The opposition to the reduction of public spending is fierce from those who are affected by it. Unfortunately, the government arch seems rather sensitive to this opposition to change than to make every effort to keep the coherence of the governance program, with which, moreover, all the parties, writes Eugen Rădulescu, the BNR governor counselor, in an opinion text that Hotnews publishes. “We walk on a very thin ice pink,” he warns.
I tried with all the powers to stay away from the political game and not even comment on it. But the situation in which we are now is too much on the edge of the knife so as not to make some inevitable references with a little more political character. And I say it from now: they are not the opinions of the National Bank, nor of its governor. It is just what I think, using the long experience I have acquired.
The edge of the gap
Last days, I wrote an article, entitled “27 million average salaries”, in which we showed that the budget deficit of 2024 is the equivalent of 27 million average salaries in the economy, and this figure does not show the entire dimension of the problem, as the expenses postponed to the payment, plus the strong increase of payments in the interest rate, on the account of the interest, over 31 million. I mean, over 6 million employees should not earn anything for 5 months!
This is the point from which, at the middle of the current year, this started the government led by Ilie Bolojan. A government that has assumed an almost impossible task, to restore public finances in a sustainable path, without the country passing through a major economic crisis. In order to succeed, the expense reductions should accompany the increase of budgetary revenues and there should be good faith throughout the government area, where the dramatic situation in which the public finances are and admitted to make some sacrifices, which are not even disproportionately for anyone, should be evaluated.
But this does not happen much. First, the educational unions have transformed into a national tragedy the increase of the teaching norm from 18 to 20 hours weekly and the reduction of the amounts collected by the hour. After all, it seems that things have been quiet, at least here. But the unions of the local administration totally rejected the idea of reducing by 10% of the actual number of civil servants, ie about 13,000 people, or on average 4 of each UAT (administrative-territorial units) in the country. Probably the most scandalous opposition to the restructuring measures came from magistrates, which cannot be independent if they do not retire at 47, with a pension of over 5,000 euros, and this probably indexable as they want. The fact that the European Union itself considered this aberration as unacceptable in a democratic country and has conditioned a installment of the PNR from eliminating it has no effect.
It is certain that the opposition to the reduction of public spending is fierce from those who are affected by it. Unfortunately, the government arch seems rather sensitive to this opposition to change, than to make every effort to maintain the coherence of the governing program. Program with which, moreover, all parties have agreed, but from theory to practice we have a long way.
So far, the results are not conclusive. They couldn't even be. The whole program is applied step by step. Apart from the increase of VAT and excise duties, which start, shy, to be observed in the budget revenues, all the others will make their presence felt only in time, some only from 2026.
“We step on a very thin ice pink“
From the budget deficit of 9.3% of GDP, in 2024, 8.4% represented the current account deficit. I mean, I say once more: we borrowed hard to support economic growth from other countries! It can hardly find a more accurate definition of political irresponsibility taken to paroxysm. In fact, it was precisely the external coverage of the public deficit made it insensitive to the ordinary citizen more and more pressing.
For now, we only see that interest on public debt have a rapid growing trajectory, that is, a good part of today's loans to refinance yesterday and pay the related interest. This is still perfectly possible, because we have a consistent currency reserve and that the financing programs from the European Union sources are still in progress, as the government program, as well as the first measures actually applied, have generated some confidence that, at least now, the Government will take its obligation to reduce the public deficit.
It's just that we walk on a very thin ice. The 3 major rating agencies have maintained the rating of Romania in the area recommended for investments, but, with a BBB- and negative perspective rating, we are just half a step away from losing this status.
The measures already adopted, including the ones to be weighed by the RCC, are far from sufficient, even for the modest targets for decreased deficit for this year. It is right, the European Commission has shown its support for this government; Continuous non -reimbursable financing, new programs funded by the Union are on the way to be started, and a deficit of 8.4% of GDP has been approved. It's just that it is absolutely mandatory for us to do our job, at least from here.
“Romania cannot get out of the crisis without external support. It exists, for now”
There are politicians, even from the government arch, who are ready to dust everything, if someone dares to touch their feud. So modest reduction of the bureaucratic apparatus, with only 13 thousand people, is considered by some a personal act of war, inadmissible, no matter how dramatic the situation of the country. Other politicians keep their ison, proposing not to decrease the staff by 10%, but of the total expenses, with the same percentage.
But this is only dust in the eyes, or, said on the slab: a linked lie. When some communes spend 70-80% of the budget on wages, how can the total expenses be reduced by 10%? The arithmetic is very, very devoid of the sense of humor. (There is no doubt: a radical administrative-territorial reform cannot be delayed. At the beginning of next year the process will have to be started. We cannot continue to operate in the corset of 41 counties and 3200 UATs dating from almost 6 decades! But this is another topic, I will not discuss it here).
As things are currently, Romania cannot get out of the crisis without external support. Specifically, an ordered exit from the crisis, a smooth landing, as analysts, can be based only on external support. It exists, for now, even if our loans are much more expensive than the countries in the region, precisely because we have a higher risk margin.
But this support has among the causes that, despite the background noise, the government will go forward, without significantly affecting the measures in the government program. But if not?
If we still have a government crisis?
Cese can happen? It is the question I will try a scenario. Fortunately, it's hypothetical. But I'm afraid it's not impossible. … That from here the domestic situation could take fire
A budget deficit of 8.4% of GDP in 2025 seems to have been approved in Brussels, but even this is difficult to put into practice. He starts from the hypothesis that the entire II reform package will pass the RCC, and the government will continue, with the third package. The fall of the Bolojan government, for one reason or another (including a decision of the prime minister that he does not have the necessary support to continue) drastically reduces the possibility of reaching this target, however modest, reducing the deficit.
Only a new government would be a very bad signal. Even admitting that a new government could be formed shortly, which, in the right, is a heroic hypothesis, it is still difficult to believe that the patience of all rating agencies will continue.
And if only one of the 3 removes us from the group recommended for investments, the possibility of external financing of the public deficit narrows a lot. With the budget entered into damage, the measures to increase the state revenues and to reduce the expenses would become acute. The increase of VAT to the maximum limit, of 27%, would be inevitable. Similarly, the “temporary” decrease of salaries in the public sector; Not only in the area of civil servants, but to everything that means salaries from the budget. The government could also be forced to resort to the payment of pensions, from a ceiling.
Arriving here, the society would lose the most important capital: the public confidence. The investments would be melted today, tomorrow, the repatriation of foreign capital would become a rule, and citizens would flee to foreign exchange houses, as they would have currency for sale. Even though the NBR was trying to oppose a rapid depreciation, it would still take place, because, suddenly, the demand for foreign currency would explode, on all market levels. Banking interest would increase strongly, which would limit the demand for credit and strongly increase interest on variable interest loans.
But the depreciation of the lion would suddenly and brutally increase all imports. The public debt, at the new equilibrium course, when it will be found, would increase in proportion to the depreciation, as well as the effort to pay the current rates.
All this would reduce the purchasing power of citizens, which would lead to decreased consumption and lead to dismissions in the private sector. Where does the income even lower in the budget, that is, maintaining the deficit, if not its growth? The expenses from the unemployment fund, so far very modest, would become another hemorrhage of public money.
Today we see every day many bicycles or motto of couriers who bring home all kinds of things, among which the most common food orders. The city is encompassed by taxis and cars from Uber or Bolt that transports people. I estimate that, in less than a month, all of which will be dramatically pushed. In the last year, the highest increases, of about 40%, were registered with the cosmetics services. Not because there have been costs that increased a lot, but because, as the Balassa-Samuelson effect shows us, the services are expensive as the general level of wages increases. I estimate that fixed here we will have the first strong decrease in demand, so the prices will go down.
Lower revenues, higher unemployment, higher inflation – all will contribute to serious dissatisfaction in society, with manifestations that I cannot predict. But they will undoubtedly be.
I hope we don't get here. But, when I see that some politicians treat today's situation as a kind of “business as usual” … discussions about the rectification of the budget start not from the constraints of the major imbalance between revenues and expenses, but from tens of billions of lei they would need for the ministries to see their work.
This reminds me of my cat, when I lived on the 8th floor of a block, and she jumped from the window frame on the edge of the balcony without any kind of care. He could have slipped and had fallen in hollow from over 20 meters. He simply did not have the sense of danger!
This article originally appeared on the contributors.ro platform.
