated powers of state government, the county made under other laws; transfers from state budget to achieve the county's own skills, interest rates of financial resources allocated to bank accounts; income from county property management (Marchlewski W. L. Chiriac, P. Tomczak, 2007). Detailing the income of a county in Poland we find: a) owns revenues of which: share of county participation in personal income tax, PIT (percentage of 10.25% of personal income tax); rate of participation in income tax legal persons, CIT (1.4% tax rate on income of legal persons); 5% of income derived from carrying out the delegated powers of central state administration, b) general grant of that: share equivalent; listing the counties in which the equivalent Unemployment is 110% higher than the national average; the share for education and environmental education and training c) donations to carry out the delegated powers transferred to state government and counties to finance their own skills. Last administrative-territorial unit and the largest is Voivodeship. Thus, revenues are comprised of voivodship: participation rates in taxes as part of budget; general grant; proceeds from the voivodship budgetary units, subsidiary payments to households Voivodeship; transfers from state budget to carry out the delegated powers of state government; transfers from state budget to 214

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achieve its own powers of voivodship; interest rates of financial resources allocated to bank accounts; Income from property management voivodship (Marchlewski W. L. Chiriac, P. Tomczak, 2007). Detailing the income of a voivodship in Poland, we find: a) owns revenues which: its stake in PIT (1.6% of taxes collected from personal income); its stake in CIT (15.9% of earned income taxes of legal persons); 5% of income from realization of delegated powers by state governments; b) general grant of which: share equivalent; equivalent rate for the smaller principalities of 3 million inhabitants; the regional share for: voivodates an unemployment averaged 110% higher than national average; principalities whose road network density is higher than national average; principalities whose GDP is below 75% than the national average, c) donations to carry out the delegated powers ceded by the State Administration for funding the county's own powers.

4. FINANCIAL AND ADMINISTRATIVE DECENTRALIZATION IN BULGARIA Bulgaria is divided into 28 regions and 265 municipalities. Region [oblast] is an administrative territorial unit representative for Bulgaria. The Governor is the official representative of government and is appointed directly by the Council of Ministers. The Governor is assisted by a regional administration, including a department for regional development. Municipality [obshtina] is an autonomous administrative unit. Management authorities are the Council and the Mayor. Council and Mayor are elected separately by the public authority for a term of four years by direct universal suffrage. Those may be part of the composition of people from different political parties. In 2000, six regions were established, not as territorial-administrative units with legal personality and not only for planning purposes. They are just larger geographical areas, corresponding to 28 regions, which can develop strategies local development. Establishing the regulatory framework of territorial decentralization in Bulgaria started with the adoption of the Constitution and laws of local government and self-governance. Developing the legal framework of local autonomy and expand its functions, including the financial independence of municipalities, have been accepted as a good prospect for development of local self-government. Despite positive changes made in the years after the centralized economy, local financial system has remained almost unchanged. Like most countries in transition, one of the most serious problems that local Bulgarian administration has faced was to face the gap between the responsibilities, powers and resources of the municipality. They were too financially dependent on the willingness of central government and local government powers to influence local revenue and expenditure were limited. They could not determine local taxes on their own, so there is fiscal decentralization. Local taxes were established by law and to establish local taxes by municipalities were established constraints. According to data reported for 1999 by the World Bank, Bulgarian municipalities could affect only 18% of their total revenue base. There were a number of conditions for the initiation of financial decentralization in Bulgaria: - the will of the political class to implement administrative decentralization; - decentralization needs to be recognized by most of the platforms of political parties during election program; - after the elections, financial objectives for decentralization to be taken by the Government. Constitutional amendment was introduced by local authorities’ powers to provide power to impose and establish local taxes (fiscal decentralization). To join the European Union in 1995 the Bulgarian Parliament adopted the European Charter of Local Self-Government, thus strengthening the administrative and financial decentralization. On March 11, 2002, the Bulgarian Council of Ministers established a working group to carry out a national action program on financial decentralization, with the following members: Deputy Prime Minister, representatives of ministries (finance, education and science, labor employment and social policy, health care), Audit Bureau, National Association of Municipalities 215

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of the Republic of Bulgaria, the Foundation for Local Government Reform. In June 2002, the Working Group has developed and the Council of Ministers adopted a concept and a program of decentralization became a financial benchmark for the introduction of financial decentralization in Bulgaria. Basic long-term objective was to provide quality public services and affordable people to meet needs in order to balance the long-term municipal expenditure stable revenue sources, and citizens can control this process. This ambitious target was accompanied by the following principles: a. a system of incentives aimed at increasing local revenues and the potential for financial management; b. the adoption of simple financial structure; c. financial discipline; d. monitoring and evaluation of decentralization by the government; e. having regard to differences between different local authorities in terms of financial resources and management skills, enabling them to develop according to their characteristics; f. generating adequate conditions for effective control of citizens. These changes are intended to delineate the powers of the central public administration authorities to the local authorities. Thus, the powers delegated to local government are in education, health, culture, health and social protection. Operating costs of these public services are covered by local taxes, sometimes supplemented by subsidies from the state budget. By law, local authorities did not receive amounts deducted from income tax of the autonomous and state-owned companies; they were replaced by receipt of earnings and allowances deducted from personal income tax. Also, the powers of local authorities represent many domains as public services, road maintenance, construction of kindergartens and nurseries, and most activities in the cultural sector. Local authorities may make expenditures for these services within available revenue. Revenues consist of local taxes and other non-tax revenue (property management authorities, fines, fees, donations, sponsorships, loans). Local authorities with low capacity to generate revenue adjustment may receive grants. To increase financial decentralization has been incorporated into Bulgarian law a series of fiscal measures. However, local authorities are still quite dependent on transfers from the central budget and subsidies (higher percentage of 50%). According to data from Table. 6, it is noted that a percentage is still significant subsidies from the state budget - 32.4%.

Table no. 6. Revenues by Different Types of Local Government in Bulgaria TOTAL 100% Income tax 10.0% Non-tax revenue, including 15.8% Fees municipal court 25.8% Fines and penalties 19.5% Other non-tax revenue 9.3% Income yield from state and municipal property 46.1% Subsidies from state budget 32.4% Source: Emilia Drumeva - "Local Government in Bulgaria", Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2001/81/Stab-Bulgaria.pdf , p.165

5. FINANCIAL AND ADMINISTRATIVE DECENTRALIZATION IN ROMANIA Romanian legal framework on decentralization is given by the Romanian Constitution in Art. 120 stipulates that "government of territorial-administrative units is based on principles of decentralization, deconcentration and autonomy of public services" and Law no. 195 of May 22, 2006, the framework law on decentralization, which in Art. 2 it defines decentralization as "the transfer of administrative and financial powers from the central government to local government level or private sector”. 216

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It is known that local budgets are highly dependent on financial resources from central level to supplement their income in the form of transfers, subsidies and allowances of the amounts deducted from certain income of the state budget. Even if the state still allocates significant financial resources, most of them have special purpose, which does not allow local authorities have wide discretion in managing funds. Meanwhile, responsibility for ensuring sufficient local revenues should accrue to local government authorities, which is primarily concerned with finding solutions to complement local revenues and then to seek funds from central level. How to achieve balance local budgets each year sparks wave of discontent so far not finding a formula for optimal allocation of financial resources from central to local governments. The distrust of accuracy criteria persists under the question about how the budgetary funds are allocated to county governments; the foundation is often political and not economical.

Table no. 7. Receipts made to local public budgets 2005 2004 Mil. % Mil. % Lei Lei 19480.9 100% 15955.8 100% 3149.5 16.16% 2747.2 17.21 397.5 2.04% 328.8 2.06 14667.1 75.28% 11909.8 74.64 1218.1 6.25% 920.2 5.76 2.0 0.01% 1.1 0.03 23.5 0.14% 19.3 0.12 23.2 0.12% 29.4 0.18

2003 Mil. Lei %

13078.1 Revenue - total Current revenue 2285.9 Capital revenue 123.9 Revenues with special destination 319.4 Samplings from state budget 9374.3 Subsidies 734.9 Receipts from reimbursement granted 0.5 Donations and sponsors Loans 239.2 Amounts from trading capital to cover temporary gap cash Source: own calculations after Statistical Yearbook of Romania 2008

100% 17.47 0.95 2.45 71.68 5.62 0.01 1.82 -

For Romania, the year 2005 is apparent in the overwhelming percentage of the revenue, over 75% of shipments (samples) from the state budget. This high percentage, 70%, is found in the other two years analyzed, 2004 and 2003. This shows the high dependence of local authorities' revenue from the state budget. We can remark that the current income levels remained almost constant 16-17%. For year 2003 we find an income category which represents a small percentage, revenues with special destination.

Table no. 8. The economic structure of local budget expenditures in Romania - 2005 Expenditure - total Current expenditure Capital expenditure Financial Operations

Million lei 33982.3 26868.5 6943.3 170.5 Source: own calculations after Statistical Yearbook of Romania 2008

% 100 79.06 20.43 0.51

Analyzing the structure of local expenditure is observed for the same high percentage of current expenditures of 79.06%, similar to that of Poland by 76.3% and the remaining amounts for capital expenditures. The percentage of expenditure on financial operations is almost insignificant to the other two, only 0.51%. From the analysis results can shed the idea that the total expenditure incurred by the local government share of investment expenditure is very small. A sociological study showed that investments in municipal and urban services are performed in a higher percentage than for education and local investment. Implementation of the decentralization process 217

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has proved extremely costly for local authorities and sinuous both in terms of material and human. Effectiveness and quality of decentralized public services are determined to a large extent a matter of public servants and specialization (Bercu, AM, Onofrei, M., 2007).

CONCLUSIONS Of study can highlight some key ideas in interpreting, understanding and analysis of financial and administrative decentralization. First, administrative decentralization is the basic principle of organization and functioning of local government. Hungary, Poland, Bulgaria and Romania are countries in wide release process from a centralized decision system to one based on the discretion of local authorities. Imperative financial decentralization, to support local public expenditures through own revenues, rational and efficient management of local financial revenues are some underlying principles of local development. On the other hand, we should consider the limits of the decentralization process: a. division of powers can lead to confusion and therefore inefficient; b. abuse on decentralization may lead to an escalation of the specifics that may endanger the unity of the state; c. The decision to create syncope (local officials do not have the specialization of the central level); d. an inequitable dispersal of public resources between local authorities can lead a process of dissolution of social solidarity. We can say in this regard that the transition of responsibilities of government in charge of local government task without building a unified strategy for national implementation of the decentralization process, clear and transparent without specifying the tasks and goals are not simply maintain a state fact: the spending of public money in a flawed and inefficient, which means the accumulation of long-term shortfall in local budgets. Need rationalizing expenditures from local budgets performance becomes an imperative for local authorities, while the share taken from the state budget tends to become smaller, so noted in the study undertaken. It is noteworthy that successful implementation of the decentralization process depends largely on the strategies adopted by government in this direction, planning, organization and control of decentralized services. Allocation of financial resources to support the decentralization process, implementation of logistics unit, adequate human resources and working standards are objective criteria to achieve efficiency and quality of public services.

REFERENCES 1. Bercu, AM (2004) Implications of regionalization process in the work of public administration, No scientific specifications. 6 Institute of Administrative Sciences "Paul Negulescu" Sibiu, Section for legal and administrative sciences, ed. Burg, Sibiu, ISSN 1582-9448. 2. Bercu, AM, Onofrei, M., (2007), Managing public debt in Romania: Realities and Perspectives in volume Debt Management in Transition Countries: Experience and Perspectives, edited by Zeljco Sevic, ISBN: 978-80-89013-33-3 , NISPAcee Press, Slovak Republic, pp 108 to 126. 3. Chirita S. Analysis of regional development in EU and USA, Institute for Human Resources Development www.idru.ro 4. Drumeva, Emilia, (2001), Local Government in Bulgaria, Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2001/81/Stab-Bulgaria.pdf 5. Philip G., Onofrei M., (2004), Elements of science administration, publishing Junimea Iasi.

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6. GhiolŃan, C. Iuoras M., (2005) Administrative Decentralization in Hungary, Transylvanian Review of Administrative Sciences, no. 2 http://www.apubb.ro/Documente 7. Kowalczyk, Andrzej, Local Government in Poland, (2000) Local Government in Central and Eastern Europe, http://lgi.osi.hu/pub lications/2000/25/Cha pter_5.PDF 8. Marchlewski, Wojtek, Chiriac, Liubomir; Tomcza, Pawel (2007), Models of Success in Local Government in Poland, Central Printing, Chisinau, ISBN 978-9975-78-340-8. 9. Onofrei M., Bercu AM (2004) Financial implications of decentralization of administrative activity, Scientific Annals of University Al I. Cuza, Economics Section, Tome nineteenth ed. University Al. I. Cuza, Iasi, pp 497-502. 10. Temes, István (2000), Local Government in Hungary, Local Government in Central and Eastern Europe, http://lgi.osi.hu/publications/2000/25/Chapter_8.PDF 11. Voinea, G. (2008), Local Finance, Publishing Junimea Iasi. 12. www.insse.ro - Romanian Statistical Yearbook for 2008

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LOCAL PUBLIC ADMINISTRATION PRINCIPLES IN ROMANIA-A CRITICAL POINT OF VIEW PhD. Leonina-Emilia SUCIU Babes-Bolyai University of Cluj-Napoca, Romania [email protected] Professor PhD. Ioan LAZAR Babes-Bolyai University of Cluj-Napoca, Romania [email protected]

Abstract: In this paper we try to analyse each of the principles on which local public administration is based in Romania. After describing their content we have tried to point out, in a critical manner, some of the aspects regarding these principles, aspects that are not yet very clear.We refer here to the followingss: the unsubstantiality regarding the legal document they are stipulated in, the principle’s more or less theoretical approach, the possibility of hierarchizing them or the existence and use in the administration daily life of other aspects such as collaboration, that are not yet officially declared as principles. Keywords: principles, local autonomy,decentralization,deconcentration, eligibility, legality JEL Classification: H 83

INTRODUCTION Regarding the local public administration, the constitutional principles on which it is founded in Romania are: the principles of decentralization, local autonomy, and deconcentration of public services. The Local public administration however, comes and adds to the above principles also the principle of the eligibility of local public administration authorities, the principle of legality and the principle of citizens’ consultation in solving local issues of particular interests. Also an important measure to amend the current law basis for local government, which refers to its principles is the European Charter of Local Autonomy. In the following, we will insist on the particularities of each principles in the Romanian local public administration.

THE PRINCIPLE OF LOCAL AUTONOMY This principle is one of the legal bases for local government. It led to the adoption of Law no.215/2001 of Local Public Administration, subsequently amended and supplemented by Law no. 286/2006 that modifies the Local Public Administration Law. Under the Charter’s regulations, local autonomy is the right and effective capacity of local authorities to resolve and manage, within the law, in their own interest and in the local population interests, an important part of public affairs. Here is also envisaged that this principle should be recognized by the national law and by the constitutional principles and that this right can be exercised by councils or assemblies composed of members elected through free, secret, equal, direct and universal vote, which may have executive and deliberative bodies accountable to them. Thus, the local public administration law states that local autonomy means the right and effective capacity of local authorities to resolve and manage, on behalf and for the local collectivities’ interests, the public affairs, according to the law. This right is exercised by local councils, mayors and county councils. The relations between local public administration authorities in communes, towns, cities and public authorities at county level are based on the principles of autonomy, legality, responsibility, cooperation and solidarity in solving the whole county’s issues. The relationship between local government authorities and county council authorities, on the one hand, and between local council and mayor, on the other hand, does not involve subordination relationship. 220

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The fact that for each local government authority there are rules regarding its organization and functioning is itself a transposition of the principle of local autonomy. Local autonomy does not mean the right of a collectivity to self governing regarding all the aspects (Preda and Vasilescu, 2007), without regard to the relationship with the similar collectivities or with those located at higher levels, often at the center. The autonomy of itself administration of public affairs is recognized by the state for the local collectivities only insofar as it incorporates the state law and only where the principles of local government can not affect the status of national, unitary and indivisible state of Romania. The organic law states that local autonomy has legal, administrative and financial nature, as such there can be no local autonomy based on other criteria such as: territorial, ethnic, linguistic, etc. The principle of local autonomy does not have a theoretic character, but it is expressed through practical actions (Ivan et al., 2002) because of its material base, meaning the heritage of each local authority. The prosperity of a collectivity’ residents depends on the way the building, the land, the equipment, materials and other financial assets are managed, by local authorities, that local residents prosperity depends. Thus based on these considerations, local government establishes and levies taxes, develops and approves budgets, in other words is ensuring its financial and local autonomy. A reference to this issue is reflected in the European Charter of local autonomy, which stipulates that the financial resources of local authorities should be proportional to their powers stipulated by the Constitution or by the law. Because this principle is considered the quintessence (Preda and Vasilescu, 2007) of all government activities in the territorial-administrative units, with our country's integration into EU, measures must be taken to achieve real independence, measures to ensure:  compliance with the legislative framework;  equitable and timely allocation of resources for local authorities;  limiting the intervention of central authorities into the affairs of local ones;  consultation of local authorities in a timely and appropriate manner;  establishing the controlled object over local authorities' activities.

THE PRINCIPLE OF DECENTRALIZATION In the Romanian constitutional system, the decentralization at organizational and institutional level regards the elected local government authorities (the local councils, the county councils, the mayors, including the public institutions subordinated to them), and at a functional level, the powers and duties conferred them by law. Searching for appropriate governance models was central to the administration reforms in the past 30 years. In some states it lead to privatization, in others to decentralization (Bourgon, 2009).There are opinions (Whitford, 2002) who belive that a decentralization regarding policy formulation involves a loss of political control. The process of administration getting close to citizens and the government awareness of local needs is reflected in the decentralization and deconcentration of public services (Profiroiu, 2004). The Framework Law of Decentralization defines decentralization as the transfer of administrative and financial competencies from the central government to local government or private sector. The same law also stipulates the principles underlying the decentralization process namely:  the principle of subsidiarity, which consists in the exercise of competencies by the local government authority located at the administrative level closest to the citizen and who has the necessary administrative capacity;  the principle of ensuring the adequate resources to the powers transferred ;

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the principle of accountability of local public authorities in relation to their competences, which imposes an obligation to achieve quality standards in delivering public services and public utilities;  the principle of ensuring a stable, predictable, decentralization process, based on objective criteria and rules that do not compel local authorities work or limit the financial local autonomy;  the principle of equity, which involves ensuring the access of all citizens to public services and public utilities;  the principle of budgetary constraint, which prohibits the use, by central government authorities, of special transfers or grants to cover the final deficit of local budgets. In France, among the principles underlying decentralization it is also stated the guardianship suppression (Lixăndroiu, 2001). Evidence underlying the acceleration of the decentralization process consist in (Stîngu, 2006):  ensure a democratic framework for making decision by increasing the representation of citizens and by increasing political representation;  the development of public management by improving the quality of public decision by increasing civil servants' integrity, the transparency of public decisions and the participation of the community in public decision-making.  improving the quality of public services and local revenue base by introducing a management system based on performance indicators;  the growth of resource mobilization and allocation for the national / local programs / projects by coordinating and improving the information system. The administrative decentralization in Romania has as a basis outside the organizational and functional autonomy, also a financial and patrimonial autonomy supported by local taxes (Manda, 2007). The government is seen as whole, as all public services which meet the needs of citizens and society. Yet all these services locally are supported of local financial resources. We have to keep in mind that not all public services involve decentralization. Such conduct is neither necessary nor possible nor desirable (Ivan et al., 2002). Public services such as national defense or national security, do not decentralize. They may however be deconcentrated at local level, being still in the structure, hierarchy and subordination of the center. There are also services that are organized only locally. If they had the necessary financial resources, theoretically all public services, except national defense could be provided by local government. The rules underlying the decentralization process stipulated in the framework law of decentralization are:  the competencies transfer is founded on impact analysis and based on specific methodologies and systems of monitoring indicators;  the ministries and other specialized bodies of central government, in collaboration with the Ministry of Administration and Internals and the associative structures of local authorities, organize pilot phases to test and evaluate the impact of proposed solutions to decentralize the powers they currently exercises;  the competencies transfer is made while ensuring the necessary resources for their exercise. The exercise of the competencies is done only once the necessary financial resources are transferred;  the funding of delegated competencies is provided entirely by the central government;  in the provision of decentralized public services, local government authorities are required to meet the quality standards under the law. By law, the transfer of competencies takes place in the next steps:  The government, ministries and other specialized institutions of central government develop strategies for the transfer of competencies towards the local government authorities and the draft for the legislation for its implementation. 222

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The government, ministries and other specialized bodies of central government identify the necessary resources and the associated full costs of the transferred powers and also the budgetary founds on which they are financed.  The government, ministries and the other specialized bodies of central government, in collaboration with the associative structures of local authorities, assure the longterm correlation between the transferred responsibilities and their associated resources. Also in the same law are mentioned the standards of cost and quality of decentralized public services, the administrative capacity of administrative territorial units and the categories of competences of local authorities. Cost and quality standards are approved by Government at the proposal of the ministries or other bodies of central government and with the approval of the Ministry of Administration and Internals. Government decisions on periodic updating of cost and quality standards underlie the determination and allocation of the amounts deducted from certain income of the state budget and local government authorities are responsible for fulfilling the standards of quality and cost in providing public services. As for the administrative capacity in the legal framework there can be found two categories of administrative-territorial units: the category I includes those administrative-territorial units that have the administrative capacity to achieve the powers transferred (the local government authorities from this category are able to exercise fully and immediately the transferred powers in terms of efficiency) and category II of administrative-territorial units which do not have the administrative capacity to achieve the transferred powers (the local government authorities from these administrative-territorial units may not exercise efficiently the powers transferred being excluded from the competencies transfer until completion of the administrative capacity to exercise them, according to the law). To be able to perform its functions, local authorities must define three aspects of relations with central authorities (Ioan et al, 2007):  central authorities must conceive a good system to evidence the public finances at all levels and to provide incentives where local authorities have a good activity;  for each level of government to know very well the responsibilities and powers;  the sources of income to be proportional to the extent of responsibilities and competences . As a result the decentralisation structurales (Bordean, 2005) approaches are:  institutional direction for the creation of local structures;  the operational direction for local authorities to establish powers and operational relationships;  financial direction, involving a local tax reform. In the decentralization framework law are presented three types of local government competencies: exclusive ones, shared, delegated and others according to the law.

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Exclusive competencies -the administration of public and private sector; -the administration of local roqd infrastructure; -the administration of culture and health institutions; -town planning; -water provision; -public enlightenement; -sanitation;

Local public administration competencies

Delegated competencies - payment of salaries and allowances for children and adults with dissabilities

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Shared competencies -alimentation with heat produced in centralized system; -construction of social housing for youth; - state preuniversity education, except the special education; - public order and safety; - granting social aids to

Figure 1. Local public administration authorities competencies Source: adapted after decentralization framework Law, no.195/2006

As in Romania, the decentralization process was not continuous and its progress has not registered a gradual improvement over time, its ongoing brought up a number of negative aspects also (Stîngu, 2006):  failure of local authorities to obtain certain rights, thus limiting their ability to effectively manage the supply of services;  the maintenance of some discretionary control and decision mechanisms in some areas;  insufficient details relating to legal and constitutional guarantees related to local autonomy;  public policies that are insufficient reasoned and partly implemented;  the dominance of legislative acts issued in case of emergency, instead of laws issued by the ordinary way;  the existence of differences between the decision transfer towards the local authorities and the resources transfer to support them. Theoretically, Romania is a decentralized state, the ground reality seems far lagging behind, often for financial reasons (Andrei et al., 2006). There is the financial decentralization tendency of local public administration, fact supported by the authorities frequently acceding to the capital market by issuing municipal bonds (Moşteanu and Lăcătuş, 2008). By its effects, decentralization is likely to ensure and realize the principle of local autonomy, therefore between these two principles there is a special connection. Some believe (Fleurke and Willemse, 2004) that there are four approaches of decentralization in relation to local autonomy, approaches based on the following criteria: decentralization direction, the dominant object of analysis, the relationship between decentralization and local autonomy and the perspective towards local government autonomy.

Table 1.Decentralization’s approaches related to local autonomy Approach

Direction of decentralization

Formal

Vertical

Dinamic

Vertical

Dominant object of the analysis in its importance order The system features;central government as an actor Central and local governance actors; non guvernamental actors

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The relation decentralization – local autonomy

The Perspective onlocal government autonomy

Decentralization is local autonomy

Derivate, potenŃial, local autonomy

Deliberate decentralization may rise the local autonomy but decentralization is more comprehensive

Effects on local autonomy în terms of a more efficient governance

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Functional

Mostly horizontal

Governance

Irelevant

Local governance as actor; non guvernamental actors Networks

Descentralizarea poate duce la reducerea autonomiei locale No relationship

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Extindere a autonomiei

Shift from government to governance implies a reduction of autonomy

Source: adapted after : Fleurke and Willemse, 2004

THE PRINCIPLE OF PUBLIC SERVICES DECONCENTRATION In the Romanian Constitution, the principle of deconcentration of public services appears to be the third principle underpinning the local public administration. This principle is a new one, since it was not stipulated by the 1991 Constitution. The Framework Law no. 195/2006 of Decentralization, defines deconcentration as the redistribution of the administrative and financial powers of the ministries and other bodies of central government towards their specialized local structures. In reality, the deconcentrated services are organizational structures of ministries and other specialized agencies, organized in the territorial-administrative units, through which they exercise their powers in counties, cities, towns, communes (Preda and Vasilescu, 2007). These decentralized public services are run, according to the Constitution by the prefect. The new aspect that deconcentration brings, is the decision-making capacity of these public services, that beneficiate of a delegation of competence, as a result of powers transfer from the local authority that established them (Miulescu, 2006). What should be noted is that not all ministries shall organize such public services in the territory, while others organize their organizational structures from the county level to the basic level of administrative-territorial unit: the commune. The smaller effects that deconcentration has on local autonomy, compared to decentralization, are the following (Preda and Vasilescu, 2007):  at the organizational level, these public services belong to the state government only that they operate in the territorial-administrative units and not at the center;  their material basis and financial resources are provided by the specific ministry (not decentralized) and the staff is part of the total approved ministry staff;  the leaders of the decentralized public services are appointed and dismissed by the minister, at the proposal of the prefect, and the acts issued by them can be dispensed by the ministers who they subordinate to.

THE ELIGIBILITY OF LOCAL PUBLIC ADMINISTRATION AUTHORITIES PRINCIPLE The legal basis of this principle lies in article no.121 of the Constitution, which states: " The government authorities, through which local autonomy is accomplished in communes and towns, are the local elected councils and elected mayors, under the law regulations." The legal rules detailing this principle are Local Public Administration Law and the Law no. nr.67/2004 on the Election of Local Public Administration Authorities. Since the authorities are elected ones, they do not belong to the state and therefore neither are the tasks they perform. However, in order for these actions to have legal effects, they must be recognized by the state, but only if the election of these authorities was legal and also if their actions are in accordance with law. Thus one can speak of a state dual recognition (Preda and Vasilescu, 2007) by combining the general interests with the ones of local collectivities. The rationality of local and county councils and mayors existence, is only to manage the affairs of the administrative and territorial authorities in which they have been elected, to serve and solve the 225

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local collectivities interests and the ones of the electorate (Ivan et al., 2002). We must not forget that the mayor acts also as a state representative exercising its powers as an officer of civil status, guardianship authority, its tasks that result form the regulations concerning the census, the organization and conduct of elections, and other such tasks. A consequence of this principle consists in the permanency of the chosen authorities mandate for their entire term, since their mandate may be terminated only in particular cases provided by law. In addition to the social connotation, the eligibility of local authorities has also a political connotation, since their applications for elections are proposed by political parties (Manda and Manda, 2002).

THE PRINCIPLE OF LEGALITY This principle appears for the first time stipulated by the constitutional revision in 2003. Previously, its application was inferred from the activity’s nature, through the enforcement of law by public administration. This principle must be respected by all local public administration authorities, whether or not they have a mandatory character for the entire state. The entire activity of local authorities should be based on strict law obedience. As a result, legality means in fact also the implementation of law content. The principle of legality requires that all elements, aspects of local public administration to comply with the Constitution and other laws and legislative acts based on law. These aspects relate to: the organizational and functional aspects, the organizational structures of local public administration, their constitution and functioning, powers, duties, issued documents, relationship with other public institutions, etc. As a result, the administrative-territorial units can not create other structures of government than those of Constitutional Law and other laws, in this case, the Local public administration law. In other words, any form of local autonomy manifestation involves respect for legal norms and for the public interest. Regarding the content of the principle of legality, and its consequences, there are a few mentions to be made (Flonder and Cristea, 2000):  legality is the public administration limit, it designates all law rules to be applied across it;  legality is the base for administrative action and is therefore impossible for local authorities to act or to issue legal documents unless they are authorized by a rule of law. The guarantee that the principles are respected is also ensured by law, by establishing sanctions for both local public administration authorities and officials when their conduct and their actions do not comply with the law.

THE PRINCIPLE OF CITIZENS’ CONSULTATION IN SOLVING LOCAL ISSUES OF PARTICULAR INTEREST Applying this principle is considered to be the basis of democracy, although it is governed only by Law 215/2001, and not by the Constitution, especially as this principle is part of local autonomy and aims to strengthen the role of local authorities, collectivities and citizens, to find solutions to for the local problems. The specific way of consulting the citizens it is not mentioned specifically. The European Charter of Local Autonomy states that the rights of elected local authorities can not affect in any way citizen’s possibility of having gatherings, referendums or any other form of direct participation of citizens, where it is stipulated by law. Since the formulation of this principle in the local public administration may arise questions related to some of the concepts like consultation and not approval, local issues (not regional issues), Law no. 3 / 2000 on the Organization and Holding of a Referendum has the role of 226

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providing clarification. This law specifies that issues of particular interest in administrativeterritorial units may be subject, to the approval of their citizens, through local referendum. This does not mean that other forms of citizen’s consultation such as citizens' gatherings, public meetings, organizing public demonstrations, conduct polls, surveys, etc., are excluded. On the other sight, Law no. 215/2001 obliges the organization of a referendum, for the change of the administrative-territorial units’ boundaries.Usually, the referendum is optional. However the views on the compulsoriness of the referendum outcome are divided. Some authors (Ivan et al., 2002) believe that since the referendum is indicative, it is not mandatory, while opponents (Miulescu, 2006) say otherwise by arguing that Law no.3/2000 specifies that "the citizens are called to rule by YES or NO on the question submitted to the referendum’’, which would entail the compulsoriness of the outcome.

CONCLUSIONS Proper conduct of public administration and local public administration activities would not be possible without the existence and compliance with the principles described above. We must keep in mind that some of these principles existed and were implemented before being officially expressed. As a result we find that some of the principles have a pronounced practical sight, the example of the local autonomy principle, while others are considered to be more useful theoretically speaking, but difficult to put in practice. Another aspect that should be taken into considered is the provision of these principles. In the European Union countries, the principles underlying the public administration are provided either by the constitution or by the organic laws. Most times however, the Constitution sets out only the general principles. The specific organic law establishes the principles of local public administration. This is also the case of our country. We believe that a unitary regulation of all principles together, by both the Constitution and the organic law, would be more practical. The importance of these principles, or rather trying to prioritize them, raises some questions as well. Even if we find diversity in the regulation of these principles, our country, just like most other European Union states, confers great importance to the principle of decentralization and local autonomy. Does that mean that as long as the two principles are applied, there is no other careful observation required for the application of the rest of principles, or better said, the application of other principles is less binding? Regarding the principles of local public administration, our country in an effort to join the European structures, has operated many changes both in the Constitution and the law of local public administration. We refer primarily to the addition of some principles not stated officially, but whose existence was somewhat implicit, as it is the case of the principle of legality. So we come to ask ourselves why other criteria that are still not stated as principles, such as collaboration, but criteria that frequently occur in legislation related to local public administration, are not yet officially declared as principles. We believe that the legislative authorities should take this into consideration. The principles are the foundation of local authorities .It is important to keep in mind that whatever the way of stating them is, or the law regulations in which they occur (the Constitution, the organic law, etc.), these principles should not prejudice in any way the sovereignty of the state or its national and unitary character.

REFERENCES 1. Andrei,Tudorel, Marius Profiroiu and Mihai Turturean (2006) ’Reforma administraŃiei publice locale.Cazul României’, Revista de Economie Teoretică şi Aplicată, no.2:6, www.ectap.ro 2. Bordean,Ioan (2005) ’Management Public’, FundaŃia Academica Danubius, GalaŃi 3. Bourgon Jocelyne (2009)’New Directions in Public Administration: Serving Beyond the Predictible’, Public Policy and Administration,24;309-311,http://ppa.sagepub.com 4. ConstituŃia României, modified by Legea de revizuire a ConstituŃiei României nr. 429/2003 227

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5. Fleurke, Frederick and R.Willemse (2004) ’Approaches to decentralization and local autonomy: A critical appraisal’, Administrative Theory and Praxis,no.4/vol.26:525 6. Flonder Ion and Cristea Viorel (2000) ’AdministraŃia Publică Locală, Note de curs’, Gaudeamus, ConstanŃa 7. Ioan, Alexandru,Ivan Vasile Ivanoff and Claudia Gilia (2007) ’Sisteme politico-administrative europene’,Bibliotheca,Târgovişte 8. Ivan, Stelian, Mihai Bodescu and Aurel Neagu (2002) ’AdministraŃia Publică’, Luminalex, Bucharest 9. Legea nr.67/2004 privind Alegerea AutorităŃilor AdministraŃiei Publice Locale republished in Monitorul Oficial nr. 333 /2007 10. Legea nr.215/2001 privind AdministraŃia Publică Locală, published in Monitorul Oficial nr.204/2001 modified by Legea nr.286/2006, published in Monitorul Oficial nr.621/2006 11. Legea nr.199/1997 pentru ratificarea Cartei Europene a Autonomiei Locale, published in Monitorul Oficial nr.331/1997 12. Legea Cadru a Descentralizarii nr.195/2006 published in Monitorul Oficial al României nr.453/ 2006 13. Legea nr. 3/2000 privind Organizarea si Desfăşurarea Referendumului 14. Lixăndroiu, Dorin and Marius Georgescu (2001)’AdministraŃia Publică Franceză-un model pentru România?’, AdministraŃia publică-culegere de articole:62, Anişoara Capotă et al, Infomarket, Braşov 15. Manda,Corneliu (2007) ’StiinŃa AdministraŃiei’, Luminalex, Bucharest 16. Manda, Corneliu and Cezar Corneliu Manda (2002) ’Dreptul ColectivităŃilor Locale’, Luminalex, Bucharest 17. Miulescu Nicoleta (2006)’AdministraŃia Publică Centrală şi Locală Paralelă şi Drept Comparat’, Ed.Didactică şi Pedagogică, Bucharest 18. Moşteanu,Tatiana and Carmen Maria Lăcătuş (2008) ’The municipal bonds-the cause and the effect of the local financial decentralisation growth. Romanian case’, Revista de Economie Teoretică şi Aplicată, no.9:3, www.ectap.ro 19. Preda, Mircea and Benonica Vasilescu (2007)’Drept Administrativ’, Luminalex, Bucharest 20. Profiroiu, Marius (2004) ’Descentralizarea în România’, Revista AdministraŃie şi Management Public, no.3:6, www.ramp.ase.ro 21. Stîngu, Gheorghe (2006)’Reforma AdministraŃiei Publice în Contextul Integrării Europene’, Vasile Goldiş University Press, Arad 22. Whitford, Andrew B. (2002),’Decentralisation and political control of the bureaucracy’, Journal of Theoretical Politics:167, http://jtp.sagepub.com The authors wish to thank for the financial support provided from the program co-financed by THE SECTORAL OPERATIONAL PROGRAM FOR HUMAN RESOURCES DEVELOPMENT, Contract POSDRU 6/1.5/S/3 – "DOCTORAL STUDIES, A MAJOR FACTOR IN THE DEVELOPMENT OF SOCIO-ECONOMIC AND HUMANISTIC STUDIES"

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UNITY AND DIVERSITY IN THE ROMANIAN LAW CONCERNING THE ADMINISTRATIVE AND TERRITORIAL ORGANIZATION IN THE INTERWAR PERIOD Lecturer Ph.D. Candidate Marilena-Oana NEDELEA „Ştefan cel Mare” University of Suceava, Romania [email protected]

Abstract: The evolution and development of the administrative principles that marked the interwar period were influenced by the following normative acts: the Law for administrative unification from June 24th 1924, the Law for the organization of the local administration from August 3rd 1929, the Law no. 569 from March 21st 1936, the Administrative law from August 14th 1938. The current public administration wants to be a product of tradition, of the Romanian history. Thus the Romanian legislator showed in the exposition of the reasons in the Project of the local public administration law from 1991, that he had taken into consideration the administrative experience acquired until the end of the third decade: laws from 1952, 1929 and 1936 and the elements of comparative law in the outlining of the local public administration organization. Keywords: territorial and administrative organization, public administration, administrative unification JEL Classification: H 83, D 73

“We will have to change the administrative norms of a people who lived separated politically for centuries, under different regimes and different ideas about state life. The sister provinces have come with their administrative traditions, with their customs, with their mentality and it is understandable considering all the sacrifices that are brought and all the goodwill that is used in the superior purpose of the State’s unity and consolidation”. Arthur Vaitoianu -Exposition of Reasons, march 22nd 1925

INTRODUCTION Until 1918, the provinces united with the country, have developed within some norms, practices and different legal systems, imposed by the foreign domination and which were different as spirit and principles from the ones of old Romania. All these legacies remained or originating from previous historical stages, from traditions and political and ideological ideas, with a series of differences in mentality, had to find a merger in the unification law, valid for the entire Romanian territory. This is why only a well grounded and right law defending the interests of all the citizens and according to the national differences of all Romanians who, for the first time in history had achieved an integral unity, could ensure the basis of the future Great Romania. It was necessary to harmonize, as soon as possible, different norms and legal principles which had to become a legal synthesis integral and integrating. The Romanian historiography has paid and still pays attention to Romania’s unity and evolution in the interwar period. The evolution and development of the administrative principles that influenced the interwar period were influenced by the following normative acts:
The Law for administrative unification from June 24th 1924 promulgated by the Royal Decree no. 1972 from June 13th 1925 and published in the Official Gazette no. 128 from June 14th 1925, with modifications brought by the law promulgated by the royal decree no. 3832 from December 21st 1925 and published in the Official Gazette no. 283 from December 22nd 1925;
The Law for the organization of the local administration from August 3rd 1929 published in the Official Gazette no. 170, 1st part;
The Law no. 569 from March 21st 1936 published in the Official Gazette, Part I, no. 73 from March 27th 1938; 229

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The Administrative law from august 14th 1938 published in the Official Gazette, no. 187, part I. Also a special place was occupied by the Debates of the Assembly of Deputies (1917-1937, 1939-1940). The Debates of the National Assembly Constituent of the Senate but also Romania’s Encyclopedia vol. I and II bring an important contribution in understanding and deciphering the application framework of the new administrative principles. This stage is presented by some historians as an apogee of the organization and achievement capacity of the Romanian state, in its long evolution. After the fulfillment of the Great Unification1918, the Romanian state has provinces with different traditions of the administrative and territorial organization – specific for the Habsburg Empire, Bukovina, Transylvania and Banat (the latter two with implications of the Hungarian state’s politics, after the dualism from 1867) or with specific elements for the Tsarist Empire in the case of Bessarabia. For the identification of the elements specific for the administration of every province we mention reference studies as: Nistor, I., Istoria Basarabiei, Ed. Humanitas, Bucuresti, 1991; Iacobescu, M., Din istoria Bucovinei, Ed. Academiei Romane, vol.I, Bucuresti, 1993; Scurtu, I, Buzatu, Gh., Istoria românilor în secolul XX, Ed. Paideia, Bucuresti, 1999. As well as the historians, the specialists in constitutional law and administrative law paid a special attention to the provisions of the law for the administrative unification in university treatises starting with the interwar period and extending to recent works in the field such as: Boilă. C., Organizarea de stat. Organizarea statului roman în comparaŃie cu organizaŃia altor state, Ed. Tipografia Cartea Românească, Cluj, 1927; Teodorescu A. , Tratat elementar de drept administrativ, vol. I, ed. a II-a, Bucureşti, 1929; Muraru I., Stănescu, S., Drept constituŃional şi instituŃii politice, Ed. Lumina Lex, Bucureşti 2002; Prisacariu V., Tratat de drept administrativ român: parte generală, Ed. Lumina Lex, Bucureşti, 2002. In the evolution and development of the public administration until 1925 we can identify five characteristic stages:
Starting with the formation of the Romanian lands until the end of the 16th century, stage in which we can mention as a certitude the villages of the yeomen and of the freeholders;
The 17th century until the Organic Regulations, stage in which the organization and operation of the administrative institutions and authorities is outlined;
The period that influences the elaboration of the Organic Regulations until 1848 in which we can recognize the right to local auto-administration and the separation of the administrative power from the judicial one;
1848-1864 stage in which the institutions and the principles of the modern law develop and crystallize;
1864-1925 period in which the basis for the unification of the administrative, political, cultural and economical institutions of Great Romania are set. Concerning the territorial and administrative organization of Romania, in the interwar period, of the local administration institutions, we may find three different periods:  1918-1925 in which the local, regional particularities maintained especially concerning the local administration institutions, until the administrative unification law from 1925. The law from June 24th 1925 that became effective on January 1st 1926 abrogated different existent administrative systems and established identical norms for the administration of the entire country;  1925-1938, period in which the provisions of the administrative laws created in the spirit of the Constitution from 1923 reverberate;  1938-1940, stage dominated by the provisions of the law from august 1938. The consequences of the Great Unification were spectacular, creating a new framework for the country’s modernization. During the interwar period a great priority was gained by the integration process of the new provinces in the national-unitary state, the consolidation of the national economic system, the acceleration of the modernization process, the protection of the

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economic independence, the increase of Romania’s part in international relations, -in the economic and political field and the protection of the status quo. An important issue which appeared after the fulfillment of the Romanian national unitary state was that of the legislative unification between the old Romania and the provinces subjected until then to different laws and legal systems and now superseded by the needs of the new political organism. The country’s territory had doubled, and the laws of the new provinces represented legal systems different from the one comprising the law of old Romania. In the legislative unification work destined to assure social progress and judicial security the Romanians did not use the method of imposing their own institutions, and preferred that the unification laws which resulted from the sovereignty right be applied gradually. The first decree of the Ruling Council of Transylvania from 1919 mentioned, in article 1, that the old laws, prescripts, regulations and legal status previous to the Unification remain effective, temporary, until further dispositions ‘in the interest of the public order and in order to ensure the rightful continuity’. Similar measures were taken in Romania by the Decree-law no. 3475 from December 18th 1918 and in Bessarabia by the Decision of the Country’s Council from March 27th 1918, point 5. The causes that made the legislative unification process to last in time were some objective some subjective. In the category of the objective ones we can remind the priority that the restructuring of the unified state had: the administrative, financial, criminal, agrarian organization. Secondly, until the foundation of the Legislative council in 1926 there was no own authority to examine in all its complexity the unification in the field of private law, where there were important differences to the old Romania, especially family law, inheritance, advertising real estate rights. Concerning the subjective causes, the conviction of the lawyers, from different provinces, that their legal system is the best was supported by practice, firstly by the safety of the law created by the precise system of land recording existing in Transylvania and Bukovina. There were differences concerning the spirit of the law in which the legislative unification had to be made. The law historians proposed a solution that would reflect “the genius of the Romanian people” (Peretz, 1922) or at least a harmonization of the mentalities in the Latin spirit (V. Roman), while most of the theorists and practitioners (G. Buzdugan, A. Gane, N. Vrabiescu, M. Eliescu) sustained the elaboration of a legal system “that would take into consideration the latest data of the law science” (Oteteleseanu, 1931). Concerning the legislative unification method, the ministerial commission formed in 1920 from judges and lawyers chose the revision of the codes, idea expressed in article 137 from the Constitution. In the legislative council organized through the Law no. 20 from February 26th 1952, two main methods were identified: a) immediate unification by the expansion of the legislation from the old kingdom which implied implicitly a rapid elaboration of new codes, solution foreseen especially by the judges (A. Radulescu, C. Hamangiu, C. M. Sipsom) and b) maintaining the regional pluralism until the unifying codification on new basis which would take into consideration all that was superior and valid in the law of the new provinces and the conquests of the comparative law, opinion sustained by the theorists of the law and by lawyers (A. Oteteleseanu, A. Gane, St. Laday, M. Eliescu, I. Mircescu, C. Rarincescu, G. Plastara). Finally, giving priority to the constitutional dispositions, the revision idea triumphed in criminal matter, while in the other fields the expansion method was used (Law no. 36 from 1928 for Bessarabia, Law no. 478 from 1938 for Bukovina and Law no. 389 from 1943 for Transylvania).

THE UNIFICATION BY THE TACIT OR EXPRESS EXPANSION By the Decree-law from April 10th and December 13th and 19th 1918, the organization of the state has operated tacitly according to the Constitution from 1866, certain exceptions being stipulated in these Decrees until a new Constitution (P. Negulescu) came into force. In fact, the unification by express expansion of some laws continued after the apparition of a new Constitution in 1923. Thus, the Forest Code from April 8th 1910 with the subsequent modifications, was 231

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expanded on the entire territory of the country on June 17th 1923; the Law from April 11th 1928 for the expansion of chapter VII, articles 56-69 from the Law on commercial exchanges on the entire territory of the country and the modification of some dispositions concerning the application of this chapter made the same thing with the legislation in the matter from June 14th 1913 with the subsequent modifications from 1918 and 1921. As a consequence of the unification of the juridical organization (law from June 26th 1924) part of the dispositions of the Romanian Criminal Procedure Code extended in the new provinces. The unification of the education’s organization was achieved by extending in the new territories part of the dispositions from old Romania concerning the organization of secondary and higher education. In other cases, especially those concerning the organization of the state, the new unification laws were mainly those from old Romania, extended on the entire territory of the country, with certain temporary dispositions for the new provinces, being established a jurisprudence unity which was essential for achieving a juridical unification (A. Radulescu); the Law from February 12th 1923 unified the organization norms of the body of lawyers, and the administrative organization of the country was made through the Law from June 14th 1923, entitled “For administrative unification”.

THE LAW FROM JUNE 24TH 1925-THE LAW FOR ADMINISTRATIVE UNIFICATION The project of the law for administrative unification entered the Debate of the Senate with Message no. 3789 from November 14th 1924. On the basis of article 380 from the law for administrative unification promulgated by the royal decree no. 1972 from June 13th 1925 and published in the Official Gazette no. 128 from June 14th 1925, the territory of Romania was divided in 71 counties, comprising 498 small rural districts and 8879 communes, respectively: 71 urban communes county residence (of which 17 towns); 94 communes non-residence; 10 suburban communes; 8704 rural communes. In the Exposition of Reasons presented in the meeting from March 25th 1925 it is explained the need to adopt a law for the administrative unification having as basis a wide decentralization, a deconcentration of the State’s service, a reorganization of all the departments. Also, it is underlined that at the elaboration of this project the opinions of a high number of parliamentarians and specialists, data, information and findings gathered from the entire territory of the country were taken into consideration. The project of the law comprised the organization of communes and counties concerning the duties and the importance of the local institutions and the control of the central authority. Regarding the contents of the law, it is structured on six titles, comprising 400 articles thus: Title I comprises references concerning the division of the kingdom’s territory; Title II regulates the status of the commune; Title III refers to the organization and the operation of the county’s institutions; Title IV synthesizes a series of common dispositions concerning the administrative elections; the validity of the deliberations of the communal and county councils and of the permanent delegations, the assets and works regime, local finances; Title V frames from a legal point of view the activity of the central authority’s representatives; Title VI comprises the final and temporary dispositions. The administrative unification was achieved by the Law from June 24th 1925 by which we ensured a unitary development of all the country’s provinces which until then had know only different regimes. The law for the administrative unification from 1924 was adopted by the liberals, criticized for a long time by the opposition, remaining effective until the instauration of the authoritarian regime of Carol II. The senator T.T. Lupu considered that “the administrative unification, the union in politics must bring also the union of the soul, so necessary for the consolidation of a country. This union of the soul cannot be made by laws, no matter how good they are, but by the strict compliance with the laws, by a good and fair administration.”

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The new law comprised all the progress of the Romanian society’s experience, establishing administration institutions that were going to be chosen in a democratic manner, like county or communal councils in order to prevent the selection of some foreign elements, in these key organizations of the administration. (Still, the areas where the majority of the population was represented by foreigners, they had the important positions in the structures of the public administration.) A series of elements from the current administrative legislation are found in this law, as for example the manner of organization and operation of the county and communal councils, the selection, operation and the duties of the mayor and culminating with the fierce debates concerning the status of the prefect-high public officer or representative of the government in the country. There were regulations that did not find viability in the new European organization context as: institutions like the praetor, the small rural district, but also the status of the notary public which had probably the most radical evolution. Along with the Constitution from 1923, this law has represented a corollary of the interwar legislation.

LAW FROM AUGUST 3RD 1929 The law from June 24th 1925 was mostly an expansion of the old Kingdom’s legislation in the united provinces. It could not answer to all the needs of the new Romanian administrative life. As a consequence, a new reform of the local public administration will be produced in august 1929. The Law from August 3rd 1929 was elaborated during the national-peasant government lead by Iuliu Maniu. The law for the organization of the local administration from August 3rd 1929 was published in the Official Gazette no. 170 part 1. The content of the law is structured on VIII Titles and 572 articles: -Title I “Administrative division of the territory” -Title II “The Commune” -Title III “The County” -Title IV “The local ministerial directorships” -Title V “The general county associations” -Title VI “Trusteeship and the control of the local administration” -Title VII “Common dispositions” -Title VIII “General and temporary dispositions” The law from august 1929 will suffer 11 successive modifications until March 27th 1936 when a new law of administrative organization will be voted. The law from 1929 achieved the administrative decentralization in the highest degree known in the history of modern Romania. The selection of all the organs of the local public administration, the elaboration of the administrative prefect, the modification of the administrative trusteeship from arbitrary to jurisdictional by creating the Revision committees as special jurisdictional courts, granting legal person not only to the commune but also to every village prove the fact that the statements of the legislator did not represent simple intentions, but reflected a real political will for change and progress. Still the law created an administrative device extremely slow which determined in practice blockages and complications due, mostly, to the incapacity of the local authorities to handle their attributions. As a consequence, the system of the administrative organization was completed by a series of laws concerning the creation of the Legislative Council, of the Superior Administrative Council, of the House of Pensions, the creation of the of the Agricultural Chambers, of the Work Chambers, the reorganization of the Chambers of Commerce and Industry.

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THE LAW OF ADMINISTRATIVE ORGANIZATION FROM MARCH 27TH 1936 The numerous modifications of the Law of administrative organization from 1929, the failure of the reformation attempts from 1931, the chaos that was created concerning the legal regime to be applied in certain institutions, made necessary the elaboration of a new law of the local public administration. After 7 years of modifications and remodeling of the law of the local administration’s organization from 1929 the need of a new synthesis was felt. The task to elaborate it was given to the liberals, the authors of the administrative unification law from 1925. The law from March 27th 1936 was elaborated during the government lead by Gheorghe Tatarascu. On December 16th 1935 the government filed in the Parliament the project of the administrative law which had to replace the law adopted by the national-peasants. Basically, the law from 1936 maintained the administrative centralism of the unification law with a special importance given to the political prefect, but tried to protect the local autonomy by maintaining the jurisdictional trusteeship exerted a posteriori of the Revision courts from 1929, now transformed in Administrative courts. The administrative law from 1936 is structured in five parts, each having different titles and chapters. The first part includes aspects concerning the territory and the inhabitants, the administrative elections, the organization of the communes, the county, the conditions required to the administrative personnel chosen and appointed, the common dispositions of the county and commune councils, the administrative associations. The first title of the Administrative law from 1936 includes chapters concerning the administrative division of the territory and the members of the commune. The second part aims the issues of the local finances, the following aspects being discussed: the county and communal expenses, the classification of the communal and county income, the budgets of the local administrations. The third part regulates the petitioning procedure thus according to article 233: “Beside all the local administrations, as well as at the headquarters of the Ministry of the Interior, will operate a special service for the reception of the requests made by the inhabitants, under the care of which the petitioner will receive, at his residence, the solution of the respective authority, in 30 days at most from the registration of the request”. In rural communes this service was fulfilled by the notary public who was obligated to receive and to draw up, at request, the complaints of the villagers. The Notary Public received the petitions addressed by the villagers and other public administrations, with the duty to send them urgently. In the fourth part entitled “Professional training” it is mentioned the fact that technical professional training and the refresher courses are organized by the Ministry of Interior by the Romanian Royal Institute of administrative sciences with the help of the superior school of State sciences and documentation and administrative sciences schools. Thus that in article 237 “nobody can be appointed administrative public officer if he does not have the professional technical training”. Part V – Final and temporary dispositions mentioned in article 252 that “The law for the organization of the local administration from August 3rd 1929, the law for the organization of local finances from September 20th 1893, concerning the levy of a tax for the aqueduct (published in the Sheet of provincial laws No. 30 from September 3rd 1893), as well as the law from Bukovina from November 11th 1893 concerning the sewerage system of Chernivtsi Town and the levy of a sewerage tax published by Sheet of provincial laws No. 34 from November 23rd 1893, and the law concerning the granting of chimney sweeping as well as any dispositions from the laws and regulations in force, from all the regions contrary to the present law are and remain abrogated. There are also abrogated all the laws, regulations and decisions with administrative character from the united territories and are annulled from the promulgation of the present law all the commissions and administrative forums which operate on the basis of those laws, because they are not mentioned by the present law. 234

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The expropriation law for reason of public utility from October 20th 1864, with all its subsequent modifications expands on the entire territory of Romania, thus abrogating the laws or dispositions in this matter from the united territories.”

The administrative law from August 14th 1938 was elaborated during the government lead by the patriarch Miron Cristea. The end of the year 1938 marked a significant return to the totalitarianism of the royal dictatorship. Concerning the local public administration, not only did it return to the politicizing of its operation, but a strict political control was instituted. On December 16th 1938 the National Renaissance Front was created as the sole political organization in Romania. All the public officers had to be members of this political organism. The era of a single state administration lead by a sole state party was instituted. The entire local public administration, deconcentrated and decentralized was under the Front’s control. The law was published in the Official Gazette no. 187, part I. The law is structured on 9 titles and 197 articles: -Title I “General dispositions” -Title II “The Commune” -Title III “The Region” -Title IV “Administrative and control constituencies” -Title VI “Disciplinary measures against the authorities of the local administration” -Title VII “Mandatory works” -Title VIII “Local finances” -Title IX “The control and trusteeship of local administrations” -Title X “The petitioning procedure” -Title XI “Temporary dispositions” In the new administrative reform within the existing territorial-administrative units appears the region which comprised several counties. In the project of the law it was mentioned that the mayors were appointed by the prefect for a commission of six years. In opposition, Demostene Botez, the manager of the newspaper “Dreptatea”, demanded that the citizen’s right to choose the mayor be recognized, action in which he sees embodied the notion of freedom and civic dignity. CONCLUSIONS The attempts of administrative unification reflected by the laws from 1925, 1929, 1936, 1938 unfortunately had a series of shortcomings which represented the limits of the development and progress of the entire interwar society. In the conclusion of the study of diversity units and elements brought to the Romanian public administration we have to take into account a series of reasons: “the local administration was according to the variations of political life’ and ‘the diversity of the administrative organizations from different regions of the state, hardly fit in a unitary law, which tried to promote rules that did not exits before in those regions” (Lupu, 1925). In the Report concerning the law from 1938 it was recommended the compliance with some principles for the efficiency of the administration’s organization and operation: administrative decentralization, administrative deconcentration, administration becoming more technical, based on competence and hierarchy, a special preoccupation for municipal administration and urbanism, a control and an administrative trusteeship seriously organized. The current public administration wants to be a product of tradition, of the Romanian history. Thus the Romanian legislator showed in the exposition of the reasons in the Project of the local public administration Law from 1991 that he had taken into consideration, the administrative experience acquired until the end of the third decade: laws from 1952, 1929 and 1936 and the elements of comparative law in the outlining of the local public administration organization.

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REFERENCES 1. Boilă, C. (1927), Organizarea de stat. Organizarea statului român în comparaŃie cu organizaŃia altor state, Ed. Tipografia Cartea Românească, Cluj. 2. GuŃan, M. (2005), Istoria administraŃiei publice locale în statul român modern, Ed. ALL Beck, Bucureşti. 3. Panaitescu, I.D., Ionescu-Darzeu, V, Panaitescu, A. (1927) - Codul administrativ, Institutul de Arte Grafice “Graiul Românesc” , Bucureşti. 4. Petrescu, R. N. (2009) Drept administrativ, Ed. Hamangiu, Bucureşti. 5. Pop, D.I. (1939) InstituŃia regiunii în proiectele şi legile administrative româneşti, Tipografia Alba-Iulia, Bucureşti. 6. Prisacriu, V. (2002), Tratat de drept administrativ român: parte generală, Ed. Lumina Lex, Bucureşti. 7. Rădulescu, A. (1925), Unificarea administrativă, Academia Română. Memoriile SecŃiunii Istorie, Seria III, Tomul VII, Mem.12, Ed. Cultura NaŃională, Bucureşti. 8. Scurtu, I, Buzatu, Gh. (1999) Istoria românilor în secolul XX, Ed. Paideia, Bucureşti. 9. Teodorescu, A. (1929), Tratat elementar de drept administartiv, vol. I, ed. a II-a Bucureşti. 10. Vedinaş, V. (2009), Drept administrativ, ediŃia a-IV-a, revizuită şi actualizată, Ed. Universul Juridic, Bucureşti. 11. Văraru, M. (1928), Tratat de drept administrativ român, Ed. Librăriei Socesc&Co, Bucureşti.

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COMMON FOREIGN AND SECURITY POLICY AS ENVISAGED IN THE LISBON TREATY Asistant Eugenia Gabriela LEUCIUC “Stefan cel Mare” University of Suceava, Romania Faculty of Economics and Public Administration [email protected] Professor Ph.D. Elena IFTIME “Stefan cel Mare” University of Suceava, Romania Faculty of Economics and Public Administration [email protected]

Abstract: This study examines the innovations which the new EU Reform Treaty brings to the foreign and defense policy of the European Union. The study begins with an observation on the time of entry into force of the Reform Treaty, and then stops on the main reforms introduced by the new text in the foreign policy sector. Thus, in the Common Fordign and Security Policy (CFSP) sector, two are the major institutional innovations under the Reform Treaty: “The High Representative of the Union for foreign affairs and security policy” and “The Eurnpean External Action Service”. The High Representative for foreign affairs and security policy, which the Constitutional Treaty boldly named “Minister of Foreign Affairs of the European Union”, will bring together the roles and powers of two different institutional figures: the High Representative (CFSP) and the Commissioner for Foreign Relations. This fusion, which should simplify the institutional framework, aims to give greater coherence and effectiveness to the European foreign policy. The study then proceeds to analyze the innovations introduced in the Common Security and Defense Policy (PSAC) and in particular: the permanent structured cooperation; the solidarity clause and the collective defense one; the increase of the peace missions of the European Union, the so-called Petersberg missions, i.e. humanitarian and aid missions, peacekeeping missions and crisis-fighting missions, including missions aimed at restoring peace. Keywords: Reform Treaty (Lisbon Treaty), High Representative for foreign affairs and security policy, European External Action Service, permanent structured cooperation, the solidarity clause, the collective defense clause. JEL Classification: K 33

INTRODUCTORY CONSIDERATIONS After a long pause of thought, following the rejection of the Constitutional Treaty, Europe has ended the institutional crisis and is prepared to face future challenges (1), finally getting back on the way of institutional reforms. In this regard, the Heads of State and Government of the EU countries agreed to convene an Intergovernmental Conference (June 2007) to develop a “Reform Treaty” which would amend the existing treaties, incorporating many of the rdforms under the Constitutional Treaty, but excluding several provisions that have raised questions marks or open opposition in different countries. Unlike the Constitutional Treaty, which simplified and rationalized the existing treaties, replacing them with a single text, the Reform Treaty amends the existing treaties, but does not replace them. In particular, the first part of the Reform Treaty restructures deeply the Treaty regarding the European Union; the second modifies the Treaty regarding the European Communities, which is renamed the Treaty on the functioning of Union. The two treaties will not have a constitutional nature, and any reference to the word constitution and other elements that may evoke the idea of a state or a European federation will be removed. The Treaty of Lisbon (EU Reform Treaty), entered into force on December 1, 2009, changes considerably the provisions on Common Foreign and Security Policy (CFSP) and on the Common Security and Defense Policy (PSAC) mentioned in the previous treaties. Thus, the new Title V of the Treaty, the one regarding foreign policy, begins with a chapter concerning general provisions on EU external action. The choice to insert these general provisions in an initial chapter, having the 237

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position of an overall framework for the following items, was dictated by the requirement to give more consistency to the foreign policy, security and defense sector. More substantial is the change of Article no. 11 of the Treaty on European Union. While the first paragraph of Article no. 11 reproduces almost entirely the old dispositions, the second explicitly emphasizes the features of Common Foreign and Security Policy, stressing that it is not accomplished by legislation but is subject to specific procedures, which will need a unanimous vote (2). It is also reaffirmed the lack of competence of the EU Court of Justice regarding the provisions in this sector, with the specific exceptions. The second part of the new Article no. 11, as other articles and statements on foreign policy and security policy which do not appear either in the EU Treaty and or in the Constitutional Treaty, tend to limit the potential development of foreign policy lore in a supranational sense, by not introdtcing explicit provisions restricting the jurisdiction of (CFSP). Some European countries, led by the United Kingdom, vanted to ensure that in his way some ambiguities are removed, ambiguities that leave room for interpretations about the so-called excessive powers of the EU on the Member States. Thus, in this direction takes place the following statement adopted by the Intergovernmental Conference and annexed to the Reform Treaty: “(...) the conference underlines that the provisions relating to (CFSP) including those relating to the High Representative for Foreign Affairs and Security Policy and Service External Action do not affect the legal basis, the responsibilities and the existing powers of each Member State in relation to the formtlation and conduct of its foreign policy, its national diplomatic service, relations with third countries and participation in international organizatinns including membership of a Member State to the United Nations Security Cotncil (...) the dispositions that discipline common security and defense and do not prejudice the specific character of security policy and defense of the Member Stater. " The emphasis placed on national charabter of the foreign policies of Member States which have their headquarters at the United Nations Security Council appears to be inconsistent with the current Article 19 of the Treaty on European Union according to which “The states which are members of the United Nations Security Council will secure the Union's positions and interests, except their responsibilities under the Charter of the United Nations”. If interpreted in a rigid manner, the above statement could ghve the European Union member countries which are also part of the Security Council the right to act autonomously thereby avoiding any obligation for reciprocal consultation, especially when there are issues on the agenda on which the EU has not developed a common position. At the same time, the prerogatives of the Member States in the Foreign and Security Policy sector are reaffirmed by indirect reference, but specific to one of the main institutional reforms introduced by the Reform Treaty, i.e. the European External Action Service, which, as it is emphasized in the declaration, should not damage the expertise of national diplomatic services. Finally, the same statement explicitly reaffirms that the new “rules on (CFSP), do not confer new powers to the Commission to propose decisions and to increase the role of Parliament”.

THE NEW INSITUTIONS PROPOSED BY THE REFORM TREATY FOR (CFSP) It is noted that the Reform Treaty takes three important institutional innovations already mentioned in the Constitutional Treaty, such as the stable Presidency of the European Council, the EU Foreign Minister, who is renamed the “High Representative of the Union for Foreign Affairs and Security Policy”, after Great Britain’s request and other countries’ and the European External Action Service. The stable European Council president, set to replace the semestrial President is elected by qualified majority voting for a period of two and a half years. He can be reelected only once. He therefore remains in that position for a total of five years.

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Among the main tasks of the European Council President is also the one to “ensure the Union's external representation in matters concerning the common foreign and security policy, except the powers of the Union Ministry of Foreign Affairs”. A stable Presidency of the European Council would notably contribute to greater continuity and coherence of the Common Foreign and Security Policy so that the European Council's agenda, as well as its implementation, would not experience negatively the semestrial rotation set according to the treaties in force until now. Also, the EU Council President would represent the EU at summits with third countries, providing them with a single interlocutor. It is clear that in many cases the leaders of third countries like the United States are keen to be put in contact first and foremost with their counterpart national leaders of EU countries rather than with the European Council President. However, with a stable European Council presidency, they will be able to call Europe directly, to paraphrase Kissinger's famous polemic phrase: “Who do I call if I want to call Europe?”. Obviously, much will depend on the ability of a leader that the Council President will demonstrate as well as the space provided by national capitals, especially London, Paris and Berlin. Another important institutional innovation mentioned by the Reform Treaty is the High Representative of the Union for Foreign Affairs and Security Policy who, in the Constitutional Treaty (Article I-28) is appointed as Minister of Foreign Affairs of the Union (3). The new name, harmless and less ambitious, has been requested by several Member States, led by Britain. The Constitutional Treaty changed its name but not its content. The High Representative of the Union for Foreign Affairs and Security Policy, which will gather roles, responsibilities and resources of the current High Reprdsentative (CFSP) and Commissioner for External Relations will be responsible for the leadership of the Common Foreign Security and Defense policy of the Union and contribute, with his proposals on its implementation as a representative of the Council. In addition, will chair the Council for “External Relations”, composed of foreign ministers of member countries, and will be one of the Vice Presidents of the Commission. Among his duties are included the coordination of policies and enforcement of existing EU bodies, policy initiatives, crisis management and external representathon. The High Representative is appointed by the European Council by majority of votes with the agreement of the President of the Commission. Examining the articles concerning the powers of the High Representative more closely, we can notice that the new institution is set up more like a personal union, the so-called “double hat” which does not invalidate the procedure differences between the two pillars, Community and intergovernmental, of the EU external action but, more modestly, gives the power to a single person. However, bringing together the two roles in a single figure should ensure greater coherence and link between the Council and Commission. Among the Commission, the High Representative is responsible for coordinating various aspects of EU external action distributed among different Commissioners, a task which today is for the Commissioner for External Relations. The High Representative will have the role to oversee and coordinate (CFSP), and also may carry an important role in promoting convergence of positions between the Member States. Thus, it will be the task of the High Representative, together with the Council, to operate so that Member States comply with the principles of loyalty and cooperation which should inspire their conduct. Also, if a member of the Council declares their intention to oppose a decision which requires a qualified majority, the High Representative, in close consultation with the country concerned, will have the task of seeking a solution acbeptable for the latter as well. In addition to that, Article 19 of the new Reform Treaty provides that the High Representative can submit the EU Common Position on issues in the agenda of the UN Security Council if required by the countries that have a permanent or temporary chair hn the Security Council. Although this new provision is an advance over the current situation, however, we need to consider that the statement on (CFSP) could weaken the ties of solidarity between EU countries among the Security Council. The High Representative will also have the power of initiative in (CFSP) sectors, both individually and with the support of the Commission. Also, the Council may vote by majority a

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proposal of the High Representative, provided that it has been submitted following the specific request of the European Council. With the establishment of new High Representative other institutional changes will be made, whose implications are not entirely clear. For example, it has not been defined yet the distribution of powers between the Council of Foreign Relations, which will be removed from the current Council of General Affairs and External Relations, and will be chaired by the High Representative from the country holding the Presidency. Also, it has not been decided yet who will ch`ir the Political and Security Committee, the body which has the task of monitoring the international situation, formulating opinions for the Council and exercising political control and strategic direction for the peace operations of the Union. The second major institutional innovation brought by the Reform Treaty on Article 13a is the creation of the European External Action Service, (4) with the provision that the High Representative would use it in carrying out his functions. This new common instrument of foreign policy does not replace national diplomatic servicer. It will be composed of officials of the Council, Commission and staff sent by the national diplomatic services. The Reform Treaty leaves deliberately unclear the organization and functioning of the European External Action Service, which will be established by a Council decision on a proposal from the High Representative, with prior consultation of the European Parliament and the Commission's prior approval.

THE INNOVATIONS BROUGHT BY THE REFORM TREATY UNDER THE COMMON SECURITY AND DEFENSE POLICY The Common Security and Defense Policy (CSDP), which continues to be located in the context of (CFSP), records a series of improvements compared to the existing Treaty provisions, particularly as regards mutual collective defense clauses, the new formulas for flexible integration and the establishment of the European Defense Agency. Above all, it brought a mutual defense clause for all EU countries: “If a Member State suffers an armed attack on its territory, the other Member States must offer it aid and assistance by all means at their disposal” in accordance with Article no. 51 of the UN Charter. Further on it is mentioned the fact that “it does not prejudice the specific character of security and defense policy of certain Member States”, underlining at the same time the impact of this provision on neutral states that do not belong to any military alliance following that “commitments and cooperation in this sector will comply with commitments under the North Atlantic Treaty Organization which remains for its Member States, the foundation of their collective defense”. The mention regarding NATO countries and neutral countries has been introduced since the original text of the Convention, which did not mention that, had led to the fear of a risk of separation between the two sides of the North Atlantic on the one hand, and the reconsideration of the status of the other neutral countries on the other hand. Also, the Reform Treaty includes a new clause of solidarity (5) against terrorism and disasters, already referred to by the Constitutional Treaty, under which “the EU and Member States work together in a spirit of solidarity when a Member State is subject to a terrorist attack or it is the victim of natural disasters or provoked by people”. This clause, which requires mobilization of the Uninn of all the instruments at its disposal, including military resources made available by Member States, has not generated significant controversy, as it applies on the territory of the Member State concerned. It cannot be invoked for anti-terrorism actions outside the EU, such as in Afghanistan. Following the terrorist attack in Madrid on March 11, 2004, the European Council already approved a declaration incorporating allost literally the text of the solidarity clause on terrorism. Another example of a provision of the Constitutional Treaty also provided for in the new Reform Treaty which has already been applied, or better said “anticipated” is the one on the European Defense Agency. The Agency was formed on July 12, 2004. Thus, the Agency deals with 240

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promoting measures, helping to identify and, where appropriate, in carrying out any useful measure for solidification of industrial and technological base in the defense sector, contributing to the definition of an autonomous European armaments policy and assisting the Council in assessing improvement of military capabilities. Fully resuming the rules of the Constitutional Treaty, the Reform Treaty innovates significantly the provisions on enhanced cooperation, through which a group of countries may, under certain conditions, develop a closer integration between them in some policy areas. Article no. 10 of the Reform Treaty, which redefines reinforced cooperation, does not provide this limitation. Therefore, on the basis of the Reform Treaty, reinforced cooperation can be achieved in principle in the (CFSP) and (PSAC) sectors as well, but with specific procedures. Regarding the defense sector, the Reform Treaty establishes that Member States that meet certain criteria regarding their military capabilities and wish to enter into commitments on the issue may constitute between some forms of enhanced cooperation, called “permanent structured cooperation” (6) These criteria which were mentioned in a special protocol in order to ensure transparency and equal conditions for all Member States are: acquisition of high military operational capabilities through “packages” of national and multinational forces; contribution to the development of joint or European programs of great capacity equipment within the Defense Agency, including achieving goals consistent with the level of expenditure for investment in defense equipment. The procedures for the start of cooperation and their opening for new members have been simplified and made more accesrible to all Member States. Regarding the number of participants in the permanent structured cooperation has not been set any threshold, unlike reinforced cooperation, which in turn required the participation of at least one third of Member States. Also, all decisions on Member States admitted to permanent structured cooperation shall be taken by absolute majority vote, in derogation of thd general principle that requires the use of the unanimity of security and defense sector. Permanent structured cooperation is generally aimed to increase flexibility in a sector where more than in others, differences in capacity, but also the decision to use them, are particularly marked. Structured coopdration is considering two other objectives: improving the military capabilities by precise operating parameters and commonly agreed policy stimuli; identification of the countries that have the capacity to participate in future military operations under EU auspices In this sense, the Reform Treaty contains a specific provision that allows the Council to entrust a group of Member States who so wish and have the capabilities necessary to conduct a mission on behalf of the European Union. This form of flexibility has also been already adopted by the EU for the first crisis management missions. Finally, in terms of missions, the Reform Treaty states and enhances the so-called Petersberg missions (7) in order to also include the missions performed in support of third countries in combating terrorism.

CONCLUSIONS After a long stagnation period of two years, the EU has finally re-launched the reform treaty process. The Reform Treaty established by the Intergovernmental conference and entered into force on December 1, 2009 is characterized by a substantial re-proposal of the innovations contained in the Constitutional Treaty, even if it provides that any “constitutional” item should be removed. Regarding the sector of foreign policy, security and defense, almost all the reforms already mentioned in the Constitutional Treaty are also in the Reform Treaty. The improvement regarding the current legal framework is evident. Although the Constitutional Treaty was rejected, many of its major innovations have been saved. The establishment of a High Representative for Common Foreign Affairs and Security Policy will have to meet the role and powers of the High Representative for (CFSP) and should give impetus and greater coherence to EU foreign policy.

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Similarly, the European External Action Service should be an effective tool (CFSP), allowing activation of important synergies between the activities it currently carries, often without coordination between them, the EU Council Secretariat, Commission delegations and embassies of member countries. Defense sector as well, which grew up outside the treaties, is now substantially driven by a series of important reforms that ensure stronger cohesion of the European Union (clauses of collective defense and security), a higher efficiency (European Defense Agency) and increased flexibility (permanent structured cooperation). This should allow states that whsh to quickly advance towards integration to be able to do that, following specific dispositions. However, one has to consider that, under the pressure of countries led by Britain, it was reaffirmed, if only through a statement on this, the role of national states in the centralization of foreign policy. At the end of our scientific approach, it is necessary to emphasize that the unquestionable progress nf the new Reform Treaty in the areas of foreign policy, security and defense, should allow the Union to pursue a more coherent and effective role on the international stage, aligned to the progress achieved in recent years to ddvelop a strategic lines (European Safety Strategy) and with increasing employment, quantitative and qualitative Union peacekeeping operations in the Balkans, the Middle East, Africa and Asia.

NOTES: (1) Ion Jinca, Lisbon Treaty: Solution, or Stage in the EU institutional reform?, Rom`nian Journal of Community Law no. 1 / 2008, p. 16. (2) Ion M. Anghel, Foreign, Security and Defense Policy of the EU Lisbon Treaty, Romanian Journ`l of Community Law no. 4 / 2009, p. 25. (3) Ştefan Deaconu, European Union after the Lisbon Reform Trdaty, Romanian Journal of Community Law no. 4 / 2009, p. 69. (4) Ion Jinca, European Union in Search of the Future. European Studies, C.H. Beck Publishing House, Bucharest, 2008, p. 20. (5) Diana Traşcu, Marcela Monica Stoica, the Treaty of Lisbon: the Necessary Engine Required for the Proper Functioning of the EU, Romanian Community Law Review, no. 2 / 2008, p. 112. (6) Anamaria Groza, European Union. Institutional Law, C.H. Beck Publishing House, Bucharest, 2008, p. 72. (7) Petersberg missions, originally designed in the Western European Union, have been introduced in the European treaties, because the European Union has acquired its own defense policy and is capable of performing these tasks independently. Thus, the Petersberg missions include humanitarian and relief missions, peacekeeping and combat crisis missions, including the missions aimed at restoring peace.

BIBLIOGRAPHY 1. Ion M. Anghel, Foreign, Security and Defense Policy of the EU Lisbon Treaty, Romanian Journal of Community Law no. 4 . 2009 2. Ştefan Deaconu, The European Union after the Lisbon Reform Treaty, Romanian Journal of Community Law no. 4 / 2009 3. Anamaria Groza, European Union. Institutional Law, C.H. Beck Publishing House, Bucharest, 2008 4. Ion Jinca, European Union in Search of the Future, European Studies, C.H. Beck Publishing House, Bucharest, 2008 5. Ion Jinca, Lisbon Treaty: Solution, or Stage in the DU institutional reform?, Romanian Journal of Community Law no. 1 / 2008 6. Tudorel Ştefan, Beatribe Andreşan –Grigoriu, The European Union Treaties, Hamangiu Publishing House, Bucharest, 2007 7. Diana Traşcu, Marcela Monica Stoica, The Treaty of Lisbon: the Necesrary Engine Required for the Proper Functioning of the EU, Romanian Community Law Review, no. 2 / 2008 8. *** The Lisbon Treaty 242

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CHANGES IN THE STRUCTURE OF ROMANIAN LOCAL BUDGETS Lecturer Ph.D. Student Cristinel ICHIM “Ştefan cel Mare” University of Suceava, Romania [email protected]

Abstract The basic component of local public finances is the local budget, defined as the document through which annual revenue and expenditure of administrative-territorial units are provided and approved. By means of local budgets, the activity of local public finances is designed and operated, local public budgets being tools for forecasting, programming, implementing and monitoring the results of the execution of financial resources of local communities and their distribution and use through local public expenditure—in short, local budgets reflect the work regarding local public finances of the territorial-administrative units. In the structure of local budgets profound qualitative and quantitative changes have been made, oriented towards determining a substantial increase in real incomes of local budgets and on this basis to ensure the genuine financial autonomy of local public administration. Romania has made important steps in the financial decentralization field, but the implementation of this policy has encountered many problems. Keywords: local budget, changes, local public finances, public expenditure, government revenue, local autonomy JEL Classification: H 72, H 83

INTRODUCTION The aim of this paper is to underline the place and role of local budgets in the public finances in Romania, to clarify the concept of local budget and to explain the changes this economic category acquired during the revolution which has changed Romanians’ life until now. There are three stages: - Period 1991 - 1998 which is characterized by the initiation of major changes in the structure and financing of local government, which included the introduction of the new system of local taxes; - Period 1998 – 2000, during which, based on the new legislation regarding local public finances, the financial and budget management applied in the previous years by local authorities was fundamentally modified; - The period after 2001 until now which is characterized by the adoption of a comprehensive package of laws on civil service, decentralization of public services, local public finances, the fight against corruption and the establishment of new institutions which would prepare and implement reforms.

THE PLACE OF LOCAL BUDGETS WITHIN THE LOCAL PUBLIC FINANCES The special place and role local public finances have in a country's economy has been confirmed over time, by economic realities, as they are the basis and catalyst for community development and local autonomy. Democracy and autonomy, public finance and social-economic development at local level, these are the concepts that should be inseparable at the beginning of the millennium. Local finances are only one aspect of local public administration and any debate on these issues must be placed in the context of a broader assessment of the adequacy and functionality of the institutional framework taken as a whole. In the procurement and distribution of resources needed by local administrative bodies to fulfill their functions and tasks, certain economic relations in connection with the distribution of part of the gross domestic product by administrative bodies among different social groups are born. These relations, arising in the process of mobilizing and allocating resources to local government bodies, in the form of cash, are financial relations which are called local public finances. 243

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In all socio-economic situations that they existed in, local government finances have reflected the economic, political and social conditions, within which the process of formation and distribution of financial funds has been completed. The evolution of local public finances is closely linked to that of local autonomy, which implies, in turn, the existence of local financial independence. The exercise of local autonomy is also achieved in the financial field, but with specific features and with conditioning issues connected with this field. Local public finances have the role of focusing and allocating resources, i.e. the funds necessary to carry out socio-economic activity locally. Local financial autonomy is also guarantee for real local autonomy, the fulfillment of social needs of communities being possible in accordance with local conditions. Local public finances are individualized in the public finances by a degree of complexity because of the administrative-territorial units of a country, their level of socio-economic development, local peculiarities. Local public finance (1) play an important role within the public finances due to the complexity and diversity of social-cultural and economic activities, and public services that take place within the territorial administrative units and local authorities increasing responsibility in providing public services. Local public finances reflect economic relations through which cash resources are constituted and used within territorial-administrative units, without direct and immediate counteraction in order to meet several social and cultural, economic and public requirements and in order for the local public administration authorities to provide public services. In the sphere of local public finances, also fall local budgets, local public institutions’ finances and other financial resources mobilized and used by local public administration authorities.

THE CONCEPT OF LOCAL BUDGETS The main part of local public finances is represented by the local budget, defined by law (2) as the document through which are set and approved each year revenue and expenditure of administrative-territorial units. In the field literature (3), local budget is defined as being the program through which are provided and approved annual revenue and expenditure of administrative-territorial units destined for the fulfillment of administrative tasks of local communities and for the fulfillment of the local public’s needs, a program which is adopted by the decision of the local public administration authorities. They are prepared by territorial administrative units in terms of autonomy and are tools for planning and management of their financial activity (4). Local budgets ensure the management of expenditure within revenue, foundation of financial resources, encouragement of local initiative, assertion of local autonomy and control (5) on the use local funds. The local budget is the main instrument of local authorities in the selection of funding priorities in relation to socio-economic development strategies of municipalities. Substantiation of priorities and options for social, cultural, and economic activities, public services to be financed from local budgets as well as the necessary measures in order to collect revenue are accomplished in the development and adoption of local budgets. Local budgets are instruments that assure the decisional autonomy of local authorities, the efficient exploitation of local resources and improvement of local funds. Local budgets are also a separate and autonomous component in the consolidated budget, which is also connected with the state's central government budget. Through the local public administration budgets a relationship is determined between public revenue, represented mainly by the local taxes, and social needs, seeking to avoid injustice in the distribution of tax tasks on members of local communities while meeting their social needs, establishing a balance between collective needs and the means with which to cover. A well-structured local budget should provide the local organs of power and administration with an accurate picture of the relationship between the value of tangible and intangible assets necessary to local communities and the value of efforts to be made to achieve them. Through local budgets is designed and operated the activity regarding local public administration finance, local government budgets being regarded as tools for forecasting, 244

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programming, implementing and monitoring the results of executing the financial resources of local communities and how their distribution and use by local public expenditure—in short, local budgets reflect the work regarding local public finance of territorial-administrative units. Local budget can be interpreted in the following ways: - as a document – representing the program by means of which local authority provides for time periods the size and structure of public revenue and expenditure of the administrative territorial unit; - as a law—representing the legal document by means of which are mentioned and then approved through local normative documents the revenues and expenses for a specified period of territorial administrative units or local public institutions subordinated locally; - as a system of financial flows, local public finances being expressed through the local budget, the former representing the financial flows regarding the formation of public money resources of local administration and financial flows that are released in the management of these resources; - as a fiscal policy instrument of local administration, through local budgets being established the revenues, based on historical, economical, political, social and financial options, a fact that reflects the fiscal policy of local legislative and executive power, highlighting the role of taxes at economic and social level in the community. Strategy, planning and content of a public administration is reflected in its budget. The budget is often considered an operational plan, being used to plan and guide an administrative unit in the next fiscal year and serves as the basis for financial reporting to the local council. In the process of preparing the local budget, the authorized officers have a responsibility to make money, to allocate resources and monitor the current public activities of the local administration. The budget includes activities, projects and planned services, the estimation of available resources or revenues and the necessary public expenditure used to finance planned activities. In order for the budgeting to be an efficient process it is necessary to take into account the significance of numbers and to also recognize this annual process as an opportunity: - to evaluate local government services and facilities offered by them, - to establish priorities, - to consider possible changes, - to plan services and future needs, - to review and amend the income sources of the local budget. Community budget is important, and how the allocation of limited resources for various services provided by local administration is a government strategy statement. Local budgets are prepared in a restrictive financial environment, the needs always exceeding the available funds. (When a project receives funding, the latter is rejected to another project). Thus, the amount of funds spent on a project is measured not only by the benefits obtained, but also by means of the projects rejected in its favor. Budgeting means to choose between alternative projects. The significance of the local budget has extended as the local government has been often put in a position to increase resources and improve management efficiency and accountability. Policy makers and citizens need accurate and relevant information on local government policies, current activities, projects and expenditures. To answer these problems, the local legislature and executive must understand the specific needs of the community and the role that fiscal decisions have in serving them.

CHANGES IN THE STRUCTURE OF LOCAL BUDGETS During recent years the structure of local budgets has undergone profound qualitative and quantitative changes oriented to cause a substantial increase in real incomes of local budgets and on this basis to ensure genuine financial autonomy for local public administration. Romania has made

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important steps towards financial decentralization, but the implementation of this policy has encountered many problems. In this respect, in post-December period can be identified three stages: 1. Period 1991 to 1998 is characterized by the fact that there were initiated major changes in the structure and financing of local public administration, which included the introduction of the new system of local taxes. There is an increasing of the local budgets determined on one hand by inflation present in this period but also by the transfer to local government authorities of new areas for funding new (health, state pre-university education: material costs, personnel costs, inventory items, cultural institutions, water supply and paving of villages, roads, child protection, local airports, plant protection, payment of those accompanying persons with disabilities, the minimum guaranteed income, religious cults, dairy and bakery products for students, development programs, home heating aid, the rights of persons with disabilities). In 1995, for example, after approval of Law no. 27/1994 regarding local taxes, local budgets grew by 53% significantly above inflation. In 1996-1997 an increase in RON is to be noticed, but also a recorded decrease in foreign exchange, which means that local budgets fell in real prices. 2. Period 1998 - 2000 during which, on the basis of the new legislation on local government finance (6), has fundamentally changed the financial and budget management used in previous years by local authorities, increasing local financial autonomy and decision making of local councils and their responsibility both to establish, control, track and collect local taxes and in revenue management, planning and establishing spending priorities in concordance with the interests of local communities they represent. During this period the decentralization process of expenditures from the state budget to local budgets intensified, ensuring at the same time the necessary financial resources to finance them. These mutations not only increased the share of GDP for local budgets, but the corresponding proportion of local expenditure from the total public expenditure. Thus, between 1998 and 2001, the percentage of GDP increased from 3.6% to 6.5% and local spending increased from 14.4% to 26.6%. 3. Period since 2001 until now which is characterized by the adoption of a comprehensive package of laws on civil service, decentralization of public services, local government finances, the fight against corruption and establishment of new institutions to prepare and implement reforms. Thus, some new legal provisions have strengthened control of central authorities on local government functions, while others acted towards decentralization, such as Local Public Administration Law no. 215/2001. In July 2003, was adopted the new regulation act regarding public finances namely Emergency Ordinance no. 45/2003, and in 2004 entered into force Law no. 571/2003 regarding the Fiscal Code (7). Following the introduction of flat tax for physical persons of 16%, the percentage of the income tax rate applied individually which is allocated to local public administration increased in 2005. In 2006, was adopted Law no. 273/2006 (8) on local public finance with effect from January 1, 2007 which brought some new provisions regarding local budgets.

Table no. 1 Evolution transfers of funds from central to local budgets (million lei) Year Revenue of the state budget Transfers from the state budget to the local budgets Percentage of transfers from the state budget to the local budgets (%)

2002 17920,6

2003 25244,7

2004 32195,4

2005 36599,5

2006 40698,1

2007 48984,6

2008 61151

7096,0

9374,3

11909,8

14667,1

22089,3

25653,1

32876,3

39,59

37,13

36,99

40,07

54,27

52,36

53,76

Source: Romanian Statistical Yearbook 2003-2009

The size of local budgets determines the possibility of calculating local spending and at the same time reflects the degree of autonomy through the relation that occurs between own revenue, transfers of state funds to balance local budgets and loans. The higher the share of own revenues in 246

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total local revenue sources is, the more the administrative-territorial unit is free to spend as much as they consider necessary in order to cover public needs, which translates into a bigger financial autonomy. The degree of financial autonomy at local level can also be noticed from the analysis of the amount of local revenue in the form of transfers of state funds in the total state budget revenues. The transfers of funds from central to local budgets from the state budget has recorded large increases over the years, from 39,59% in 2002 to 53.76 in 2008 which proves on one hand that the local public administrations were assigned with new tasks and on the other hand the degree of financial autonomy of local communities is low. The transfers of funds from central to local budgets represent a significant percentage of the total income sources of local budgets of about 70%, which demonstrates the reduced financial capacity of administrative-territorial units because of their low incomes (about 25% - 30%) which translates into the impossibility of self-managing and implementing of local autonomy in the true sense. The introduction of a flat personal income tax of 16% in 2005 leads to changes in the income of local budgets from transfer of state funds, mainly from income tax deducted from declared income. Reducing the rate of tax of the physical persons’ income and maintaining the same percentage rates of the income tax deducted from the declared income in administrativeterritorial units, the latter would have recorded smaller amounts, which determined the Government to increase the share split from the taxes starting with the taxes owed for the month of February 2005, i.e. municipalities, cities and municipalities will have 47% of income tax charged, instead of 36% of their budgets; the county budgets will retain 13% of collected income tax compared to 10%; the balancing rate of local budgets increased from 17% to 22%. Although they rely on the principle of autonomy and decentralization of public services, administrative-territorial units are still very dependent on fund transfers from the state. Expenditure of local public administration too has undergone important changes following the implementation of reforms. Spending on education represents a significant percentage of total budget expenditures of local government in Romania starting with 2001, when, in the process of decentralization, these expenses were covered in a higher percentage by the local budget. Major fluctuations also recorded the costs of services and public development, housing, environment and water and costs of economic activities. Making a comparison between the level of received income and the level of expenditure made from local budgets we can conclude that the implementation of local budgets in Romania was not professional because we have a surplus both in 2002 (54 million lei) and in subsequent years: 225,4 million lei in 2003, 415,1 million in 2004, 703,9 million lei in 2005, 2315,8 million lei in 2006, 2822,9 million lei in 2007 and 1418,4 billion lei in 2008. Not only that we have a surplus but that increased significantly from year to year which means that either the foundation of budget indicators was not done properly when developing local budgets or the money which had been distributed to local budgets in form of shares broken down from some of the state income or as grants could not be spent.

Table no. 2 Local public budgets in Romania in 2000-2006 (million lei) Year Total local public expenditure Total local public revenue Surplus (+) / Deficit (-)

2002 9268.8

2003 12852.7

2004 15540.7

2005 18777.0

2006 25392.8

2007 33982,3

2008 42210.2

9322.8

13078.1

15955.8

19490.9

27708.6

36805,2

43629,1

54

225.4

415.1

703.9

2315.8

2822.9

1418,4

Source: Romanian Statistical Yearbook 2003-2009

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CONCLUSIONS In conclusion we can say that the significance of the local budget has expanded as the local administration has been increasingly in a position to increase resources and improve management efficiency and accountability. Thus the structure of local budgets has undergone profound changes oriented to generate a substantial increase in real incomes of local budgets and on this basis to ensure genuine financial autonomy for local public administration. Researching the evolution of local budgets results that the size of local budgets revenue determines the possibility of making public expenditures and at the same time reflects the degree of autonomy by the relation that appears between own revenue, transfers of state funds to balance local budgets and loans. The higher the share of own revenues in total local revenue sources is, the more the administrativeterritorial unit is free to spend as much as they consider necessary in order to cover public needs, which translates into a bigger financial autonomy. The degree of financial autonomy at local level can also be noticed from the analysis of the amount of local revenue in the form of transfers of state funds in the total state budget revenues.

ENDNOTES: (1) Gheorge M. Voinea, Local Finance, Junimea Publishing House, Iasi, 2002, p. 42 (2) Law no. 273/2006 on local public finance, article 2, section 7 (3) Cristina Onet, Public Finance Law, the general part, Lumina Lex Publishing House, Bucharest, 2005, p. 102 (4) Gabriel Popeangă, Local Public Finance Management, Expert Publishing House, Bucharest, 2002. p.111 (5) Gheorge M. Voinea, op. cit, p. 44 (6 )Law no. 189/1998 of local public finances (7) Published in the Official Monitor, no. 927 of December 23, 2003 (8) Published in the Official Monitor, no. 618 of July 18, 2006

BIBLIOGRAPHY 1. Onet Cristina, Public Finance Law, the general part, Lumina Lex Publishing House, Bucharest, 2005. 2. Popeangă Gabriel, Local Public Finance Management, Expert Publishing House, Bucharest, 2002. 3. Voinea Gheorghe, Local Finance, Junimea Publishing house, Iaşi, 2002. 4. *** Law nr. 500/2002 of the public finance, published in the Official Monitor nr. 597 from 13 August 2002 5. *** Law nr. 571/2003 regarding the Fiscal Code with the ulterior modifications, published in the Official Monitor, nr. 927 from 23 December 2003 6. ***Law nr. 273/2007 of the local public finance published in the Official Monitor nr. 618 from 18 July 2006 with the ulterior modifications

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EVALUATION MODEL OF THE REAL CONVERGENCE OF THE CENTRAL AND EAST EUROPEAN STATES IN RELATION TO EMU Lecturer Ph.D. Vasile-Liviu ICHIM “Stefan Lupascu” Institute of European Studies - Iasi, Romania [email protected]

Abstract: The accomplishment on short term of the nominal convergence criteria does not represent a guarantee for the fact that the single currency adoption will ensure the EMU performance. Analyzing the GDP/capita, the economic opening degree, weight of the bilateral trade with the community states as part of the foreign trade and the national economy structure, we observe that among the Central and Est European states, now EU members, Latvia, Poland, Lithuania, Bulgaria and Romania are characterized by a low real convergence in comparison to the Eurozone. The increase of the international competitiveness is essential for the economies of these states, and EMU does not favor this action because, inside a monetary union, the macro-economic policy is more restrictive. Romania, Lithuania and Bulgaria appear to be disadvantaged by the perspective of single European currency adoption because the trade connections with the Community states are less intense – their intra-community trade does not exceed 2/3 of the total foreign trade – and at the same time are significantly different from the Eurozone economic structure. Therefore, in this case, the adhesion to the Euro must be postponed for a long period of time that will allow both intensification of trade connections with other EU member states, and also the structural transformation of national economies. Taking into account de analyzed indicators, entrance of Poland in Eurozone is first conditioned by improvement of the economic performances and for these is necessary to preserve the monetary and foreign currency policies interdependence. Keywords: EU/Eurozone, optimum currency areas, monetary policy, real convergence, asymmetric shocks. JEL Classification: F36, F41

INTRODUCTION The functioning of a monetary union is based solely on ensuring the nominal convergence of economies in the member states as assumption for efficient application of a common monetary policy. On the other hand, on a long term, the nominal convergence can be supported only if the real convergence exists and is secured, while the nominal economy mirrors the real economic situation. As a result, by fulfillment of the Maastricht criteria in a short period of time is not enough to guarantee that the adoption of the single currency will surely lead to achievement of three important economic objectives by the states that possess a low degree of real convergence, objectives that define an optimum currency area: full employment of the labor force, price stability and balance of the payment statement. Out of these reasons and in order to value more the opportunity of European single currency adoption by the ex-communist states, it is necessary to determine the real convergence degree of their economies in comparison to Eurozone.

1. INFORMAL CRITERIA FOR EUROZONE ADHESION Theoretically is necessary to fulfill three conditions in order to accede to EMU. First, there must be fulfilled the criteria that ensure the nominal convergence known also under the name of "Maastricht criteria". Second, it's compulsory to achieve legal convergence and this implies that the national legislation is compatible with the provisions of the treaty regarding the EMU. Third, it will be taken into account a series of other elements, namely "development of Euro", results of the market integration, situation and progress of the current payment statements and also a progress examination for the unitary salary expenses and some price indices", according to Article 121(1) of the Treaty on European Community.

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As concerning the real convergence, there is not imposed any rule and there are not mentioned references in any juridical effects generating document of ECB or European Commission. The Maastricht Treaty indirectly mentions that the economic and social cohesion is necessary in order to eliminate the disparities among states and regions. The real cohesion can be appraised function of income level measured by GDP/capita, by the degree of the economic opening, by the weight of the bilateral trade performed with the Community countries as part of the amount of exterior trade and by the national economy structure (these elements being included in the informal criteria for adhesion). The opportunity for Eurozone adhesion and establishing the moment when the adoption of the single European currency is benefic for the national economy require a complex analysis that must be related to the prioritary economic-social objectives, analysis that would give answers to the following questions: • Adoption of the single European currency by the ex-communist states is enough to favor the growth in the competiveness concerning the economies of these states and reduction of the development gaps against the Eurozone? • For this to happen, must there be fulfilled ex ante a series of conditions? • How important is the real convergence in comparison to the nominal one from EMU extension point of view? • How accentuated are the economic development disparities and how can we measure the real convergence? In this purpose and using the four informal adhesion criteria we will perform an evaluation at level of year 2006 of the real convergence in the Central and East European states - Bulgaria, Czech Republic, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and Hungary - in relation to EMU. We also included in this analysis Slovenia and Slovakia, even though these states joined the Eurozone on 1st of January 2007 and 1st of January 2009, respectively, in order to estimate the relevance of the obtained result. By comparing the obtained results for each state from the four indicators of the real convergence, we will build an aggregated index that will measure the opportunity for adoption of the single European currency by each of the above-mentioned ten states. The work methodology proposed is as follows: as we will analyze the currency optimum criteria, we will grant to these states points from 1 to 10 and, in the end, the smallest score will indicate the most suitable state for adoption of single European currency, and the greatest score will allow identification of the state with the smallest degree of currency optimum in relation to EMU (including 12 states).

2. EVALUATION OF THE REAL CONVERGENCE OF THE CENTRAL AND EAST EUROPEAN STATES GDP/capita can be considered as the indicator underlining in the best way the differences of economic and social development appearing in these states due to the fact that it represents a summation of several factors, as for example: the structure of the national economy, different productivities registered in various fields of economy, technological degree, distribution of the employed population in the economic fields or overflow of the production factors. This offers a general image of the work productivity measured at macro-economic level, of the population purchasing power, and, at the same time, underlines the competitiveness of the national economy. According to this indicator, among the ten analyzed states (Table 1), the ones with best performances in 2006 were Slovenia and Czech Republic with a GDP/capita of 80.62% and 72.09%, respectively, at level of Eurozone, while in the rest of the states the purchasing power is smaller than 60% from the level registered in EMU, the smallest values being registered in Bulgaria (33.72%), Romania (34.11%) and Poland (48.06%). In comparison to 2005, the smallest growth rhythms for this indicator were registered in Romania (1.71%), Poland (1.26%), and Hungary (2.10%), and the greatest in Estonia (8.03%), Latvia (6.78%) and Slovakia (6.15%).

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Table 1. GDP/capita in the ex-communist states and Eurozone for 2006 GDP/capita

State PPS

Points %

Slovenia

20,800

80.62

1

Czech Republic

18,600

72.09

2

Estonia

15,900

61.63

3

Hungary

15,300

59.30

4

Slovakia

14,900

57.75

5

Lithuania

13,500

52.33

6

Latvia

13,100

50.78

7

Poland

12,400

48.06

8

Romania

8,800

34.11

9

Bulgaria

8,700

33.72

10

100

–

Eurozone

25,800 Source: processed acc. to Eurostat, 2008

Therefore, we ascertain that the reduction in the development differences is slower in the poor states as Romania and Poland, that are the largest states from the analyzed group, and this can be as a result of the extended structural changes that these states' economies must go through and this calls for an important investing process and a huge and long term financial effort. The degree of economic opening is computed as a proportion of the amount of goods and service imports and exports, and GDP, and the relevance of this indicator is given by the fact that according to optimum currency areas theory, the more an economy is open the more appropriate is to adhere to a monetary union, because the policy of national currency depreciation in the purpose of exportation stimulation is not enough, the exports including an important volume of imports. This point of view was decisive in the development of European Union when it was discussed the problem concerning the adoption of a single currency under condition that a single market already exists (European Commission 1990). This indicator was considered by Ronald I. McKinnon as an important criterium that must be used when it is decided the creation of a monetary union (McKinnon, 1963), producing an answer for the challenge launched by Robert Mundell by means of the theory of optimum currency areas (Mundell, 1961). McKinnon supports the necessity of adopting a single currency by the states that register a high degree of economic opening. The data from Table 2 concerning year 2006, show that the ex-communist states have a high degree of economic opening, of over 100%, with exception of the largest states from the analyzed group: Romania, with an indicator value of about 78%, and Poland, with 82%, respectively. The highest values are registered in Slovakia (175%), Estonia (174%) and Hungary (154%). The place occupied by Poland and Romania acknowledges the hypothesis that says that the more extended a state is, more closed is its economy, as it happens in case of EU, Japan and United States that register values under 33%. Another criterion reflecting the real convergence and, at the same time, justifying the extension of the Eurozone, is the degree of trade integration of the ex-communist states in the Community trade (Table 3). As the trade exchanges among the member states of EU are more intense, the greater are the advantages of using a single currency, due to the disappearance of the currency risk and reduction of the cost generated by the currency exchange. At the same time, the trade integration implies also a better synchronization of the business cycles, and this reduces the risk of asymmetrical shock appearance that could impose taking different decisions as concerning the monetary policy.

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From this point of view, the most apropriate for adoption of the Euro currency are Czech Republic, Slovakia, Poland, Latvia and Hungary, while Romania, Lithuania and Bulgaria would register small advantages as a result of EMU adhesion.

Table 2. The degree of economic opening, in 2006 Export Import Degree of economic goods and services goods and services opening

State

% of GDP

% of GDP

Points

% of GDP

Slovakia

84.2

91

175.2

1

Estonia

83.2

90.7

173.9

2

Hungary

77.8

76.7

154.5

3

Czech Republic

76.3

71.9

148.2

4

Bulgaria

63.7

83.7

147.4

5

Slovenia

65.7

69

134.7

6

59

71.6

130.6

7

Latvia

43.3

68

111.3

8

Poland

40.2

42

82.2

9

78.3

10

Lithuania

Romania

33 45.3 Source: processed acc. to Eurostat, 2008

Table 3. Integration degree of the trade performed in the ex-communist states as part of EU trade in 2006 State

Weight of the intra-Community trade

Points

% of total external trade Czech Republic

83.06

1

Slovakia

81.03

2

Poland

75.78

3

Latvia

75.11

4

Hungary

74.63

5

Slovenia

73.25

6

Estonia

70.75

7

Romania

66.05

8

Lithuania

63.11

9

Bulgaria

60.95 Source: processed acc. to Eurostat 2007a, 2007b

10

The additional information concerning the real convergence and synchronization of the business cycles are offered by the national structure economies in comparison to the Eurozone (Table 4). Analyzing the contribution of the main activities to achievement of Gross Value Added (GVA) we observe that the states confronted with transition to the market economy have a different economic structure in comparison to EMU, which was achieved during administration by means of a central plan, and as a result of: forced industrialization, trade exchanges directed mostly towards communist state block, trailing of the economy and banking system under condition of lack of competition, bankruptcy institution and quasi-isolation from the occidental economies that promote the economic and social progress. 252

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The smallest deviations from the structure of the Eurozone are registered in Estonia, Latvia and Hungary, and the greatest deviations are seen in Lithuania, Czech Republic and Romania. In Czech Republic, Slovakia, Lithuania and Romania, the industry has a greater contribution to the GVA achievement than in EMU, while the agriculture occupies an important place in Romania, Bulgaria and Lithuania, states that out of these reasons are found on the last places of the established hierarchy based on the resemblance criterion as concerns economic structure. It can be observed that Romanian economy is farthest from the EMU economy having a contribution five time greater than the agriculture to GVA and a modest share of services: almost 56% against 71.6% registered by the Eurozone economy. The great contribution of agriculture to GVA achievement is not implicitly a negative aspect, but, both in Romania and also in Bulgaria, this situation is reached under conditions of low performance registered not only in agriculture, but also in industrial sectors. As a result, it is essential for these states to receive investments targeted to technology renewal in the purpose of economic performance development.

Table 4. Contribution of the main activities in achieving GVA in the ex-communist states in 2006 Agriculture,

Industry

Services Total hunting and fishing and construction Points % Deviations Deviations % % Deviations Deviations of GVA % of GVA % of GVA % % 3.2 1.4 29.1 2.5 67.7 3.9 7.8 1

State

Estonia Latvia

3.7

1.9

21.4

5.2

74.9

3.3

10.4

2

Hungary

4.3

2.5

30.7

4.1

65.0

6.6

13.2

3

Poland

4.4

2.6

31.7

5.1

63.9

7.7

15.4

4

Slovenia

2.5

0.7

34.1

7.5

63.4

8.2

16.4

5

Slovakia

4

2.2

35.0

8.4

61.0

10.6

21.2

6

Bulgaria

8.5

6.7

31.5

4.9

60.0

11.6

23.2

7

Lithuania

5.5

3.7

34.9

8.3

59.6

12.0

24.0

8

Czech Republic

2.9

1.1

38.3

11.7

58.8

12.8

25.6

9

Romania

9.6

7.8

34.5

7.9

55.9

15.7

31.4

10

Eurozone

1.8

0.0 26.6 0.0 71.6 Source: processed acc. to Eurostat 2008

0.0

0.0

-

Table 5. Opportunity level of adhesion to EMU of the ex-communist countries State

Degree of Trade Structural GDP/capita economic integration convergence opening Points

Points

Points

Points

Opportunity level of adhesion to EMU Total points

Ranking by opportunity level of adhesion to EMU of the ex-communist countries

Estonia

3

2

7

1

13

1

Slovakia

5

1

2

6

14

2

Hungary

4

3

5

3

15

3

Czech Republic

2

4

1

9

16

4

Slovenia

1

6

6

5

18

5

Latvia

7

8

4

2

21

6

Poland

8

9

3

4

24

7

Lithuania

6

7

9

8

30

8

Bulgaria

10

5

10

7

32

9

Romania

9

10

8

10

37

10

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Out of the comparing analysis and summing up the points assigned to these ten states for each indicator taken into account (Table 5) we ascertain that Estonia, Slovakia, Hungary, Czech Republic and Slovenia have a high degree of real convergence in comparison to Eurozone, while Romania, Bulgaria, Lithuania, Poland and Latvia register low levels of convergence. The importance of the obtained result is proven by the fact that Slovenia and Slovakia, presently members of EMU, are part of the states possessing a high real convergence. Also, we consider that the hierarchization of states according to the opportunity level for Eurozone adhesion, established based on the indicators of real convergence computed for 2006 will not suffer significant modifications on medium and long term because the macro-economical variables taken into account, generally register little modifications from one year to another.

CONCLUSIONS Starting from the assumption that a common monetary policy can be efficiently applied in a group of national economies characterized by a high level of real convergence that can support on long term the nominal convergence, we can estimate the adhesion opportunity of ex-communist states to Eurozone from analysis of the following indicators: GDP/capita, economic opening degree, weight of the bilateral trade with the community states as part of the total foreign trade and structure of the national economy. Such an analysis underlines two state groups, one - including Estonia, Slovakia, Czech Republic, Hungary and Slovenia – more close to EMU from the perspective of real economic characteristics and also able to pass to the single currency in a reasonable period of time (among these, Slovenia and Slovakia already adopted the Euro), and another - including Latvia, Poland, Lithuania, Bulgaria and Romania – characterized by a low real convergence against Eurozone. For the economies of the second group, increase of international competitiveness represents an essential feature, and Eurozone adhesion does not favor this fact because there are growing constraints actioning over the macro-economical policies. The macro-economical political decisions in these states must support the systemic transformation of national economies, to support the sparing process (by means of an appropriate fiscal policy and an efficient and reformed fiscal system), and also the investing system. Out of these reasons we believe that adhesion of Romania, Bulgaria, Lithuania and Poland to Eurozone should take place after minimum ten years from adhesion to EU, period of time necessary to reduce the development gaps.

REFERENCES 1. European Commission 1990. One Market, One Money, European Economy, 44: 178200. 2. Eurostat 2007a, External and intra-European Union trade, Monthly statistics Issue number 10, Eurostat Statistical Books. Available from Internet: . 3. Eurostat 2007b, EU economic data pocketbook, 1-2007. Available from Internet: . 4. Eurostat 2008, Europes in figures. Eurostat yearbook 2008. Available from Internet: . 5. McKinnon, R. I. 1963. Theory of Optimum Currency Area, American Economic Review, 4, September: 717-725. 6. Mundell, R. 1961. A Theory of Optimum Currency Areas, American Economic Review, 51: 657-665. 254

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DECENTRALISATION AND SUBSIDIARITY IN THE MANAGEMENT OF LOCAL PUBLIC ADMINISTRATION Lecturer Ph.D. Student Irina BILOUSEAC ,,Ştefan cel Mare” University of Suceava, Romania Faculty of Economics and Public Administration [email protected] Assistant Petronela ZAHARIA ,,Ştefan cel Mare” University of Suceava, Romania Faculty of Economics and Public Administration [email protected]

Abstract: Assuming the existence of a local collectivity which administers itself by the full exercise of the powers transferred to the process of decentralization, the application of the subsidiarity principle at local public administration level directs the allocation of responsibilities to the lowest level possible, i.e. nearest to the citizen. Considering the contents of this paper, we can say that decentralization is necessary in connection with the subsidiarity principle, whereby the state makes up and interferes only when the basic structures cannot ensure its effectiveness locally. Administration of community affairs must be done at the lowest level possible so that solutions are most appropriate and can be more easily adapted to the real interests of individuals from the sphere of the community. Keywords: local government, decentralization, subsidiarity, autonomy, local community, public service JEL Classification: H83 - Public Administration

INTRODUCTION Regarded as a structure of the system of social organization, public administration is organized and operates as a set of principles that enable successful completion of its tasks. In this regard, constituent legislature establishes the principles underlying the organization and functioning of local government, stating in Article 120, paragraph 1 that “public administration in territorialadministrative units is based on principles of decentralization, local autonomy, and deconcentration of public services”. We have to keep in mind that among the constitutional principles underlying the organization and local government officials is part of decentralization, viewed as a process of modernization of public administration, motivated by the need to define the role of state administration in relation to local government and powers to be delegated from central to local level. Besides the constitutional provisions, Local Government Law no. 215/2001 includes decentralization in the category of basic principles of local government, Article 2, paragraph 1 stating that “public administration in territorial-administrative units is organized and operates under the principles of decentralization, local autonomy, deconcentration of public services, the eligibility of local authorities, legality and consultation of citizens in solving local problems of special interest”. But for this process of decentralization to succeed and allow local authorities to solve the urgent problems arising at the administrative-territorial units level, it is guided by several principles, among which subsidiarity occupies a special place. The principle of subsidiarity results primarily from the interpretation of constitutional provisions covered both in Article 121, paragraph 1 according to which, “public administration authorities, through whom local autonomy in communes and towns is assured, are the local councils and mayors elected according to the law” and in Article 122, paragraph 1 which has it that “the county council is the public administration authority for coordinating the activity of communal and town councils in order to achieve the public services of county interest”. These provisions do nothing but to portray a projection of subsidiarity at the level of the authorities operating in the territorial-administrative units. The reflection of the principle of subsidiarity and can also be found 255

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in Article 7 of the Local Public Administration Law no. 215/2001 according to which “decentralization of powers to local government authorities is done by respecting the principles and rules of the framework law of decentralization. So, without explicitly enshrine the principle of subsidiarity, this legal text refers to the framework Decentralization Law no. 195/2006 listing the principles on which decentralization is based. According to Article 3 of Law no. 195/2006, these are: a) the principle of subsidiarity, which consists in the application of the skills of the local public administration authority located at the administrative level which is closest to the citizen and who has the necessary administrative capacity; b) the principle of ensuring adequate resources for transferable skills; c) the principle of responsability of local public authorities in relation to the attributions they have, which imposes an obligation to achieve quality standards in delivering public services and public utilities; d) the principle of insurance of a stable decentralization, predictable, based on objective criteria and rules that would not compel local authorities’ work or limit the financial local autonomy; e) the principle of fairness, which involves ensuring all citizens’ access to public services and public utilities; f) the principle of budgetary constraint, which prohibits the use by central public authorities of special transfers or subventions to cover the final deficit of local budgets. Therefore, we can notice that in the decentralization process development subsidiarity is positioned first, as a principle that guides the transfer of central government powers to local authorities.

CONCEPTUAL DETERMINATIONS OS DECENTRALISATION AND SUBSIDIARITY Prior to clarifying the content of each of these two fundamental principles in the organization and functioning of public administration in territorial-administrative units, we consider necessary some etymological considerations. Thus, the term decentralisation comes from the French word décentralisation, which evokes the idea of granting independence to local administrative bodies and to move to them some tasks which before were the state’s competence. On the other hand, the term subsidiarity comes from the Latin word subsidiarius, which means a supplementary or auxiliary action in support of an another key action, this principle resulting from the correlation between the following ideas: insurance of the authority of the central power from the lower levels of society and the duty of the upper levels bodies of society to help those at the lower levels and replace them if necessary. The legal definition of decentralization is amended by Article 2, point j of the Framework Law no. 195/2006 on decentralization, according to which it “consists in transfering administrative and financial powers from the central government to local government level or private sector. Starting from this definition, we can say that decentralization is achieved by widening the scope of duties and responsibilities of local authorities so that necessary measures and decisions will be taken more rapidly, more effectively addressing the priority needs local. As regards subsidiarity, as stated above, it is defined by Article 3 points, point a of Law no. 195/2006 as the guiding principle in the process of decentralization which “consists in the application of the competences of local government authority located at the administrative level which is closest to the citizen and who has the necessary administrative capacity”. In addition, although not explicitly qualified, we find the principle of subsidiarity stated in the European Charter of Local Autonomy, which in Article 4, paragraph 3 provides that “the exercise of public responsibilities should generally be the responsibility of those authorities which are closest to citizens. Allocation of responsibilities to another authority should take into account the extent and nature of the task as well as the requirements of efficiency and economy”. 256

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Formulated in this way, subsidiarity supports local democracy, exercising powers of of the basic level, “closest to the citizens”. In light of subsidiarity, the power to solve local public affairs is located at local collectivities level, the latter knowing themselves and their needs best, the intervention of other authorities being recognized only where local authorities cannot ensure effectiveness in carrying out their duties.

SUBSIDIARITY IN THE EUROPEAN UNION Article 4 of the European Charter: the autonomous exercise of the local power [1] establishes the principle of subsidiarity, mentioning that local authorities have, under law, the entire responsibility for taking the initiative to any matter which is not excluded from their competence or not attributed to any other authority, and the exercise of public authority must, in a general manner, to belong to those authorities which are closest to citizens and the powers, the competences entrusted to local authorities should normally be full and whole. The use of the concept of subsidiarity has experienced a revival by the modifications of the Treaty of Rome of March 25, 1957 through the Maastricht Treaty signed on February 7, 1992, which established the European Union. The Maastricht Treaty introduced the principle of subsidiarity which states that decisions are taken at the appropriate level in areas where Member States and European Union have a common responsibility. Decisions are made at EU level only if the latter is indeed able to act more effectively than the Member States. The text of the Charter anticipated the provisions of the Maastricht Treaty in whose preamble it is specified that “decisions are made at a level as close as possible to the citizen” (Alexandru and others, 2007). Subsidiarity is a principle that finds its formulation in clear terms in the Maastricht Treaty (Articles B1 and 313). According to this principle, the European Community act only insofar as the objectives pursued will be better achieved at Community level than at Member State level. In other words, only what cannot be done at Member State level or cannot be done better at this level should be made at the Community level. Article 3B formulated as follows: “In areas which are not within its exclusive competence, the Community shall take no action, according to the principle of subsidiarity, only if and insofar as the objectives of a planned action cannot be sufficiently achieved by Member States and can therefore, because of scale or effects, be better achieved at Community level. Community action shall not exceed what is necessary to achieve the objectives of this Treaty”. The meaning attributed to the principle of subsidiarity was that decision making should take place at the lowest possible level, in other words, higher levels should support the lower levels in their tasks. The Maastricht Treaty has given this principle a major role in two aspects: substantive and procedural. In the literature in the field, the Committee is called “guardian of subsidiarity” (Labouz, 1994), a fundamental principle, very important when it comes to “continue the process of creating an ever closer Union among the peoples of Europe in which decisions are made as close as possible to the citizen” (Cloos and others, 1993) (Article 3B of the Maastricht Treaty). This principle implies that EU actions should not be initiated only in cases where there is certainty that they are more effective than the actions of national, regional or local (if applicable) institutions. From this point of view, the principle of subsidiarity is opposed to excessive centralization of the decision-making process, in some cases considered too remote from citizens and their problems. So subsidiarity is a principle enshrined in Community law, according to which European Community does not take action (except for areas that fall within its exclusive competence) in the problems that can be solved better regionally, locally or nationally. Subsidiarity is closely linked to the principles of proportionality and necessity, which require that actions of the Commission to go further than necessary to achieve the objectives of the Treaty [2]. The Edinburgh European Council in December 1992 defined the basic principles of the concept of subsidiarity and established guidance for the interpretation of Article 5 of the European 257

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Community Treaty, through which the principle of subsidiarity was included in the Treaty on European Union. Its findings were presented in a statement that continues to be the cornerstone of the principle of subsidiarity. Global approach derived from this statement was dealt with in a protocol on the principles of subsidiarity and proportionality which was annexed to the Treaty establishing the European Community by the Treaty of Amsterdam. Its conclusions were contained in a statement that serves as a pillar of subsidiarity. The Treaty of Amsterdam took the whole approach that followed this declaration in a Protocol on subsidiarity and proportionality annexed to the Treaty on European Community. The Amsterdam Treaty has brought significant changes to the Treaty on European Union and to the Treaty which established the European Community, providing additional clarification on the concepts of local development and subsidiarity. Each year, the European Commission makes a report (“Better implementation of laws”) to the Council and Parliament on subsidiarity. Under this principle, the Union intervenes only in areas whose problems cannot be solved on a national or regional basis only. The Member States of the Council, signatories of the Charter on local self-government, considers that the aim of the Council of Europe is to achieve greater unity between its members, in order to safeguard and promote the ideals and principles which are their common heritage. The European Charter of Local Self-Government, ratified by most of the European states, had a significant positive influence on the development of local governance and democracy in Europe. The principle of subsidiarity - unity in diversity - is the one that will grow in importance. The European Community will take only problems they can solve more efficiently than national authorities. Thus, the role of local authorities in relation to the central authorities will increase. In this context, the European Commission created in 1988 “The Consultative Council of Regional and Local Collectivities”. From this perspective, the European Commission's objective is to build a new regional policy to better coordinate funding of local development plans. Subsidiarity is part of a general policy of reform, providing local and regional collectivities the context to define their own powers (Filip, Onofrei, 2001).

SUBSIDIARITY – A GUIDING PRINCIPLE IN TRANSFERING OF JURISDICTION IN THE DECENTRALIZATION PROCESS When we talk about the functioning of public administration, we consider necessary to emphasize that the implementation of the decentralization process is necessary in connection with the principle of subsidiarity , according to which state intervention is recognized only when the effectiveness and efficiency of basic structures’ action cannot be realized. The application of the principle of subsidiarity at local government level can be regarded as a method of putting in function the decentralization process, which involves delivering power from the central government authorities to the representative local authorities of the territorialadministrative units. Subsidiarity itself is precisely to determine the optimal degree of decentralization (Voican, 2008), directing the powers to be transferred to the lowest level possible so as not to make obsolete the functioning of public administration bodies. Moving skills from a higher administrative level to a lower administrative level in the process of decentralization should be based on the principle of subsidiarity, under which responsibility for the provision of public services to the beneficiaries is entrusted to those closest to the citizen. As a consequence of transferring this principle into practice, called “the approach towards the citizens”, central administrative bodies share with local authorities not only administrative tasks but also the responsibility of public service provision so that local members have the opportunity to express satisfaction, or dissatisfaction, regarding the promptness and effectiveness of local structures.

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Moreover, decentralization allows public administration to become more effective and operational, in the sense that the problems of common interest to people in villages, cities, and counties no longer come to the centre, but are resolved at lower levels, in terms of high efficiency. This is why subsidiarity in government requires that the transmission of powers and responsibilities to be done to local authorities on the lowest administrative level, which are able to ensure maximum efficiency and to decide on the quality of services within their competence. Subsidiarity requires that the State should not intervene except in exceptional cases where decentralized local authorities cannot ensure effectiveness in fulfilling their responsibilities. As a result of the principle of subsidiarity, it is possible the displacement of a local competence in a higher administrative level only if that jurisdiction would be better achieved at the latter level. The powers that can be exercised by the public administration authorities in municipalities, cities and counties are listed in Article 19 of Framework Law of Decentralization. Thus, to ensure local public services, local public administration authorities exercise exclusive jurisdiction, shared jurisdiction, and delegated jurisdiction. Through exclusive jurisdiction is to be understood, according to Article 2 point e of Law 195/2006, those duties assigned by law to local authorities which application they are responsible for. Local public administration authorities are entitled to a decision and have the necessary resources and means to achieve those competences. Shared jurisdiction is exercised by local public administration authorities, together with other levels of the public administration (county or central), with a clear separation of funding and power of decision for each charge in part (Article 2, point f of Law no. 195/2006). According to Article 2, point d of Law no. 195/2006, delegated jurisdiction is that granted by the law to the local authorities together with the adequate financial resources by the central authorities, to exercise them on behalf of and within the limits set by them. Local public administration authorities in the villages and cities exercise exclusive jurisdiction on: - Private and public sector management of the village or town; - Road infrastructure administration of local interest; - Management of cultural institutions of local interest; - Management of local public health units; - Planning and urbanism; - Water supply; - Sewage, wastewater and pluvial water; - Public lighting; - Sanitation; - Primary social assistance services for child protection and for the elderly; - Primary and specialized social assistance services for victims of domestic violence; - Local public passenger transport; - Other powers established by law. Local public administration authorities at county level shall exercise exclusive jurisdiction on: - Airport administration of local interest; - Private and public sector management of the county; - Management of cultural institutions of county interest; - Management of public county hospitals; - Primary and specialized social assistance services for victims of domestic violence; - Specialized social services for the elderly; - Other powers established by law. Local government authorities in the villages and towns exercise a shared jurisdiction with the central government on: - Thermal power produced in a centralized system; 259

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- Construction of social and youth housing; - Pre-university education, except special education; - Public order and safety; - Provision of social assistance to people in difficulty; - Prevention and management of emergencies at local level - Medical assistance and social services to the people with social problems; - Primary social services for the disabled; - Community services for the evidence of inhabitants; - Road infrastructure administration of local interest to the municipalities; - Other powers established by law. Public administration authorities of the communes and cities exercise a shared jurisdiction with the public authorities at county level, when it comes to the provision of public utilities through regional operators. Public administration authorities at county level shall exercise the powers shared with the central government authorities on: - Road infrastructure administration of county interest; - Special education; - Medical assistance and social services to the people with social problems; - Primary and specialized social services for child protection; - Specialized social services for persons with disabilities; - Community services for the evidence of inhabitants; - Other powers established by law. Local public administration authorities exercise jurisdiction delegated by the central public administration authorities on payment of allowances and benefits for children and adults with disabilities. Listing categories of skills that evokes the idea that incumbent local law may not allow any interpretation concerning the responsibilities are transferred to structures that are closest to the citizen. Moreover, local authorities perceive a more clearly issues of citizens and their range of expertise and solutions that can be adapted to real needs of each member of the local community. In the context of allocation of responsibilities, as we mentioned them above, the principle of subsidiarity can find its place, and it applies to local government level requiring that the exercise of jurisdiction should be done by the administrative authorities closest to citizens, that are able to bring out the public administration purposes in an as efficient manner as possible. More specifically, in the process of decentralization takes place a transfer of powers from state level to smaller entities, local collectivities (Voican, 2008) which administer themselves. In accordance with the principle of subsidiarity, such collectivities have jurisdiction to exercise the responsibilities assigned to them, the involvement of other authorities being justified only insofar as they may not do that in a satisfactory manner.

CONCLUSIONS In conclusion, we appreciate that local development in Europe starts with the local potential, giving local collectivities powers and resources to manage their destiny. The extent to which the State retains control over development differs and is manifested in different degrees, but the unanimous will to implement administrative decentralization and subsidiarity has to be noted, obviously with nuances related to tradition, history and culture. Subsidiarity, which initially covered national and EU level, has had repercussions in the local and regional sphere, arising from the need to be closer to citizens.

ENDNOTES [1] European Charter of Local Autonomy, adopted in Strasbourg in 1985, http://legislatie.resurse-pentrudemocratie.org/199_1997.php

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[2] Report on Central Public Administration, prepared by Joachim Lippott, Chisinau, March, 2001, http://www.pca.md/files/publications12.doc

REFERENCES 1. Alexandru, Ioan, Cărăuşan, Mihaela, Bucur, Sorin, (2007), Administrative Law, Edition II, Lumina Lex Publishing House, Bucharest. 2. Cloos, J., Reinesch, G., Vignes, D., Weyland, J., (1993), Le Traité de Maastricht, genese, analyse, commentaires, Brylant, Bruxelles. 3. Filip, Gheorghe, Onofrei, M., (2004), Elements of Administration Science, Junimea Publishing, Iasi. 4. Labouz, Marie - Françoise, (1994), Le comité des regions – ”gardien de la subsidiarité”? în Europe, nr. 10/1994. 5. Voican, Mădălina, (2008), Framework Principles of Local Public Administration, Univers juridic Publishing House, Bucharest. *** Constitution of Romania *** Framework Law of Decentralization no. 195/2006 *** Local Public Administration Law no. 215/2001 *** European Charter of Local Autonomy, adopted in Strasbourg in 1985, http://legislatie.resurse-pentru-democratie.org/199_1997.php *** Report on Central Public Administration, prepared by Joachim Lippott, Chisinau, March, 2001, http://www.pca.md/files/publications12.doc

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THE ROLE OF FINANCIAL RESOURCES FROM THE STRUCTURAL AND COHESION FUNDS IN THE STRENGTHENING OF THE ADMINISTRATIVE-TERRITORIAL UNITS AUTONOMY Assistant Ph. D. Student Elena RUSU (CHELARU) “Al. I. Cuza” University of Iaşi, Romania Faculty of Economics and Business Administration [email protected]

Abstract: Integration in the European Union provides to the Member States new opportunities for financial resources for the financing of local development projects in the form of structural and cohesion funds. From the perspective of local authorities in Romania, the time of the structural funds brings with it new management rules involving a big degree of managerial capacity of the developed, which is a consequence of the implementation of the principle of local autonomy, but most of all, its component, financial autonomy. Access projects from the structural funds involves an extending process that is not visible as the local public finance reform, for the purposes of carrying out planning budget-based programs, monitoring financial performance indicators at the same time as those of impact, the result ,of what happened in the plan with concrete activities administered under programmes for funding. To ensure a higher percentage of co-financing involves the need to identify alternative solutions for local budget revenues. Also, local public authorities must take into account the importance of appropriate training of personnel (civil servants and employees of the contract) in order to be able to access and manage appropriate money from the structural funds. The paper aims to establish the regulatory framework of local autonomy at the international and national level and analyze financial resources from the structural and cohesion funds, attracting attention to the role in the strengthening of the administrative-territorial units autonomy. Keywords: local autonomy, financial autonomy, alternative financial resources, structural and cohesion funds JEL Classification: H7, H83

INTRODUCTION The existing process of decentralization and the manifestation of local autonomy generates the involvement of local authorities in the implementation of local public investment, in the light of the exclusive powers entrusted to them, and thus the need to ensure the sources of funding. At the same time, the membership of the European Union requires local restrictions but also offers additional opportunities for obteining resources to finance local projects. The role of the structural and cohesion funds is more obvious the local authorities are able to achieve a good management of the management of funds, since they take the form of alternative sources of funding the local budget. The paper wants to provide the conceptual and legal expressions of local autonomy, and then to submit structural instruments, as the structural funds (European Regional Development Fund and the European Social Fund) and the Cohesion Fund, as well as the actions supported by EU funds. In the end it will do an analysis of the absorption of funds by the Member States of the European Union, focusing on Romania, in particular. The framework of this paper is based on a set of research books in the field of public administration and local government finances, analysis of the legal framework of the autonomy and supposes the research of a series of documents of the European Commission, of the Ministry of regional development and tourism.

INTERNATIONAL GUARANTEE OF LOCAL AUTONOMY At the international level, local autonomy is perceived differently, as in history, it represented an area reserved exclusively for national competences, to the discretion of State sovereignty, by reservation only local autonomy does not violate the General principles and other accepted rules of international public law. At the constitutional level, the principle of local 262

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autonomy was entered in general, with reference to the law to regulate the forms, conditions and limitations. Basically, each country has adopted a particular form of local autonomy self-regulation, pertaining to the historical conditions of state formation, structure, forms of government, coloration of the population, traditions and aspirations of citizens. Thus, countries such as Denmark, Belgium, United Kingdom of Great Britain and Northern Ireland does not use explicit term local autonomy, but countries such as Romania, Greece, Luxembourg, Spain, Portugal have established in their fundamental legislation the principle of local autonomy. But all forms of local autonomy presume the idea that it is not only a barometer of democracy, but also the most effective combination to ensure coherent development strategies and national resources with real possibilities [1] (Dascălu, Elena-Doina,2006). International self-regulation of local autonomy has two trends [2] (Popeangă, Gabriel, 2002). The first trend refers to the concern of States to integrate local autonomy in the context of democratic principles, the participation of local communities to assert their own interests, and in this sense it was following Henri Oberdoff assertion: "these different constitutions in Europe, by their decentralized approach, authorizes the flowering of a Europe sister, complementary, of a Europe of the community of States" [3] (Oberdoff, Henri, 1993). The statement highlights the character of the European territorial autonomy based on decentralization, complementarity and the community of States. The second trend refers to the shaping of the local autonomy concept by adopting the "European Charter of Local Self-government" in Strasbourg in 1985. Thus, European recognition of the importance of local autonomy was originally enshrined by the European Framework Convention on Cross-border Cooperation of Territorial Communities or Authorities, and from 1985 through the European Charter of Local Self-government, multilateral legal instrument adopted by the Council of Europe, which entered into Romanian lagislation since 1997. According to it, "by local autonomy means right and actual capacity of the local public administration authorities to address and manage, within the law, in its own name and in the interest of the local population, an important part of public affairs" [4] (Law No. 199/1997). If the first treaty regulate the external dimension of local autonomy only, stating that only one particular aspect, cross-border cooperation and not the whole area of cross-border cooperation, the European Charter of Local Self-government is the common reference document the most complete and most useful to the defence and strengthening of local autonomy. In March 2009, the Council of European Municipalities and Regions adopted the European Charter on Local and Regional Services of General Interest, which aims to be a tool for compliance with the implementation of the principles of local self-government, subsidiarity and proportionality, starting from the idea that Europe needs requires strong local and regional authorities, democratic, free to make decisions on their local services in the interests of citizens. The Charter stipulates [5] that the principle of local and regional autonomy is the cornerstone of local systems of governance by filling out the principles of subsidiarity and proportionality.

THE LEGISLATIVE FRAMEWORK OF LOCAL AUTONOMY IN ROMANIA In the article 120, the Constitution enshrining the local autonomy principle after that is organized and operated public administration in administrative-territorial units. However, given the unitary character of our state Constitution enshrines the principles of decentralisation and deconcentration of public services. The fact that these principles are contained in the same article demonstrates that these principles act simultaneously and the requirements of their intertwining so as to ensure, on the one hand, local autonomy, and, on the other hand, the unitary leadership of the country. These principles are stipulated in law and public administration [6], together with the principles of eligibility of local authorities, legal and consultation of citizens in solving local problems of special interest. Almost identical to the European Charter of Local Self-Government, local government law stipulates that “local autonomy means the right and effective capacity of local authorities to resolve 263

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and manage on behalf of and in the interests of local communities in which they represent, public affairs, under the law" [7]. Then, set the contents of local autonomy, specifying that it is only the administrative and financial [8] and local autonomy regarding local self-organization, the functioning, competencies and responsibilities, as well as management of resources which, according to the law, belongs to the communes, town, municipality or county [9]. The content of local autonomy, can be different interpretations of the legislative framework so that it can be extended to cultural and territorial autonomy, which appears by default. Cultural autonomy is reflected by the fact that the territorial-administrative units where citizens belonging to national minorities and have a share of over 20% of the inhabitants, local public authorities, public institutions subordinated to them and deconcentrate services ensure the use of dealings with them the mother tongue [10]. The territorial autonomy of the communes, cities, municipalities and counties is established by law, so that the public domain local communes, cities and municipalities consists the following goods [11]: roads, vicina and streets; commercial, public markets, fairs, public parks and enterteiment areas, lakes and beaches that are not declared in the public interest; the national or regional networks, water supply, sanitation, heating and treatment plants, waste water, with installations, buildings and land; the land and buildings in that the local Council and Mayor's Office, as well as public institutions of local interest, such as theatres, libraries, museums, hospitals, polyclinics and the like; social housing; statues and monuments, unless they have been declared national public interest; riches of any kind of subsoil, unless they have been declared national public interest; land use, if you do not belong to the private area of the State and are the property of individuals or legal persons under private law; municipal and communal cemetery.

FINANCIAL AUTONOMY In the light of this research, it is necessary to achieve an approach more concise of the content of local autonomy in terms of financial autonomy. Thus, it falls in the field of the local public finances, where financial autonomy has well established its place as the condition and then as a form of local autonomy. The definition of the European Charter of Local Self-government reflects that local autonomy, as a concept, may not have support in practice than to the extent that it is accompanied by a real financial autonomy. Moreover, the researchers when talking the autonomy on different plans, stating that the autonomy may not be real, effective, without the presence of the autonomy in finance, material and human, local self-government with own servants, domain (public and private), financial autonomy, particularly in terms of setting and collection of taxes and the existence of its own budget. A definition given autonomy in financial terms is that local autonomy involves the right of local authorities to have cash resources, to use them and manage to perform the duties prescribed by law, to prepare the budget, to monitor implementation of the budget called financial autonomy [12] (Voinea, George, 2008). Financial autonomy is realized by disposing of sufficient resources to ensure their expenses and at the same time to ensure achievement of decentralized powers. Freedom to manage, financial and fiscal autonomy are associated as a cocktail of a successful decentralization [13]. The literature indicates two cornerstones of claim financial autonomy: on the one hand, the empowerment of local communities (may decide themselves - with reserves of legality, can assume responsibility), on the other hand, the freedom of management as financial autonomy suggest an independence of the community vis-a-vis vis-à-vis the state. Hélène Pauliat concluded that the claims of financial autonomy is rather the prerogative of rich local community. Agnes Sauviat [14] states that the financial autonomy of local communities is one of the basic conditions of real freedom of administration to the extent that it is not a way to say independence but requires the state to ensure stability and sufficient resources to enable the local authority to exercise fully decentralized and relevant skills. François Labie [15] (Voinea, Gheorghe, 2008) believes that financial autonomy is dependent on certain conditions, as following: 264

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 local public administration authorities should have its own cash resources sufficient to achieve the tasks provided for by law;  local public administration authorities should be allowed to determine their own revenue and expenditure and to develop forecasting budgets;  central administration authorities should to exercise control over how regulations and administration of local public affairs. Legal and financial autonomy is materialized in the formation of local public administration authorities as separate legal entities with their own budgets, regulatory sovereignty in financial management and without control of the central administration [16] (Voinea, Gheorghe, 2008). The size of the financial side of the local autonomy is dependent on the delimitation of competences of local public administration authorities in providing public services, diversity and quality of public services, development programs of the administrative-territorial units, the income levels of administrative-territorial units, improving management of expenditure from local budgets. The financial aspect is an important component of local autonomy, exercising influence on the ability of local public administration authorities decision [17] (Voinea, Gheorghe, 2008). Local Public Finance Act [18] of Romania defines the term local financial autonomy through the administrative-territorial units right to sufficient financial resources that local government authorities may use the exercise on the basis and within the limits of law and to ensure powers of local government authorities in setting taxes. EU INDICATIVE FINANCIAL ALLOCATIONS Proiectele Uniunii Europene implică rigoare, cunoaşterea condiŃiilor de cheltuire a fondurilor, transparenŃă. Politica fundamentală a UE este Politica de Coeziune Economică şi Socială, a cărei implementare se realizează prin intermediul a trei instrumente structurale, şi anume fondurile structurale (Fondul European pentru Dezvoltare Regională şi Fondul Social European) ş i Fondul de Coeziune. AcŃiunile finanŃate din aceste fonduri precum şi categoriile de State Membre eligibile sunt prezentate în tabelul 1. The European Union Projects involve thoroughness, knowing the conditions for the spending of the funds, transparency. The EU fundamental policy is Economic and Social Cohesion Policy, whose implementation is carried out through three structural instruments, namely the structural funds (European Regional Development Fund and the European Social Fund) and the Cohesion Fund. Actions financed from these funds as well as categories of eligible Member States are given in table 1.

Table 1. Member States eligible and actions supported by EU funds EU Funds Cohesion Fund

Actions supported -Infrastructure projects for transport-road traffic, railways, inland waterways, civil air transport, etc. -Environmental projects - energy efficiency, renewable energy and transport projects European -Direct Aid for investments in enterprises (emphasis on SMEs) to create Regional sustainable jobs Development -Infrastructures for research and innovation, telecommunications, Fund environment, energy and transport -Support through financial instruments, such as venture capital funds, local development funds, etc. for regional and local development and fostering cooperation between cities and regions -Technical support European -Lifelong learning and the adoption of workers and enterprises Social Fund -Integration of unemployed women, and immigrants on the labor market -Integration of unemployed women, and immigrants on the labor market -Reforming the education system and improving human capital Source: European Commission

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Eligible criteria The EU Member States whose GNP per capita is less than 90% of the EU average All 27 EU Member States

All 27 EU Member States

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For 2007-2013, the objectives of intervention of the Economic and Social Cohesion Policy are as following: - Convergence - the regions where the GDP per capita is less than 75% of the EU average (funded by the European Regional Development Fund, the European Social Fund and the Cohesion Fund); -- Regional competitiveness and employment - for regions not eligible for Convergence objective (funded by the European Regional Development Fund and the European Social Fund); - European territorial cooperation - for regions, counties and transnational areas (funded by the European Regional Development Fund). In terms of local public authorities and areas of responsibility at the level of the county councils and town halls, it is important to bear in mind Regional Operational Program and Environment Sectoral Operational Programs and for for the development of administrative capacity. Also, for the Sectoral Operational Program for Increasing Economic Competitiveness there is priority objective, the potential of IT in the public sector (public administration), and for the Sectoral Operational Program Human Resources Development, local public authorities may apply individually or as partners of any non-governmental organizations, for the purpose of social inclusion of vulnerable groups. In the light of their level of economic development, new EU members, among which Romania can benefit from resources in all three categories of funds. Of these, for the period 20072013, Poland has allocated the largest amount (67,284 million euros, approximately 19.37% of total), followed by Czech Republic (7.68%) and Hungary (7.28%) ( Figure 1). 70000

67284

60000 50000 40000 30000

26692

25307

19668

20000 10000

6853

3456

4620

6885

EL

LV

LT

11588 4205

0 BG

CZ

HU

PL

SI

SK

RO

Figure 1. Cohesion policy 2007-2013: Indicative financial allocations for the new EU countries (million, current prices) Source: European Commission

Structural and Cohesion Funds allocated to Romania for the period 2007-2013 is EUR 19.668 billion (5.66% of total), of which 12.661 billion allocated by the Structural Funds under the "Convergence" objective, Euro 6.552 billion are allocated to "European Territorial Cooperation" Objective. The breakdown by operational programmes of the total aggregate Structural Funds contribution corresponding to the "Convergence" objective of the Cohesion Fund highlights the importance of the priority given to the transport infrastructure (23.8%) and the environment (23.5%) (Figure 2). 1%

18%

19%

Hum an Resources Developm ent

1%

Adm inistrative capacity Com petitivness Infrastructure in transportation Environm ent Regional

13%

Technical assistance

23% 25%

Figure 2. Estimated allocation on operational programs for Romania in the period 2007-2013 Source: National Strategic Reference Framework (RNSRF) 2007-2013

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Resources from the Structural and Cohesion Funds of the European Union represents an opportunity for new Member States, allowing them to major public investment projects, without increasing ordinary budgetary resources and without affecting the consolidated budget balance. Unlike local loans, they are not refundable and no interest accrues. However, several issues must be considered. Firstly, the rules on the Structural and Cohesion Funds impose the need for cofinancing by the Member States. The maximum amount of the contribution of the EU is established by Council Regulation No. 1083/2006, in accordance with the EU's financial perspectives for 20072013. Romania can benefit from a maximum rate of 85% of Community funding for all three funds: European Regional Development Fund, European Social Fund and Cohesion Fund. RNSRF allocation within intervention "Convergence" objective, needs a co-financing estimated at 5.07 billion euros, supported from public sources (2/3 of total co-financing), as well as from private sources (1/3). Co-financing will be chaired by the public of the State budget by the Romanian Government and from the local budgets of public authorities which will apply the structural funding instruments. In view of the low financial capacity of many local authorities to ensure such cofinancing, the Romanian Government decided to reduce as far as possible, the contribution of the local budget. Thus, the principle that will apply to operational programmes is that whereby the cofinancing of the local budget for a project will be generally 2% of the eligible except for income generating projects. Therefore, the contribution of local budgets is less than 5% of the total national cofinancing. Secondly, especially in the case of new EU Member States, although volume commitments the structural and cohesion is considerably, an important issue is the low absorption capacity, mainly as a result of inadequate inadequate regulatory and institutional framework. Another important aspect is information that is necessary to know and analysed by the local public authorities, as beneficiaries, but also that require further explanation at the level of central public authorities as the management authority. Also, another problem is the types of expenditure considered as eligible expenditure for projects submitted. For example, the Regional Operational Programme states that: "an expenditure co-financed within the framework of the Regional Operational Programme may no longer receive funding under other Community financial instrument" [19]. This means that it must be analysed clearly if they are included in this connection the total volume of expenditure and co-financing for each priority axis (see Figure 3), or for some of the priority axes (e.g. County roads rehabilitation and modernization) or for a specific intervention (e.g. county roads connecting the national network of roads). Also, some operational programmes such as transport and the environment are financed by the two types of funds: the European Regional Development Fund and the Cohesion Fund, so should be considered the diferences priority axes inside these programs operational funding (for example the co-financing, eligible expenses, etc.). An important role in the strengthening of local autonomy, as applicability , has the Regional Operational Programme 2007 - 2013 (REGIO) as an important instrument for implementing the national strategy and regional development policies. This is applicable to all eight development regions of Romania. The general objective of the Regional Operational Programme is to "support and promote local sustainable development, both economically and socially, in the regions of Romania, by improving the infrastructure and business environment, supporting economic growth”. The Regional Operational Programme is funded by European Regional Development Fund (ERDF). It supports EU regions have a GDP per capita below 75% of EU average. The total budget allocated to the Regional Operational Programme is approximately 4.4 billion euro in the period 2007-2013. EU funding is approximately 84% of the Regional Operational Programme budget. The rest comes from national public funds, co-financing (14%) and private co-financing (2%). Distribution of the funds is done on the priority axes of the the Regional Operational Programme. Each priority axis has been allocated a specific budget and includes a number of key areas of intervention aimed at achieving development objectives (table 2).

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Table 2. Regional Operational Programme funds distribution on the priority axes Priority axes

Objective

1: Supporting the sustainable development of citiespoly urbans growth 2: The improvement of the regional and local transport infrastructure 3: Improving social infrastructure

Support for the development of cities in order to increase quality of life and creating new jobs.

Percentage allocated to the budget of Regional Operational Programme 30% of the budget allocated to the Regional Operational Programme

Support for rehabilitation and upgrading of county roads, city streets, including ring roads

20,35% of the budget allocated to the Regional Operational Programme

Support for the improvement of infrastructure and social services, health and public safety in emergency situations; upgrading educational infrastructure Funding for the development of business support structures, industrial rehabilitation centres; supporting micro

15% of the budget allocated to the Regional Operational Programme

4: Supporting the development of regional and local business 5: Sustainable development and tourism

17% of the budget allocated to the Regional Operational Programme

Support for the restoration of the cultural-historical 15% of the budget allocated to the heritage and modernise the tourism infrastructure, Regional Operational Programme improve the quality of the infrastructure of natural areas which might attract tourists. 6: Technical assistance Support for transparent and effective 2,65% of the budget allocated to the implementation of the Regional Operational Regional Operational Programme Programme Source: Regional Operational Programme, Ministry of Regional Development and Tourism

2.65 Sustainable development of cities

15

The improvement of the regional and local transport infrastructure Improving social infrastructure

30

Supporting the development of regional and local business Sustainable development and tourism

17

Technical assistance

15

20.35

Figure 3. Allocation of Regional Operational Programme budget , priority axes for the period 2007-2013 Source: Regional Operational Programme, Ministry of Regional Development and Tourism

From the perspective of the beneficiary, there is an entire institutional mechanism to be driven by a phased until such time as the contract is signed by each authority management with each Town Hall/County Council that has an approved project of the structural funds. These steps may take a considerable time, which results in local budget planning implications, providing sufficient sources of funding for when the managing authority shall take a final decision on the projects financed. Accessing EU funds by local authorities have the following simplified scheme of financial flows (Figure 4)

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Audit Authority -Audit system -Verification samples -Declaration of validity (winding-up)

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European Commission -Pre-transfer -Approves and transfers the interim payments to the Certifying Authority, - transfers the final payment to the Certifying Authority after approval of justificative documents

Certifying Authority and Payment Authority -Checks if there is adequate control procedures at the level of Management Authority/ Intermediate Body -If necessary, carry out spot checks at the lower levels -Submit requests for interim payment + certification in the EC three times a year -Submitted to the EC the final payment request -Transfers unpaid sums + ineligible expenditure -Makes payments to Beneficiaries / paying units

Level 4 of the certification of expenditure

2 1

Management Authority

Level 3 of the certification of expenditure

Level 2 of the certification of expenditure

Level 1 of the certification of expenditure

-Confirm that payment requests relate only to expenditure • What were indeed made • were performed for operations that have been selected for funding in accordance with criteria and procedures selected measures relating to state aid was formally approved by EC -Perform spot checks at lower levels, based on risk analysis -Ensure that appropriate checks are carried out at lower levels -Submit a request for payment + certificates from Certification Authority

Payment Unit -Make payments to beneficiaries of the Grant

Intermediate Body - carry out spot checks at the lower levels -Submit a request for payment + certificates from Certification Authority

The beneficiary -Check the accuracy, reliability and eligibility of the expenditure (ex-ante) -Submit a request for payment to Management Authority/ Intermediate Body + documents

Contractor -Issue invoice by the beneficiary Flow documents Flow of funds 1. Payment indirect grant schemes 2. Direct payment for infrastructure projects

Figure 4. Financial Flow of Structural and Cohesion Funds in Romania Source: Absorption of the structural funds in Romania, document prepared by the Institute for Public Policy, Romania, 2006, p. 54, after Reference National Strategic Framework 2007-2013, Romania

ABSORPTION OF THE STRUCTURAL AND COHESION FUNDS The calculation of the absorption rate takes into account only the amounts refunded, as a result of carrying costs, not the payments made in advance. In the first two years after accession to the European Union of the ten Member States in 2004, the rate of absorption of EU funds remained 269

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in most of them well below the desired level (Poland, Hungary, the Czech Republic). Only Latvia has progressed satisfactorily. And Romania faced the same problem in 2007. According to a study published by the National Bank of Romania in March 2008, the degree of absorption of EU funds after the first year of Romania's accession to the European Union was approximately 32.7%, less than half. Countries such as Hungary and Poland have recorded a rate of absorption of 42.9% and 42.8%. In these circumstances Romania became, in reality, the net contributor to the EU budget. As a result of a survey conducted by Structural Consulting Group [20] on a sample of 3324 people (of which 62.31% are part of the business, and the rest being involved in consulting and management, representatives of institutions, NGOs, and people in education and research) on issues which may arise in the management of the structural funds in Romania, it was found that 29.91% of the respondents consider that excessive bureaucracy is the biggest problem in managing the structural funds in Romania. A second problem is the lack of capacity of beneficiaries to finance or co-finance projects (15.16%). From our point of view, this second problem is actually the most important, the administrative-territorial units have no income to provide co-financing, especially financing the repayment in full feather. A similar proportion of 15.1% of respondents indicate the lack of transparency in the assessment and selection of projects. of respondents believe lower expertise in writing project beneficiaries is a major obstacle in managing the structural funds. 11.76% of the respondents are of the opinion that insufficient information on opportunities for funding from the structural funds is a serious problem. The procurement procedure, 6.65% considered that is slow, and wrong implementation represents a problem for 5.63% of the participants in the survey. The last major challenge identified by 3.61% of the respondents is centralizing the management of funds at the level of ministries. 5.63

3.61

excessive bureaucracy

6.65

29.19 lack of capacity of beneficiaries to finance and co-finance projects lack of transparency in project evaluation and selection poor experience of beneficiaries in writing projects poor information

11.76

12.18 15.16

procurement procedure

15.1

wrong implementation centralizing the management of funds at the level of ministries

Figure 5. Major problems faced by Romania of EU funds absorption CONCLUSION ON THE ROLE OF THE STRUCTURAL AND COHESION FUNDS IN THE STRENGTHENING OF LOCAL SELF-GOVERNMENT Faced with a reform process specific to mainland Europe, whose characteristic is the decentralization of public services, administrative-territorial units are in a continuous search for resources, due primarily to the existence of the gap between the transfer of responsibilities and the transfer of resources and public needs, this calls for a large investment. In the European context, local public investments acquires a particular importance, especially for the new Member States of the European Union, from Central and Eastern Europe to catch up to support real convergence program. In this context, the significant investment financing needs in the European Union but also internationally, turns out to be "one of the most important challenges of the millennium" [21] (Katherine Sierra, 2005). Accessing the structural and cohesion funds is a result of the implementation of the principle of local autonomy and an attribute of the administrative-territorial units. However, access is not 270

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easy, because it can be done only in circumstances where the local budgets are solvent, and, moreover, demonstrates high financial credibility. Credit appears in the conditions under which own revenue collected by the local budgets are over 50% of total revenue. Most Member States of the European Union have tried to provide local autonomy as possible, so that they can collect their revenue as large as possible. Once accessed structural and cohesion funds, local communities may solve an important part of public affairs, realizing a process public investment that may become a source of income. Thus, the role of the structural and cohesion funds in the strengthening of local autonomy is one extremely important; in addition being an alternative sources of funding the local budget, is, in particular, tools for achieving and consolidate local autonomy.

REFERENCES 1. Dascălu, Elena-Doina (2006), Budgetary Sistem in Romania, Pedagogical and Educational publishing house, Bucharest, [1]: 148. 2. Oberdoff, Henri (1993), Les Constitutions de l’Europe de Douze, Collection retour aux, textes, Paris, [3]: 14. 3. Pauliat, Hélène, et al. (2004), L'autonomie des collectivités territoriales en Europe: une source potentielle de conflits / EUROPA ; textes réunis par Hélène Pauliat; [textes de Nadine Poulet, Joël Andriantsimbazovina, Yves Cousquer ... et al.], Limoges: PULIM. Presses universitaires de Limoges, [13]: 172, [14]: 174 4. Popeangă, Gabriel (2002), The Management of local public finances, Expert publishing house, Bucharest, [2]: 35-36. 5. Sierra, Katherine (2005), Financer les infrastructures urbaines, en « Villes en développement », no. 69 septembre 2005; [21] 6. Voinea, Gheorghe (2008), Local Finances, Junimea publishing house, Iasi, [12]: 45; [15]: 45, after François Labie, Finances locales, Dalloz, Paris, p. 5; [16]: 45, after François Labie, Finances locales, Dalloz, Paris, p.7; [17]: 47. 7. ***European charter on local and regional services of general interest, aproved by Council of European Municipalities and Regions, 2009, [5]: art. 1, paragraph 1 8. *** Programul OperaŃional Regional, Ministry of Regional Development and Turism, [19]: 120. 9. *** Bursa newspaper (2008), edition 25.06.2008, [20] 10. Romanian Constitution 11. Law no. 199/97 for ratifying the European Charter of Local Self-government, adopted at Strasbourg on 15 October 1985, published in Official Gazette, part I, No. 331 of 26 November 1997, [4]: art. 3. 12. Law no. 215 of 23/04/2001 on the local public administration, published in the Official Gazette, part I, No. 204 of 23/04/2001, amended by law No. 286 of the 06/07/2006, published in the Official Gazette, part I, No. 621 of 18/07/2006 [6]: art. 2, paragraph 1; [7]: art. 3, paragraph 1; [8]: art. 4, paragraph 1; [9]: art. 4, paragraph 2; [10]: art. 17 13. Law No. 213 of 17/11/1998 on public property and its legal regime, published in the Official Gazette, part I, No. 448 of 24/11/1998, [11]: Annex 1 14. Law No. 273 of 29/06/2006 on local public finances, published in the Official Gazette, part I, No. 618 of 18/07/2006, [18]: article 16

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CONSIDERATIONS CONCERNING THE COMPLEX CHARACTERISTICS OF VOLUNTARY MANSLAUGHTER - ART. 178 (3) ROMANIAN CRIMINAL CODE Research Assistant Ana PIRLAC University “Stefan cel Mare” Suceava, Romania Faculty of Economic Sciences and Public Administration [email protected]

Abstract The legal nature of the offence of voluntary manslaughter committed under the circumstance of driving a vehicle while intoxicated, exceeding the legal limit, regulated by two legal procedures, generates forming and affirming two divergent points of view, in what concerns its legal classification. Therefore, certain authors, in doctrine, and other courts, in practice, appreciate that in such cases, the deeds constitute one single complex offence, stipulated in art. 178 para. 3 Criminal Code, which absorbs the one stipulated in art. 87 para. 1 Government Emergency Order (G.E.O.) no. 195/2002, regarding road traffic. On the contrary, other courts consider that in such cases, the deeds constitute two distinct offences, in a real concurrence. In such circumstances, legal courts actually do not have a unitary point of view regarding the legal classification of the mentioned deed, and the situation given becomes the subject of a recourse in the interest of law, the Supreme Court establishing that in this case it shall be retained one single complex offence of voluntary manslaughter stipulated in art. 178 para. 3 thesis I Criminal Code in which it is absorbed the offence stipulated in art. 87 para. 1 G.E.O. no. 195/2002. Yet, even on the purpose of a correct interpretation and application of the legal provisions and on the unification of the legal practice, the Supreme Court has decided the legal classification of the deed mentioned, there still exist injustices and discordances. Therefore, by analyzing the conditions of application of the legal provisions, my scientific research aims at bringing into light the repercussions at the level of legal practice of concurrent regulations in the situation mentioned and the necessity of the lawmaker’s intervention on the purpose of the correct interpretation and application of legal provisions. Keywords: complex offence, concurrent offences, voluntary manslaughter, concurrent regulations, repetition of an offence JEL Classification: K14 - Law and Economics

INTRODUCTION Voluntary manslaughter is the single offence of homicide which is not perpetrated with intention, but the way it is announced in the text itself, voluntarily. The localization of most acts of voluntary manslaughter in different domains of human activity has as consequence, at the level of the offence analyzed, their association - under the form of concurrent offences [1] or of a complex offence - with other offences specific to those sectors, for example, road traffic offences. Therefore, in all the sentences pronounced in actions regarding the offence stipulated in article (art.) 178 paragraphs (para.) 2-5 Criminal Code (C. C.), the magistrate makes reference to extra criminal procedures regulating the activity sector within which the offence has been perpetrated, and in the event such procedures concern criminal provisions, he/she may retain them together with the voluntary manslaughter, under the form of concurrent offences, or he/she may not retain them, distinctly, on the assumption that they are absorbed in the contents of voluntary manslaughter, whenever there exists a complex offence (Diaconescu and Duvac, 2009). The most frequent acts of voluntary manslaughter - according to the data observed in the judicial statistics - are perpetrated because of overlooking of regulations regarding road traffic. Referring to certain regulations, legal courts have retained the guilt of drivers who, by means of their actions or inactions contrary to the regulations in matter, have caused traffic accidents ended with death of persons. Thus, it has been arrived at the idea of the existence of two regulations incriminating distinctly the same circumstance - driving the vehicle with while intoxicated exceeding the legal limit which determines two aggravations of the penalty, once as an aggravating circumstance, 272

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stipulated in art. 178, para. 3 Criminal Code, and secondly as a distinct offence, stipulated in art. 87, para. 1 Government Emergency Order 197/2002 regarding the road traffic, concurrent with the offence of voluntary manslaughter which has become the subject of numerous debates in the literature of specialty and in the legal practice. In such context, it appears as indispensable the presentation of the repetitions of an offence at the level of the legal practice of concurrent regulations, in a situation in which, even if the Supreme Court has decided in the United Sections the correct interpretation and application of legal stipulations on the purpose of unification of legal practice, there continues existing injustices and discordances.

THE CONCEPT OF COMPLEX OFFENCE The complex offence is legally speaking consecrated in art. 41 para. 3 Criminal Code, according to which an offence is complex whenever an action or inaction constituting by itself a deed regarded by the criminal law enters in its contents as an element or an aggravating circumstance. Creating a complex offence has been determined by the necessity of combating merged offences between which there exists a tight relation. Lack of legal complexity, combined offences would be retained as concurrent, which would offer judges large possibilities of punishment starting with the basic penalty to applying the maximum increase stipulated by law, art. 34 from Criminal Code [2]. The lawmaker has appreciated though that, thanks to this connectedness, the offences committed present a higher social peril and, consequently, they must be submitted to a more particular judicial regime. Besides the legal complexity created by the lawmaker, there is also mentioned the natural complexity which results of the absorbance in a natural manner of the offence completed deed of the attempt of that particular offence [3]. Actually, both in the case of the legal complexity and that of the natural complexity, there will always be a conflict of regulations between the absorbent and the absorbed offence. There is a conflict of regulations, according to doctrine, whenever two or more legal provisions are susceptible to being applied for the punishment of the offence committed by the agent, though, in reality, there is one single offence (Stretianu, 1999). In both cases of complexity, there is a conflict of redundant qualifications (one qualification covers exactly the same deeds included in the other qualification). In the literature of specialty, there has been frequently shown that in our law, judicial complexity is prohibited, in other words the possibility for the legal courts to dispose the combination of two or more offences distinctly incriminated, considering their bonding. This would mean that there where are no concurrent qualifications, there must be retained the concurrent offences. In doctrine, it has been shown that the delimitation of the complex offence of the concurrent offences is being made after the following criteria: the necessary character of the absorption, the determining/determinable character of the absorbed offence and the degree of social peril of the absorbed/absorbent offence (Costin, 2007). The necessity of absorption assumes that for a complex offence to exist, the absorbent offence should not take place under any circumstance, without the completion of the absorbed offence. The second criterion, the determining/determinable character of the absorbed offence implies the necessity of a complex unity established ope legis, which means that there must be an express regulation not only in the general but also in the special part of the Criminal Code or in special laws, where the typical activity is therefore regulated (Dobrinescu, 1989). The ideal situation is that when the lawmaker prescribes expressly the absorbed offence or offences, not leaving any doubt on his/her will of including them in the absorbent offence (such situation occurs in the case of robbery which is by definition “the theft perpetrated by making use of violence and 273

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menaces”). It is not necessary though for the absorbed offence to be expressed in categorical and non equivocal terms, which is not recommended in order not to overcharge the incriminating regulation. It is considered sufficient to clearly deduce, by the terms used, the intention of the lawmaker to absorb a certain offence, without prescribing it expressly, but in the same time not using terms that may be too general. Therefore, the absorbed offence is prescribed by its own name, some times by its objective side, and other times by its consequences. The criterion of the degree of social peril presumes that the degree of social peril of the absorbed offence should not exceed that of the complex offence, which peril is reflected in the penalty stipulated in the law. Consequently, the absorbed offence must include, separately in the text it incriminates it, a smaller penalty than that of the absorbent offence, on the contrary, we come under the incidence of concurrent offences.

VOLUNTARY MANSLAUGHTER – 178 (3) ROMANIAN CRIMINAL CODE Romanian criminal law, as well as other states’ regulations, incriminates voluntary manslaughter - briefly defined by its essential elements which distinguish it of other offences of the same category (homicide) - the deed of a person causing the voluntary death of another person. By incriminating voluntary manslaughter, the lawmaker aims at creating an inhibitive action for humankind’s conscience, of a nature to persuade them to weighing, consideration, attention, diligence, in the moment they perform activities which in a way or another could produce the death of a person. The premises of the matter are presented in art. 178 Criminal Code: “(1) A person who commits the offence of voluntary manslaughter shall be punished by imprisonment for not less than 1 nor more than 5 years. (2) A person who commits the offence of voluntary manslaughter because of lack of observance of legal conditions or provisions while exercising a profession or craft, or performing a certain activity shall be punished by imprisonment for not less than 2 nor more than 7 years. (3) A person who commits the offence of voluntary manslaughter by driving while intoxicated a mechanical-propelled vehicle exceeding the legal limit or by driving under the influence of alcohol shall be punished by imprisonment for not less than 5 nor more than 15 years. (4) A person who commits the offence of voluntary manslaughter by performing a profession or craft under the influence of alcohol shall be punished with imprisonment for the same penalty as the previous; (5) A person who commits the offense of voluntary manslaughter causing the death of two or more human beings shall be punished by imprisonment for the maximum of the penalties in the paragraphs above increased by not more than 3 years.” In what considers the criteria of the offence, voluntary manslaughter is a commissive offence, and as for the manner of perpetration, it can be committed either through positive activities (actions) or negative activities (inactions). It is a material offence, of result, completing in the moment of producing the result socially perilous, therefore for such an offence to occur there appears as a sin qua non condition the production of serious consequences: loss of a human being’s life (Bulai, 1992). An aspect apart from the legal qualification’s point of view, is represented by the aggravating form stipulated in the third article above mentioned. Therefore, according to paragraph 3, it is a more serious offence the voluntary manslaughter perpetrated by driving under while intoxicated or under the influence of alcohol of a mechanical-propelled vehicle, exceeding the legal limit. For an aggravating form to exist, two conditions must be fulfilled cumulatively: 1. The doer is a driver of a mechanically-propelled vehicle; 2. A person commits the offence while driving while intoxicated or under the influence of alcohol, exceeding the legal limit, either of which being alternative variants (Dobrinoiu and Neagu, 2008). The condition that the perpetrator is the driver of a mechanically-propelled vehicle (means of transportation with a mechanical device of propulsion: cars, lorries, tramways, motorcycles, or any other mechanically-propelled means of transportation) is fulfilled no matter if the driver if a 274

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professional or not, if he/she owns or not a driving license correspondent to the category of the vehicle. Since the professional driver is to pay attention while driving, the non professional driver or the person who doesn’t own a driving license is expected to be careful, because in the case of such persons the risk of producing disastrous consequences is much higher. In what concerns the second condition of the aggravating form, the explanation and definition of the terms mentioned are considered necessary. Driving while intoxication. It is the process of penetration of the alcohol in the blood, with the consequence of producing certain conditions of (alcoholic) intoxication. The degree (level) of alcoholic intoxication is calculated and expressed by the amount of ethanol - measured in grams - at 1000 g of blood. This is alcoholometry and it can be established through the laboratory analysis of he blood sample submitted from the suspected persons (toxicological examination) (Belis, 1995). Alcoholometry can also be determined by the absence of the norm of blood - by its retroactive calculation [4]. Legal provisions regulating the development of different types of professions, crafts or activities prohibit their performance after the consumption of alcoholic beverages and prescribe penalties of different sorts for those who don’t observe the respective provisions, and on the assumption of exceeding a certain degree of alcoholic intoxication, thus of a limit expressly stipulated by law, the deed is incriminated. The legal limit of alcoholic intoxication which exceeding entails criminal liability for persons who drive vehicles on public roads is of 0,80 g/l of pure alcohol in blood, limit prescribed in art. 87, para. (1) from the Government Emergency Order no. 195/2002, ratified with alterations by Law 49/2006. Driving under the influence of alcohol. Is the particular condition created by alcoholic consumption in which, with reference to the amount swallowed and the type of the alcohol, as well as other factors with frenatory or acceleratory factor in its installation, occur a suit of characteristic effects, in stages correspondent to the evolution of this condition [5]. Unlike the alcoholic intoxication - which can be determined through laboratory toxicological examination or through the method of retroactive calculation - the drunkenness condition is established by any means of legal testing.

CONCURRENT REGULATIONS The existence of two regulations incriminating distinctly the same circumstance - driving the vehicle while intoxicated exceeding the legal limit - in order to determine two aggravations of the penalty, one as an aggravating circumstance, stipulated in art. 178 para. 3 Criminal Code, and secondly as a distinct offence, stipulated in art. 87, para. 1 Government Emergency Order, regarding road traffic offences, concurrent with the offence of voluntary manslaughter has made the object of numerous debates in the specialty literature and legal practice. By art. 178, para. 3 Criminal Code, it is stipulated that whenever “a person commits the offence of voluntary manslaughter is perpetrated by driving while intoxicated or under the influence of alcohol a mechanically-propelled vehicle, exceeding the legal limit, shall be punished by imprisonment for not less than 5 nor more than 15 years.” On the other side, in art. 87, para. 1 from the GEO no. 195/2002, reissued, it is prescribed that “a person who commits the offence of driving while intoxicated a vehicle or tramway on public roads, exceeding 0,8 g/l alcohol pure in blood, shall be punished by imprisonment for not less than 1 nor more than 5 years.” Thus, the legal nature of the offence of voluntary manslaughter in the form stipulated in rt. 178 para. 3 Criminal Code has generated forming and affirming two divergent points of view. Certain authors, in doctrine, and certain courts, in practice, have considered that the deeds mentioned previously constitute two distinct offences in a real concurrence, respectively, both the voluntary manslaughter prescribed in art. 178 para. 3 Criminal Code and the offence of driving while intoxicated or under the influence of alcohol, exceeding the legal limit, a vehicle on public 275

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roads, prescribed in art. 87 para. 1 GEO no. 195/2002, reissued with the ulterior alterations and additions. Other courts, on the contrary, have considered for such cases the deed instituting a single, complex offence, prescribed in art. 178. para. 3 Criminal Code (absorbent offence), absorbing the one prescribed in art. 87 para. 1 GEO no. 195/2002 (absorbed offence). The paternity of the latter point of view is assumed by the magistrates of the Supreme Court, who have prescribed that the offences of driving while intoxicated or under the influence of alcohol a vehicle or tramway, exceeding the legal limit, and the voluntary manslaughter, under these circumstances, institute one single offence, complex, of voluntary manslaughter prescribed in art. 178 para. 3 thesis I Criminal Code in which it is already absorbed the offence prescribed in art. 87 para. 1 GEO no. 195/2002, regarding road traffic, reissued [6]. According to this (statutory) point of view the offence of manslaughter regulated in art. 178 para. 3 Criminal Code, consists of a deed comprising in itself the distinctive features of the offence stipulated in art. 87 para.1 Government Emergency Order no. 195/2002, reissued, so that in such a case, with reference to the correct manner in which it has been perpetrated, the second offence loses its own autonomy of criminal deed, being completely absorbed as a constituent of a single offence, complex, in the sense of the provisions of art. 41 para. 3 Criminal Code. In my personal point of view, joined with those expressed by other authors from criminal doctrine, in the case given, are perpetrated, in real concurrence, the offences prescribed in art. 87 para. 1 Government Emergency Order no. 1995/2002 and art. 178 para. 3 Criminal Code and it cannot be accepted any contrary opinion because of the two following arguments. Principally, an unintentional offence (voluntary manslaughter) cannot absorb in its contents an intentional offence (driving a vehicle under the influence of alcohol) and, also principally, a continuing offence (driving a vehicle under the influence of alcohol) cannot be absorbed in a spontaneous offence (manslaughter). In the contents of the offence of voluntary manslaughter it is absorbed only the last moment preceding the traffic accident, which also constitutes the aggravating circumstance of the voluntary manslaughter, and not the suit of moments preceding the accident, in which the author covers the entire direction under the influence of alcohol, such deed keeping its autonomy and entering under the incidence of the provisions in art. 87 para. 1 Government Emergency Order no. 195/2002, no matter if, completed the deed, the accident with lethal consequences is produced or not (Diaconescu and Duvac, 2009). From the point of view of the administration of the legal action, the solution of the Supreme Court invites, in this case, to an injustice in what the legal treatment is concerned. Thus, the offence stipulated in art. 87 para. 1 GEO no 195/2002 , loosing its individuality by the effect of absorption, will not constitute term of the repetition of the offence, and the absorbent offence, voluntary manslaughter, being perpetrated by guilt, is not susceptible, according to art. 38 Criminal Code [7], to generate such repetition. Therefore, in a situation in which active subject A, driving while intoxicated a mechanically-propelled vehicle, exceeding the legal limit (0,80 g/l pure alcohol in blood) commits the offence of voluntary manslaughter in an aggravating form stipulated in art. 178 para. 3 Criminal Code and it will be punished with a penalty which quantum will be not less than the minimum nor more than the maximum stipulated by the special law (from 5 to 15 years). Also, in a situation in which active subject B commits the offence of driving while intoxicated on public roads a mechanically-propelled vehicle, exceeding the legal limit, it is retained the offence stipulated in art. 87 para. 1 GEO no 195/2002 and the subject will be punished with penalty by imprisonment not less than 1 nor more than 5 years. The injustice is produceds in the moment when the two active subjects commit a new offence. In such case, in the incumbent of subject A it will not be retained the repetition condition because according to art. 38 para. a1) the convictions committed by guilt shall not draw the repetition condition. In exchange, in the incumbent of active subject B, it will be retained the repetition condition, the deed being committed intentionally, and the injustice reflecting in the

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sanctionary treatment of the repetition (the possibility of applying an increase to the punishment for not less than 7 nor more than 10 years). Or, although the degree of social peril of the deed committed by subject B is substantially inferior to the one in the previous hypothesis, the legal provisions referring to the repetition and its consequences are applicable to it, making the object of criminal liability, the punishment (resultant penalty) not reflecting the degree of social peril of the deed.

CONCLUSIONS In the end of my scientific research, I find it necessary to underline the fact that a lege ferenda lawmaker should intervene and make act of the inconveniences at the level of the legal practice of the retention, in the situation of voluntary manslaughter of a driver whose alcoholometry exceeds the legal limit, to the complex offence. It is true that, in the latest version of the Criminal Code, Law no. 286/2009, issued in the Official Monitor nr. 510 from 24th July 2009, but not yet put into effect, regulating voluntary manslaughter, has been simplified, disclaiming a part of the aggravating forms which can be stood in for without complications by applying the rules of penalty of the concurrent offences. As a consequence, the latest regulation prescribes in art. 192 that in the event of perpetrating the voluntary manslaughter by driving while intoxicated a vehicle, exceeding the legal limit, it will be retained the concurrent voluntary manslaughter and the road traffic offence. Yet, Law no. 301/2004, issued at its turn in the Official Monitor, contained the same regulation and which was not put into effect due to successive postponements, until it was withdrawn by the issue of the latest Criminal Code. Therefore, existing the possibility that the destiny of the Law no. 301/2004 to be repeated, we are entitled to consider that the lawmaker should intervene with celerity and should eliminate any possibility of interpretation of legal provisions in detriment of certain subjects, not taking into account the hierarchy of the social peril reflected in the quantum of the applied punishment.

ENDNOTES [1] Concurrence of offences exists whenever: a) two or more offences have been perpetrated by the same author, before he/she is convicted definitely for any of them. There is also a concurrence even if one of the offences has been perpetrated by the same person in order to cover or hide the perpetration of another offence; b) an action or inaction perpetrated by the same person, thanks to the circumstances in which it took place and the consequences it produced, qualifies the elements of various offences. [2] In the event of concurrent offences, the punishment is established for each offence in particular, and among these it is applied the punishment which is the most serious, which can be increased up to its special maximum, and when the maximum character is considered insufficient, it may be added an increase of 5 years. [3] Example: the offence of completed homicide comprises naturally the attempt of perpetrating such offence, as well as it comprises the elements of minor offence (injury, physical damage). [4] In order to execute the retroactive calculation of the alcoholic intoxication it is necessary that the legal agent (police office, magistrate) provide the forensic data referring to the speed of swallowing the beverage (the period of time during which the beverage has been consumed), the condition of gastric plenitude (on an empty stomach, after meal), the type of the alcoholic beverage (refined alcohol, wine, beer) and the body mass of the person whose alcoholometry needs to be established through this procedure. [5] Euphoria, decrease of self-control, attention, will, delay of psycho technical responses, psycho-sensorial troubles, incoherence, unconsciousness, abolishment of reflexes, paralysis. [6] Decision no. 1 from 15th of January 2007. [7] Convictions which do not draw the repetition condition: a) offences perpetrated during minority, b) involuntary offences; c) amnesty offences; c) deed disregarded as offences by the criminal law.

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BIBLIOGRAPHY 1. Beliş V., Forensic treaty, Medical Publishing House, Bucharest 1995, p. 141-142. 2. Bulai C., Romanian criminal law. General Part, Vol. I end II, Publishing House Casa de Editura si Presa „Şansa”, Bucharest, 1992, p. 215. 3. Costin F., The complex offence, Lumen Publishing House, Iaşi, 2007. 4. Diaconescu Ghe., Duvac C., Criminal law treaty. Special part, Publishing House C. H. Beck, Bucharest 2009. 5. Dobrinescu I., Complex offence legislation in new Criminal Code, R.M.L. no. 912/1989, p. 74-76. 6. Dobrinoiu V., Criminal law. Special party, Publishing House Wolters Kluver, Bucharest, 2008. 7. Streteanu F., The concurrent offences, Publishing House Lumina Lex, Bucharest, 1999.

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THE ASSESSMENT OF THE SOCIAL DANGER OF THE CONCRETE ACT. THE RENUNCIATION TO APPLY A PUNITIVE SANCTION Doctor of Law Daniela Iuliana LĂMĂŞANU Associate lecturer at the "Stefan cel Mare" University of Suceava, Romania Prosecutor - Legal Department, Prosecutor of the Court of Appeal Suceava, Romania [email protected]

Abstract The concept of renunciation to bring a punitive sanction is made to remove the art. 181 of the current Criminal Code dispositions and improves a no penalty cause with an optional character which can be applied only by the court of justice, but only after the dispositions from art. 80 of the new Criminal Code have been verified and executed. The court of justice will give a verdict that contains the renunciation to bring a punitive sanction and it will bring only a warning. These means that there were shown the facts that made possible the renunciation to bring a punitive sanction and the offender is warned to have an appropriate behaviour in the future and what are the consequences of committing another crime. Keywords: the renunciation to bring a punitive sanction, warning, art. 80 from the new Criminal Code. JEL Classification: K 14 – Criminal Law

INTRODUCTION Each act under the rule of incrimination has a certain degree of social danger. This is the abstract social danger of that act and it is reflected in the limits of the punishment with which the legislator intended to sanction the perpetration of such deeds. The abstract social danger is different from the concrete social danger of the concrete act, and is reflected by the punishment imposed to the offender by the court. Thus, the application of the criminal sanction is in a necessary relationship with the determination of the degree of concrete social danger of the crime and the decision not to apply a criminal sanction requires a low degree of social danger of the act and of the perpetrator.

THE CONCEPT OF SPECIFIC SOCIAL DANGER OF THE ACT The concept of socially dangerous act has been used in criminal law doctrine and in the law of East European countries and it is a requirement for the act under criminal law (an essential feature of the crime) (1) to provide such a degree of danger for the criminal law to be justified. Thus, the social danger refers to the harm brought to social values protected by criminal law and not to the legal order (2) as a whole, the social danger of the criminal acts being different from the social danger which is inherent in any illegal acts. The first category of facts presents a greater severity than those which consist in the violation of extra-criminal laws and the criminal social danger (the substantial illicit) may have some relative interdependence from the formal criminal illicit both in bonam partem (in the subject’s favour), when the deed, although formally prescribed by law no longer provides the subsequent social danger, and in malam partem (against the subject) when the act would justify its penalizing by resemblance to an act punished by the law. Therefore, in the laws which lie on this concept, it would be permissible to introduce appropriate provisions to allow both the analogy of the incrimination and the removal of the criminal nature of concrete facts, which, until the solution of the cause, ceased to be a criminal social danger.(3) In this view (which was also adopted by the current Criminal Code), the socially dangerous nature of the act is a characteristic feature of the concept of infringement (4), a feature which must be included in each specific infringement. Thus, the judicial body must always establish not only the objective existence of the act, but also that it represents the social danger of an infringement, with a full match between the social risk assessed by the legislature at the time of incrimination and that of the considered facts. Therefore, the lack of social danger as an essential feature of the infringement 279

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leads to the removal of the criminal nature of the act and it has a double consequence: firstly, the social danger of an action under the criminal law is removed, according to the law, when there are certain situations, states, cases or circumstances, explicitly or implicitly permitted by the law (5) or when the act is not an infringement if committed by fault or when attempting an infringement is not punishable. On the other hand, the lack of the concrete social danger of the act draws the absence of infringement. The absence of concrete social threat leads to the conclusion that the criminal punishment of the subject appears as unfounded and contrary to some fundamental principles of criminal law and criminal policy.

THE CRIMINAL LEGALITY AND THE LACK OF SPECIFIC SOCIAL DANGER OF THE ACT In law systems based on strict observance of the principle of legality of incrimination and of the principle of separation of state powers, the contradiction between the social danger generally posed by the act under the criminal law and the lack in the act committed, of the degree of social danger of an infringement, that is between the criminal social danger of the act considered in its specificity and the lack of the social danger of the fact has been resolved differently from one law to another. In some countries the prosecutor was granted the right not to start the criminal proceedings when the act committed does not actually have the social danger of an infringement, being clearly meaningless as regards the legal and criminal fields. In other legislations, the court was granted the freedom to apply to the subject a minimum criminal penalty or not to apply any punishment, if it does not appear as necessary (6). This solution has the benefit that it is perfectly consistent with the principle of the legality of incrimination and with the separation of state powers. Incriminating an action as an infringement is the work of the legislator who has in view not a specific fact, but a category of such facts in their specificity, present a criminal social danger, justifying the incrimination and the criminal punishment. In exceptional cases, when the material fact does not have this nature, the reaction of the judicial bodies must be different (the renunciation to the criminal prosecution or to the punishment), without questioning the criminal infringement as an infringement under its typical configuration.

THE LEGISLATIVE SOLUTION IN TERMS OF CRIMINAL LAW REFORM By adopting the new Criminal Code, the Romanian legislator returned to the old concept of strict legality and the principle of separation of state powers, the social danger of the act not constituting anymore a feature of the infringement (7), but only a criterion of individualization of punishment. To solve the contradiction that can arise in case of having committed minor acts without infringing the penal legality and the separation of state powers, the new Criminal Code (8) regulates the institution of renunciation to apply a punitive sanction (9). Being the exclusive attribute of the court, the renunciation to apply a punishment may be granted on the one hand, only if some conditions are met regarding the act and the offender and on the other hand, only if we do not establish the accomplishment of the negative conditions expressly set by the legislator. A. Conditions regarding the act a. The infringement has a reduced gravity, given the nature and extent of produced consequences, the means employed, the manner and circumstances in which it was committed, the reason and purpose. To meet this requirement, the court must examine several criteria set by the legislator in the art. 80 paragraph 1 CN pen, namely: - The nature and extent of the consequences. The verification has to note the existence of damages caused by committing the infringement and their scope. If the extent of the material or moral damage is relatively low this criterion is considered to be met. - The means used by the offender to commit the infringement. The court must examine the tools that were used for committing the infringement, the dangerousness of the act being higher if 280

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suitable instruments were used to produce serious consequences or which involve a certain "specialization" of the offender to commit a particular type of infringements - for example, applying a shot with a hard object even if a vital area was not targeted; using appropriate keys to open the locks on doors of injured parties. - The method and circumstances in which the infringement was committed. By the way of committing the infringement we understand the process used by the offender to achieve its goal, that is the means in which he acted. The circumstances where the act was committed are the circumstances in which it was committed - for example, in a public place, at night, during a disaster, etc. The court will verify if the method used by the offender to commit the infringement reflects or not a particular danger or if the act was committed in circumstances of time or place which render it a more serious nature. - The reason and purpose reflect the subjective position of the offender in relation to the infringement and the effects produced. The reason represents the motive which led the perpetrator to commit the act and the goal is the finality sought by the offender when committing the infringement, his objective. The verification of these criteria requires the court’s consideration of the offender’s motivation and the objective pursued by the commission of this infringement. B. Conditions concerning the offender - The person of the offender is a criterion which requires verification by the court of his degree of integration in society, in other words, whether he has or not a job, whether he is married, he has children or persons he maintains, his education level, etc. - The criterion of the previous behaviour involves the analysis of the offender’s behaviour before committing the infringement, if he has previously committed infringements or other antisocial acts. - The offender’s attitude after committing the infringement involves the court’s verification of the efforts he has made to eliminate or reduce the consequences of his acts. For example, the recovery of the damage caused by committing the act, the transportation of the victim to hospital, the payment of the hospital expenses, etc. - The options for correction of the offender are a criterion under which the court considers whether without the imposition of a punishment the offender will commit other acts in the future. In other words, the court must be convinced that the mere existence of criminal proceedings started against the offender is sufficient to induce him to refrain in future from committing further infringements. After considering the criteria listed, the court considers whether applying a penalty in charge of the offender, depending on the consequences that it would have on him. Thus, we have in view the impact of penalty on the offender, either in socio-economic terms (risk of loss of employment generated by the conviction, the event of dissolution of marriage as a result of conviction, etc.) or in terms of his reputation or his health status. C. Negative conditions of the renunciation to apply a punishment Besides the positive conditions to be met by the offender and the infringement for the punishment to be renounced to, the legislator has also provided some negative conditions, which point out the impossibility of applying the institution examined by the court. a. The offender has previously undergone a conviction, unless the situations in which the act was de-criminated or amnestied, the rehabilitation has undergone or the rehabilitation period has expired. If the offender has been previously convicted, the court may not order the renunciation to apply a punitive sanction as long as he persisted in the criminal behaviour. It is not relevant whether the offender has previously been convicted to imprisonment or to fine penalty or whether the execution of the previous sentence was suspended. The nature of the infringement for which the previous conviction was pronounced - intentionally or by fault is also irrelevant.

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In the changing realities of life it is possible for a given deed, which was at one time deemed as infringement, to cease to have a particular gravity for social relations and therefore to be no longer necessary to impose a punishment. Naturally, sooner or later, this act is to be decriminated, removed from the sphere of the criminal illicit. The de-crimination is made either expressly, by a provision that abrogates the criminalization or the current law is replaced by another law which doesn’t state anymore that act as an infringement. In the case of the passed convictions, the decriminalization removes all the criminal consequences of the committed act the penalties imposed were entirely executed until the entry into force of the exculpatory law. Thus, that conviction is not anymore a criminal antecedent which influences the subsequent criminal treatment of the convicted. In this regard, the decriminalization (abolitio criminis) is equivalent to a restoration of the ex-convicted, who has since the entry into force of the exculpatory law, all the rights, without any disability or forfeiture resulting from the conviction (10). Therefore, a previous conviction for an infringement that was later de-criminated may not be an impediment for the court to order the renunciation to apply a penalty for an infringement which followed after the decriminated one. As clemency of the legislative authority (Parliament), the amnesty removes the criminal liability for infringements committed until the date of emergence of the act of amnesty. The amnesty is dictated by reasons of penal policy, being correlated with certain socio-political situations that could influence the phenomenon of infringements in a period which marks important moments in the evolution of the society. Being a cause that removes the criminal consequences, the liability and punishment, the amnesty does not remove the infringement nature and it cannot be equated with the decriminalization of the act because it remains under investigation and the acts committed after the amnesty act constitute infringements and attract the criminal liability (11). As long as the legislator himself has "forgotten" the infringement, removing its criminal consequences, it cannot constitute a criminal antecedent to prevent the court to renounce to the imposition of a punishment for a subsequent infringement. The rehabilitation intervention operates when there really is rehabilitation, that is in the case of imprisonment not exceeding 2 years or of imprisonment whose the execution was suspended under supervision if within 3 years the convicted has not committed any infringement (Art. 165 of the new Criminal Code). The expiry of the period of rehabilitation occurs after the interval of time provided by law in the case of the judicial rehabilitation (Art. 166 new Criminal Code). Being an extinctive cause of the consequences of conviction (12), with effects in personam and exclusively future consequences, the rehabilitation once occurred, it determines the cease of the nature of criminal antecedent of the conviction, the offender being regarded as such a primary offender, so that the court which judges a fact ulterior to the rehabilitation or to the of the period of judicial rehabilitation, may dispose the renunciation to apply the penalty. b. For the same offender has been disposed the renunciation to apply the punishment in the last two years preceding the date of the commission of the infringement. If the offender has benefited from the removal of penalty 2 years before committing the infringement for which he is judged, the court may not order anymore the removal of penalty, because it proved to be ineffective in relation to the offender who persists in the criminal behaviour, being necessary to impose a punishment. c. The offender has evaded prosecution or judgement or attempted thwarting the finding of truth or identifying and criminally accounting the author or the participants. By avoiding the prosecution, the offender evades to appear before the judicial bodies. Trying to thwart the truth is any action the offender does to prevent the truth from being found out - for example, influencing the witnesses or victims, destroying the evidences, the negative attitude in relation to the deed, its non-recognition even if there is obvious evidence of the guilt, the indication of variants of committing the crime to conduct the judicial organs on a wrong direction of investigation, etc.

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In the case in which the deed is committed in participation, the condition is satisfied if one of the participants prevents the identification of the other participants or of the author or their criminal accountability. d. The penalty provided by law for the infringement committed is the imprisonment for more than 3 years. This condition is met in the case of having committed serious infringements reflected in special limits of punishment, if the maximum penalty is imprisonment for 3 years or more or if the act is punishable by life imprisonment (eg, crimes against life, injuries, collisions or injuries causing death, trafficking of persons or minors, unlawful detention, infringements against sexual freedom and integrity, simple burglary and armed robbery, etc.). The court must consider all the criteria listed by the legislator for the removal of the penalty to be possible. Meeting a single negative condition constitutes an absolute obstacle for the application of this institution. If the court is informed with the judgement of various infringements committed by the same person in actual or formal (ideal) competition, for the renunciation to apply the punishment to be possible we must meet the conditions set by the legislator in relation to each concurrent infringement and the existence of a negative condition for an infringement (eg, influencing a witness) draws the inapplicability of the institution even if for the other facts the positive conditions for the allowance are met (Art. 80 paragraph 3 the new Criminal Code). This conclusion emerges from the whole regulation of the institution, the court conviction as regards the offender’s dangerousness being the result of the analysis of his all criminal activities included in the act of intimation.

CONCLUSIONS The renunciation to apply the penalty is a faculty for the court and even if we would check the compliance with the criteria set by the legislator for passing this solution, however, if they deem it necessary to impose a penalty on the offender, the court will dispose his conviction. The renunciation to apply the penalty only requires the court to renounce to impose a principal, accessory or complementary penalty on the offender. The court will apply on the offender a warning that consists in actually presenting the reasons that led to renounce to the penalty and warning the offender on his future conduct and on the consequences he risks if he will commit more infringements. A single warning will be applied even if the court was informed the offender committed various infringements. If there is a state of danger the removal of which is necessary to prevent the perpetration of other criminal acts provided by the criminal law, the court will also be able, by the same decision, to dispose the application of safeguards to the offender. However, the court may also order him to pay civil damages as the renunciation to apply the penalty has no effect on the performance of safety measures and the civil obligations imposed by the sentence (Article 82 the new Criminal Code). Therefore, by the decision it will pass, the court finds the existence of the infringement and the culpability of the offender but will apply to the subject a warning and, if necessary, a safety measure, and may require the defendant to pay civil damages. The fact that the court does not impose a sanction is without prejudice to the criminal nature of the act. It is an infringement, it is referred to by the criminal law, it has been committed with guilt in the form required by the incriminating rule, it is not justified and it is attributable to the person who committed it. From this perspective, the institution of renunciation to apply the penalty appears as a question of unpunishment, with general nature and whose implementation is left by the legislator to the discretion of the court informed with the judgement of the deed. The person for whom was ordered the renunciation to apply the penalty is not subject to any forfeiture, ban or disability that might result from the infringement (Art. 82 paragraph 1 the new Criminal Code), these being perpetual or long-term criminal or extra-criminal legal consequences, arising from the very fact of conviction. 283

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Therefore, it can be concluded that, by setting the renunciation to apply the penalty a progress was made towards reforming the system of individualization of criminal responsibility but also a crystallization of the legal-criminal concept regarding both the concept of infringement and the reduced dangerousness of the fact itself and the person who committed it.

ENDNOTES: (1) George Antoniu in Codul penal comentat şi adnotat. Partea generală , Ed. ŞtiinŃifică, Bucharest, 1972, p. 91; Costică Bulai, Manual de drept penal, Ed. All, Bucharest, 1996, p. 152; Constantin Mitrache, Cristian Mitrache, Drept penal român. Partea generală, Ed. Casa de editură şi presă „Şansa”, Bucharest, 2002, p.86 (2)Vintila Dongoroz, Drept penal, Bucharest, 1939, p. 8 - the author defines the judicial order as the regulation of the relationship life with the legal rules. (3) George Antoniu, VinovăŃia penală, the second edition, Ed. Academiei Române, Bucharest, 2002, p. 65 (4) Ibidem (5) Vintila Dongoroz and the collective, ExplicaŃii teoretice ale Codului penal român. Partea generală, vol I, Ed RSR Academy, 1969, p. 342 - the author shows that fall into this category the cases in which the law provides for both the infringement the threat of which is removed and the reason of removal of this threat (eg, the preventive arrest, the house search or the implied restriction of rights by inherent acts of certain activities) or occupations recognized by law, acts which by their nature present a social danger and are prescribed by law - such as: personal injury caused by engaging in sports, surgical operations etc.). (6) For example, Art. 2.12 of the American Model Penal Code devotes a good solution in this respect, in the case of infringements of minimum importance. According to the text, the court may renounce to the judgement depending on the type of behaviour complained and on the circumstances of the case, considers the offender’s manifestation was in the traditionally accepted boundaries of tolerance and is not contrary to the aim pursued by the legislator, it does not gravely violate the interests of victims, and whether the fact has not caused an actual harm that the law sought to prevent or caused it to an insignificant level or whether it has been committed under such circumstances that it is not reasonable to believe that the legislator considered to prohibit such acts. (Model Penal Code and Commentaries, Part I / 1, Philadelphia, P.A. The American Law Institute, 1985, p. 399-400). The new French Penal Code provides in Art. 132-58, 132-59 the possibility for the court to exempt the offender of any punishment, with a correctional aim, if it is clear that he was re-educated, that the caused damage was repaired and the disturbance resulting from the infringement stopped; paragraph 60 of the German Criminal Code gives the court the possibility to renounce to apply a punishment if it is not more than 1 year of imprisonment, when the consequences of the fact affected the offender to a large extent, so that applying a punishment would appear unnecessary. (7) According to art. 15 of the new Criminal Code, the infringement is the act under criminal law, committed with guilt, unjustified and attributed to the person who committed it. (8) Adopted by Law. 286/2009, published in the Official Gazette. no. from 24.07.2009 (9) In the project of the new Criminal Procedure Code has been provided for the prosecutor to be able to renounce to the criminal prosecution. Article 318 of the new Criminal Procedure Code states the applicability of this institution in the case of infringements for which the law provides the fine penalty or imprisonment not exceeding 5 years, the prosecutor being able to renounce to the criminal prosecution when, depending on the offender, on the behaviour he had before committing the infringement, on the factual content, on the manner of committing the infringement, on the purpose of committing it, on the concrete circumstances of the infringement, on the efforts made by the offender to remove or mitigate the consequences of the crime, finds that there is not a public interest in his prosecution. The renunciation to prosecution can take place only after moving the criminal proceedings and before the notification of the preliminary board. The prosecutor may order the offender to satisfy one or more of the following requirements: a) to eliminate the consequences of the criminal act or to repair the damage caused, or to establish with the civil party a way to repair it, b) to publicly seek apology to the injured party, c ) to perform his maintenance obligations, d) to perform unpaid community service work, with the consent of the offender, over a period between 30 and 60 days, unless, by reason of health, that person cannot perform the work; e) to attend a counselling program conducted or supervised by the probation service. 4) If the prosecutor disposes that the defendant has to fulfil the obligations set out in paragraph 3), by order he fixes the time limit by which they are to be met, which can not be longer than 6 months. (10) 1 C. Bulai, quoted work, p. 131 (11) Idem, p. 328 (12) Viorel Paşca, Ramiro Mancaş, Drept penal. Parte generală, Ed. Universitas Timisiensis, Timişoara, 2002, p. 754

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BIBLIOGRAPHY 1. Teodor Vasiliu, George Antoniu, Ştefan Daneş, Gheorghe Dărângă, Dumitru Lucinescu, Vasile Papadopol, Doru Pavel, Dumitru Popescu, Virgil Rămureanu Codul penal comentat şi adnotat. Partea generală , Ed. ŞtiinŃifică, Bucharest, 1972; 2. Costică Bulai, Manual de drept penal, Ed. All, Bucharest, 1996, 3. Constantin Mitrache, Cristian Mitrache, Drept penal român. Partea generală, Ed. Casa de editură şi presă „Şansa”, Bucharest, 2002, 4. Vintila Dongoroz, Drept penal, Bucharest, 1939 5. George Antoniu, VinovăŃia penală, the second edition, Ed. Academiei Române, Bucharest, 2002 6. Vintila Dongoroz and the collective, ExplicaŃii teoretice ale Codului penal român. Partea generală, vol I, Ed RSR Academy, 1969 7. Viorel Paşca, Ramiro Mancaş, Drept penal. Parte generală, Ed. Universitas Timisiensis, Timişoara, 2002

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INSTRUCTIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES

RO Revista The Annals of the Stefan cel Mare University of Suceava. Fascicle of The Faculty of Economics and Public Administration primeste articole, din toate domeniile economice, pe cele 5 sectiuni:  Economie, comert, servicii  Management si administrarea afacerilor  Contabilitate-finante  Statistica, informatica si matematica  Drept si administratie publica Este recomandabil ca lucrarile sa fie bine structurate astfel încât sa asigure claritatea continutului precum si esenta temei tratate. Toate articolele trebuie sa prezinte cercetari originale care nu au mai fost publicate sau trimise spre publicare în alta parte. Lucrarile prezentate la conferinte sunt acceptate cu conditia ca ele sa nu fi fost publicate în întregime in volumul conferintei. Lucrarile vor fi redactate în întregime în limba engleza. Lucrarile vor fi recenzate in sistem blind review. Titlul lucrarii Se va scrie cu Times New Roman, caracter 12, bold, centrat în partea de sus a paginii, si se va scrie cu majuscule. Autorii lucrarii Numele lor se va scrie la un rând după titlul lucrării, centrat, precizându-se: titlul stiintific, universitatea/instituŃia, localitatea, Ńara si e-mailul. Se va folosi Times New Roman, caracter 10, cu litere mici. Rezumatul lucrarii Rezumatul se va scrie după autori, lăsând un rând liber înainte; trebuie sa cuprinda informatii suficiente pentru ca cititorii sa poata aprecia natura si semnificatia subiectului, caracterul adecvat al metodei de cercetare, rezultatele si concluziile lucrarii. Rezumatul nu este o introducere, acesta prezinta în sinteza rezultatele esentiale ale cercetarii. Rezumatul se va scrie cu Times New Roman, caracter 10, italic, justify. Este necesar ca el sa aiba un numar de 200-250 de cuvinte, spatiate la un rând. Cuvinte cheie Selectati 5-6 cuvinte cheie (cuvinte sau expresii) care surprind esenta lucrarii. Enumerati acesti termeni în ordinea descrescatoare a importantei lor. Acestia se vor scrie cu Times New Roman, caracter 10, la un rând liber după rezumat. Clasificare JEL Se va trece unul sau mai multe coduri JEL, in care lucrarea poate fi inclusa din perspectiva subiectului abordat. Lista cu coduri o gasiti la adresa: http://www.aeaweb.org/journal/jel_class_system.html Introducerea Pentru introducere, formulati scopul lucrarii, motivatia temei alese si explicati pe scurt modul de abordare si argumentele necesare. Înainte de introducere se lasă 2 rânduri libere. Continutul lucrarii Organizati corpul lucrarii utilizând titluri si subtitluri pentru a accentua atât continutul cât si claritatea acesteia. Titlurile şi subtitlurile se vor scrie cu litere mari, 12, bold, aliniate la stânga. Se va lăsa un rând liber înainte şi unul după. Trebuie avute în vedere urmatoarele: • terminologia recunoscuta a domeniului pentru a descrie orice subiecte sau proceduri experimentale folosite pentru colectarea si analiza datelor; • includerea metodelor detaliate, astfel încât cititorii sa poata urmari prezentarea materialului; • formularea rezultatelor în mod clar si succint; • evidentierea rezultatelor cercetarii si impactul acestora, atât global cât si specific. Textul lucrarii se va scrie cu Times New Roman, caracter 12, spatiat la un rând. Tabelele si figurile sa fie dimensionate si plasate în corpul lucrarii asa cum doresc autorii sa apara în revista. Trebuie avut grija ca acestea sa se încadreze pe o singura pagina. Continutul lor se va scrie cu Times New Roman, caracter 10, iar titlul coloanelor tabelelor se va scrie cu Times New Roman, caracter 10, bold. Titlul si numarul tabelelor vor fi pozitionate deasupra acestora, iar titlul si numarul figurilor, sub acestea. Atunci când este cazul se va mentiona si sursa. Numarul tabelelor si figurilor va fi amplasat în corpul textului, într-o paranteza, acolo unde se fac referiri la ele, de exemplu: (fig. nr. 1); (tabel nr. 1) Graficele trebuie sa fie clar executate astfel încât sa ofere copii alb-negru cât mai lizibile. Numerotati toate ecuatiile si formulele folosite plasând numerele lor în paranteze, în dreapta acestora. Explicati abrevierile si acronimele prima data când apar în corpul textului, chiar daca au fost definite în

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rezumat. Nu folositi note de subsol, dar sunt permise note la finalul lucrarii (endnotes), situate înaintea bibliografiei. Ele se vor scrie cu Times New Roman, caracter 10, italic. Concluzii Concluziile pot recapitula punctele principale ale lucrarii, dar nu trebuie sa reproduca rezumatul. Ele pot cuprinde aspecte legate de importanta lucrarii sau pot oferi sugestii referitoare la aplicatii ale acesteia sau directii de extindere a cercetarilor. Bibliografie Referintele bibliografice, din introducere sau corpul lucrarii, se fac prezentându-se, într-o paranteza, în ordine, numele autorului si anul aparitiei lucrarii, de exemplu: (James, 1984); (Collins si Fermont, 1977 când sunt doi autori).); (Collins si altii, 1988 - când sunt trei sau mai multi autori). De asemenea, trimiterile bibliografice, din textul lucrarii se numeroteaza cu cifre arabe [1], iar când sunt mai multe trimiteri se va scrie [1] - [2]. Lista bibliografica, de la sfârsitul lucrarii, se va scrie în ordine alfabetica, dupa numele autorului, numerotându-se. Când anumite studii, lucrari, articole sunt publicate în volum, atunci se va mentiona numarul acestuia si paginile. Precizari importante • Articolele trebuie sa aiba 6-10 pagini, pe formatul A4, marginile stanga, dreapta, sus, jos: 2 cm. • Lucrarile trimise trebuie sa fie formatate în Word cu extensia doc. • Articolele care nu respecta aceste instructiuni vor fi respinse inainte de a fi date la peer review. Vă rugăm manifestaŃi foarte mare grijă pentru corectitudinea traducerii în limba engleză. Vă rugăm să trimiteŃi şi varianta în limba română a art icolului, necesară pentru controlul ştiinŃific. VeŃi primi un răspuns în urma procesului de recenzare. Lucrarile se vor trimite pe adresa: [email protected] , menŃionând la subject secŃiunea pentru care optaŃi (ECS, MAF, CF, SIM, APD); exemplu: “articol ECS”. Termenele limită vor fi afişate pe site. Pentru alte detalii sau noutăŃi vă rugam urmăriŃi site-ul revistei: www.seap.usv.ro/annals . EN The Annals of the Stefan cel Mare University of Suceava. Fascicle of The Faculty of Economics and Public Administration, welcomes theoretical and empirical articles, from all economic fields, according to the 5 sections:  Economy, trade, services  Management and business administration  Accounting-finance  Statisitics, data processing (informatics) and mathematics  Law and public administration It is expected that manuscripts will be organized in such a manner that maximize both the substance and clarity of the document. All articles should report original research that has not been published or submitted for publication elsewhere. Papers presented at conferences are accepted, provided that they have not been published in full in Conference Proceedings. The papers will be all written in English. The papers will be checked in blind review system. Paper Title Must be in 12-point bold type, Times New Roman, centered across the top of the page and will be writen in uppercase. Paper Authors Author’s names will be written under the paper title after a blank line, centered across the page, single spaced specifing: title, university/institution affiliation, country and e-mail address. It must be written in 10 point type, Times New Roman in lowercase. Paper Abstract It will be written after authors leaving a blank line before. The abstract must include sufficient information for readers to judge the nature and significance of the topic, the adequacy of the investigative strategy, the nature of the results and the conclusions. An abstract is not an introduction, it summarizes the substantive results of the work. The abstract will be written in 10 point type italic, Times New Roman, justify. It must have 200 to 250 words, single spaced type. Keywords Select 5 to 6 keywords (words or expresions) that capture the essence of your paper. List the words in decreasing order of importance. All the key terms must be translated in English and attached to your abstract. It will be written in 10 point type, Times New Roman, after abstract leaving a blank line before. JEL Classification Please put one or several JEL codes, according to the subject of your paper. The codes can be found here: http://www.aeaweb.org/journal/jel_class_system.html Introduction

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The Annals of The "Ştefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration

Vol. 10, No. 1(11), 2010

For introduction, state the purpose of the work, the motivation of the chosen theme and, briefly explain your approach and the necessary arguments.Before introduction please let 2 blank lines. Paper Content Organize the body of the paper using titles and subtitles to emphasize both content and clarity. The titles and subtitles will be written in caps, 12, bold, left aligned. Please let a blank line before and one after. Consider the following: • the accepted terminology of the field to describe any subjects or experimental procedures used to gather and analyze data; • include detailed methods, so readers could be able to follow the investigation; • state the results clearly and succinctly; • the implications of the findings and minutely discuss the impact of the results, both globally and specifically. Typeface must be 12-point Times New Roman type single spaced. Tables and figures should be sized and placed in the body of the paper just as the authors want them printed in the journal. Care should be taken so that tables and figures could be on one page. The tables contents will be written in 10 point type, Times New Roman and the heading of the tables will be in 10 point type bold, Times New Roman. The titles and numbers will be positioned above the table and the title and number of the figures bellow. When it is needed, the source will be mentioned. The number of the tables and figures are to be positioned in the body of the text, in a paranthesis, wherever they are mentioned, for example: (fig. nr.1), (table nr. 1). The graphs must be executed clearly so as to give clear black and white copies. Number all the equations and formulas used positioning the numbers in paranthesis on their right side. Define abbreviations and acronyms the first time they are used in the text, even after they had already been defined in the abstract. Avoid the use of footnotes, but endnotes are encouraged at the end of the paper before the references. Endnotes must be in 10 point, Times New Roman, bold type. Conclusions Conclusions may review the main points of the paper, do not replicate the abstract as the conclusion. A conclusion might elaborate on the importance of the work or suggest applications and extensions and extensions of the research. References Related to in-text referencing cite the name of the author(s) and year of publication (James, 1984), (Collins and Fremont, 1977 – for two authors) and (Collins et al., 1988 – for three authors). Also, references in the articles will be numbered with [1] and if there are more than one reference with, [1] – [2]. Sources should be in alphabetical order by author’s last name, the list being numbered. When certain studies, research, articles are published in a volume, the volume numbers and pages will be specified. Important Specifications • The articles must be at least 6 to 10 pages long in the style A4 sheet, margins left, right, top, bottom: 2 cm. • Submitted documents must be in PC-formatted Word (.doc) file. • The articles that don't respect specified guidelines will be rejected before they are sent to peer review. The manuscripts should be submitted to: [email protected] , mentioning at subject the section that your paper fits (ECS, MAF, CF, SIM, APD) ; example: “article ECS”. The deadlines will be posted on our website. For other details or news, please visit our web site: www.seap.usv.ro/annals . FOR ORDERS, PLEASE CONTACT US BY E -MAIL AT THE ADDRESS MENTIONED BEFORE. PENTRU COMENZI VA RUGAM SA NE CONTACTATI PE ADRESA DE E -MAIL A REVISTEI MENTIONATA ANTERIOR.

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