BNR: Financial markets are already penalizing us; they will do so with greater intensity if we don't come with a solid plan

The financial markets are already penalising us and will do it with greater intensity if Romania does not quickly come u[ with a solid and credible plan to reduce the budget deficit, said Cristian Popa, member of the Board of Directors of the National Bank of Romania (BNR)on Friday.   'I had the curiosity to follow on Google Trends the interest of Romanians in the term 'deficit'.The results are interesting: in the last 12 months, searches are at their maximum level, 100 out of 100, so the phenomenon concerns, and not only us, economists. If we look back at the last five years or even since there are available data, the interest in the term 'deficit' has never been so high.    This clearly shows us that the problem of the budget deficit is not only a technical concern, but also a social one. As a representative of the central bank, I take this opportunity to emphasize the urgency here. There is an urgency in addressing this thorny matter, but it needs to be addressed. The financial markets are already penalizing us and will do so with much greater intensity if Romania does not quickly come up with a solid and credible plan to reduce the budget deficit.We must be aware that financial markets react promptly, often violently, when they perceive a lack of vision or indecision on the part of decision-makers' said Cristian Popa, at the conference Romania in the midst of crises.   Risks, opportunities and anchors for the development of the financial-banking systemin the new national and global context' organised by MediaUno Press Group.   According to him, fiscal consolidation is' not a whim, but a pressing necessity: 'Any effort for sustainable fiscal consolidation must start with rigurous  review of public expenses and the issue must be addressed starting from the source. The efficiency of allocation of the budgetary resources represents the first step in a process of sustainable adjustment and waste should not be tolerated. There is, still the question if the measures of the reduction of expenses may bring the necessary sums. Thus, the next logical step and moral as well, is to improve collection which is reduced in Romania. Only later, if the two measures are not enough we can discuss realistically, fairly and assumed about adjustments to the level of taxation. Any other order of the three categories of measures may raise issues of morality in the society. And it seems they are already creating such issues.Although the state revenues are on an upgoing trend, they are frequently and rapidly surpassed by a more accelerated dynamics of expenses. Thus, without a firm control of expenses, any progress in the matter of revenues risks to become less relevant' said Cristian Popa.   He stated that political negotiations around the deficit are normal and they should not worry us as they are part of the democracy exercise. 'But more important than negotiations is to have a clear vision about our economic future. (...) It is essential that the fiscal policy be led by a long term perspective, not by electoral urgency or other types of pressure. In this context, it is worth mentioning the recent warning of the BNR governor: ' the issue od the debt has never ben so pressing' he said recently. ' The credibility of the fiscal policy in Romania plays a crucial role in keeping the trust of the investors, the control over lending prices and macroeconomic stability for a long term' And so it is.The choice of measures is a political matter and the mix of measures will be, in its turn, a political one. BNR is not involved in this process' Popa said.   He considered as completely unspired the idea recently promoted in the public space regarding a tax on banking tradings and showed that the experience of other European states proves that such a tax rather generates unwanted secondary effects than supplementary income.   According to Cristian Popa, financial stability represents an essential precondition for the efficient transmission of monetary policy and contributes to achieving sustainable economic growth.   'In a country like Romania, where we still have a lot to achieve, even reaching the European average in terms of financial intermediation, such a measure would be totally counterproductive. It would not bring us closer but would distance us from the developed economies towards which we want to converge. Instead of such measures with major collateral effects, political courage and real commitment to structural reforms are needed. These reforms are, without a doubt, unpopular, at an individual level, but absolutely necessary for Romania's development and our deeper integration into the European and global economy, at a general level. Facade reforms only postpone the problems, with high costs for the economy and for future generations.But deficit is not the only term at the centre of public attention. Another keyword, uttered more and more frequently in the public space is ' uncertainty'. This term dominates not only press headlines or economic analyses, but also the official communications of institutions. 'Those who are curious to read the press releases accompanying the Decisions of the Board of Directors of the National Bank of Romania on monetary policy issues will notice that the term 'uncertainty' appears no less than six times in the last such communication alone. It is not a coincidence, but a faithful reflection of the complexity and volatility of the environment in which we operate' Cristian Popa said. 'Adjustments operated too late are, for most times, either inefficient or destabilizing, and no longer save the ship from incidents at sea, In such a framework, monetary policy must remain, and will remain firm in its anchors, and above all guided by prudence but also flexible enough to prevent too strong tensions from accumulating. We will maintain a carefully calibrated monetary policy, without making impulsive decisions' Cristian Popa concluded. (Photo:https://www.facebook.com/CristianIPopaCFA/)