ROUND TABLE AT THE BURSA NEWSPAPER The banking system and the sovereign debt crisis

• Daniel Ionescu: "I doubt that the banks would leave the system"

Foreign banks will not leave the Romanian banking system, as a result of the financial turbulences and of the international political tensions. This will only happen when the incentives provided to owners of risk capital will no longer be sufficient, Economics Ph. D. Daniel Ionescu says.

He said: "I doubt that the banks in the system would leave. Even though the purchasing power of the population is dropping, demand for loans will not fall! It may even see a relative increase, due to the growth in the money supply. Why? Because if the purchasing power will fall due to shrinking income, the banking regime will create a new outlet by adjusting their lending conditions!

Exiting the crisis through indirect taxation (VAT - Value Added Tax) was not and never will be a solution!

In Romania, the ability to generate economically useful added value - in the form of wages profits is not the objective of the Government!

The dismantling of this capacity is owed almost exclusively to the brainless privatization of the country's assets, and especially due to post-privatization contracts."

According to Mr. Ionescu, "privatization is a matter of opportunity, it can be done well, it can be done in a mediocre manner, or you can choose not to do it!

He said: "The moment the privatization was renegotiated and many jobs disappeared, is when the purchasing power of the population disappeared. The added value which was being created in the economy also disappeared. Under these circumstances, it is obvious that Romania could only go, unfortunately at a brisk step, towards disaster, towards the crisis that we are crawling in".

Mr. Ionescu said that the Romanian banking sector does not include toxic assets, only loans which can't be repaid anymore: "We do not have toxic assets, we only have loans which, amid the destructuring of employment and of profit centers, can no longer be repaid. The volume of non-performing loans will grow. Because, objectively, deprived of current or substitute income, the population will be unable to finance its loans".

The PhD said that in Romania, according to the level of minimum reserves -in the case of commercial banks, loans to equity plus deposits ratio is 1 to 6.5, whereas in the European Union this rate is of 1 to 12, nearly double the Romanian figure.

Mr. Ionescu claims that "we will only truly exit the crisis when a solution will be found to the volume of loans granted by creating currency "ex-nihilo" (out of thin air), and implicitly, this currency can be destroyed!"