Preserving financial stability is not ‘nonsense’ because without it the market economy cannot function properly and efficiently, while fiscal easing is a ‘hoax’, as it reduces taxes on one side and it charges through inflation, depreciation and arrears to the budget, BNR Governor Mugur Isarescu said on Tuesday.
“Without financial stability the market economy cannot function efficiently, correctly and collapses ultimately if financial stability is not ensured,” said on Tuesday the BNR Governor when presenting the Report on financial stability 2015.
Isarescu also pointed out that price stability does not guarantee financial stability, the crisis proving that financial instability can destroy price stability on both sides, by deflation or by pushing to the extreme inflation, if the costs of financial sanitation are very high, causing budget deficits and large public debts.
“Sometimes the idea that macroeconomic stability is a kind of luxury is promoted, that we Romanians cannot allow it, financial stability is placed as counterweight to economic growth. It is also argued to opt for rapid economic growth and leave aside the financial stability, it’s not needed. This is not true!” said the head of the central bank.
He added, in this context, that the fiscal easing as counterweight to the macroeconomic stability is nonsense.
Too many companies register permanent losses
The large number of companies reporting permanent losses, about 200,000, shows that Romania does not comply with the rules of market economy, their situation affecting banks’ financing operations, as banks cannot grant them loans because they are undercapitalized, the BNR Governor added.
“The extremely high number of 200,000 private enterprises with permanent losses points two major problems: why aren’t the rules of market economy observed in Romania? In the ‘90s (…) we were told this: competition and market cleanliness are essential, meaning inputs and outputs. So that one is able to set up a business, to work, to have fair competition, but outputs should exist as well. If the company can’t cope, or registers losses, it should be removed quickly. Keeping a large number of companies with permanent losses is not only shielding the private sector, but also hinders the financing process,” said the BNR governor, Mugur Isarescu.
He pointed out that some of these firms are former companies established in an apartment, created to ‘move’ money, while others represent family failures.
The report proposes an analysis on the private sector, where almost a third of the companies register permanent losses, after 25 years when state enterprises were on the focus.
Isarescu pointed out that firms can be capitalized through the assets they have, but their devaluation should be also considered, or European funds should be attracted.
“The European funds are donations. Why companies want to capitalize on banks’ money and not insist on a clear source of capitalization, European funds? The strong connection between the banker and the entrepreneur should work: let’s take European money! You carry out the capitalization, while I can finance you! But each should see the limits, let no one think that he would live super well in this relationship. Survival comes first, not a SUV, a yacht and so on,” Isarescu said.