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| HOW MUCH WILL THE WORLD CRISIS AFFECT US? 4/11/2008 |
| (2008-11-04) |
| Last updated: 2008-11-06 16:05 EET |
The Governor of the National Bank of Romania, Mugur Isarescu, on Monday tried to give an answer to the question: how much will the world financial crisis cost Romanians? In a press conference, he warned about the probable volatility of the Leu - Euro exchange rate and predicted difficulties for people who wish to make or have made loans in the European currency. The leu's volatility on the monetary market can, without a doubt, upset the financial stability of companies and households due to the high level of hard currency loans and is one of the biggest threats to Romanian economy, as indicated by the EU autumn economic forecast published on Monday.
According to the EU Commissioner for Economic and Monetary Affairs, Joaquin Almunia, “clouds have gathered on the horizon” for all EU member states and “downside risks have clearly increased”. In his opinion, Romania's economy is overheated and its growth rate will slow down. The current account deficit will remain at worrying levels, the fiscal prospects are grim and vulnerability to external shock is high. The European official urges Romanian authorities to implement “in due time”, that is before and also after the legislative elections of November the 30th, fiscal policy measures and economic reforms to reduce the increasing unbalance in the economy.
The forecast of the European Commission expects Romania's financial deficit to reach 3.5% of the GDP in 2008, thus exceeding the 3% ceiling established by the Maastricht Treaty, mainly as a result of growing public spending through pay rises and subsidies. It is common knowledge that trade unions are pressuring the government to enforce the law on the increase of teachers' salaries by 50%. The Governor of the National Bank, Mugur Isarescu, believes the future government will also find it hard to keep in check public spending in 2009 as well while faced with growing demands from the population. As a result, Isarescu announced the revision of the predicted inflation rate for 2008 from 6.6% to 6.7% and from 4.2% to 4.5% in 2009, and said the country would enter a period of instability.
Overall, however, the central bank governor also said, Romania is not affected directly by the crisis. “The forecast generally looks good, there's nothing spectacular about it, no blood will run”, said Isarescu. In the opinion of financial experts, Romania will start to feel more strongly the impact of the international crisis in 5 or 6 months' time, with the expiry of contracts signed by Romanian companies with foreign companies, especially from the European Union, which absorbs about 70% of Romania's foreign trade. In a nutshell, it is estimated that lower consumption in EU member states will leave Romanian economy without new orders. The Romanian Finance Minister Varujan Vosganian says that Romania is merely going through a “stage of lack of confidence” as compared to the rest of the EU countries where the crisis has reached the border between the financial and the economic stages.
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