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The effects caused by the news that state spending will increase can already be seen in the exchange houses. The euro reached the highest value ever: 4 lei and 87 bani.
It is the reaction of investors, who see that Romania is preparing for new spending, in the midst of the global crisis.
If teachers’ pensions and salaries were increased, plus allowances, the deficit would reach 11% of GDP, economists say.
They warn that specialized agencies could lower the country’s sovereign rating, which would cause investment losses and even an increase in debt.
The leu-euro exchange rate has a second moment of depreciation this year, after March, when the euro became more expensive in anticipation of a new crisis.
Now the euro is strengthening again and the leu is losing ground for two reasons, according to analysts.
It reached the absolute record, 4.87, because the euro is strengthening relative to all regional currencies, forint, zloty, Czech koruna, but also because investors react and withdraw their investments after Parliament approved various expenses.
A more expensive euro means more expensive imports, more expensive cars, more expensive apartments and rents for ordinary people.
Romania risks losing 3 billion euros of European funds
But there is another problem, much more important: we could lose European funds if we make social spending in crisis, the president said Wednesday.
Klaus Iohannis, President of Romania: “Not only are there warnings, there are extremely serious discussions with senior officials – I don’t want to nominate, but with senior officials of the European Commission, who told us frankly: if this rectification approved in Parliament goes into effect, they will cut us around 3 thousand of million euros of European funds, because we are violating various provisions of the treaties“.
Cristian Popa, CFA, member of the BNR Board of Directors: “I believe that the measures will significantly and severely burden the country’s budget, we must not forget that we entered the pandemic with the largest deficit in Europe, above the limit imposed by the European Commission, the deficits were quite large and we were already in the excessive deficit procedure. There is also a high risk for rating agencies. You could wait for the law to be enacted before taking action, before making a decision on whether or not to downgrade to non-recommended investment status, you may not be patient.”.
What does the additional spending voted by Parliament mean, which the president now has the option to refuse once?
The head of state said it would be around 6% of GDP. The Gross Domestic Product, that is, all the prices of services and goods in Romania, this year represents 1,058 billion lei.
6 percent means 63.5 billion.
But the state budget, that is, the part managed by the government, represents 20% of GDP. These additional expenses would represent almost 30% of the state budget.
Let’s simplify. For every 100 lei it receives, the Romanian state spends 134 lei. And these 34 lei are on loan.
Or is it money “in the notebook”, as some would say. So, anyway, we don’t have money for everything we spend. If the deficit increases, we would ask for more loans and the debts would increase even more.
