"First Home" program - social assistance, not state aid

• Interview with Mr. Bogdan Chiriţoiu, Chairman of the Competition Council

Cătălin Deacu

Reporter: The European Commission requested details on the "First Home" program from the Romanian authorities. The "executive" in Brussels suspects that it is a concealed state aid for the banks. Where does the Competition Council stand on this issue?

Bodgan Chiriţoiu: The authorities in Brussels asked for additional information, without asking any complex questions. The European Commission asked for explanations on the "First Home" program, without setting a deadline we would have to meet in providing these answers. We got in touch with the Ministry of Finance, in order to draw up a reply, and we are doing our best to do so as completely and quickly as possible, and we will send our reply to the Commission within the shortest delay.

Reporter: Are the suspicions of the European Commission founded? Is the "First Home" program a form of state aid?

Bogdan Chiriţoiu: The officials of the European Commission have asked us for a presentation of the program. To them, the "First Home" program looks similar to some aid schemes implemented by Great Britain and Hungary. To be honest, the programs of these EU member countries, look more like state aids than our "First Home" program does. As I was saying, people in the European Commission are concerned with whether this is a state aid for banks or not.

Reporter: The Investigation of the European Commission on this matter will take a few weeks. Meanwhile, will the program be affected in any way?

Bogdan Chiriţoiu: After we send our reply to the European Commission, it may take a few months for it to be reviewed. The officials of the European Commission have asked for a presentation of the program. No matter what happens, the unfolding of the program will most definitely not be affected by the investigations of the EC. No matter what happens, the unfolding of the program will most definitely not be affected by the investigations of the EC.

Reporter: How will Romania present this program to the European Commission?

Bogdan Chiriţioiu: It goes as follows. State aids are given to companies directly. In our case, if this were a state aid, the money would go directly to the banks. But we are in fact talking about guarantees submitted by the state in order to get the banks to start lending again. The program could be considered as social assistance for the population, and in this case, the EU will most likely have nothing against us. In Romania, the program will probably come across as social assistance. We will argue that this program is not a state aid for the banks, but rather a measure for supporting Romanian citizens.

Reporter: You said that in the United Kingdom, the European Commission investigated a similar case. What was the outcome on the investigation on the British version of the "First Home"?

Bogdan Chiriţoiu: In Great Britain, there are individuals who took out loans and are now in trouble. Many British citizens are unable to make their payments, for various reasons. This led to the banks seizing the homes and putting them up for sale. This is when the British Government stepped in and decided to offer guarantees for some of the loans. It"s true that the social component is far more obvious there. With us, the state guarantee is issued to allow the reduction of the interest rate. Great Britain"s scheme was accepted as a form of social assistance, rather than a state aid for companies. Romania"s program will most likely come across as a form of social assistance as well.

Reporter: So the British government guaranteed just some of the loans, whereas the guarantees of the Romanian government will reach much further. Doesn"t this make things more complicated than in the case of Great Britain?

Bogdan Chiriţoiu: We are not guaranteeing the entire loan, just the first EUR 60,000. It"s the borrower"s business how they guarantee for any amounts which exceeds EUR 60,000. The "First Home" program only guarantees the first home loan, it does not guarantee the payment of the interests. I hope that the "First Home" will somehow cause a cut of the interest rates, even for current loans.

Reporter: Speaking of current loans, there are voices that say that this program discriminates against citizens who took out loans before it was enacted. It seems the program caused a lot of frustration and discontent. Is this truly a competition or a moral issue?

Bogdan Chiriţoiu: This is a very interesting idea. I"ve heard these comments myself, and in my opinion, they are rather out of place. Competition only applies to companies. Of course it"s not moral to help some people, and not help others. But some are pushing this morality idea to the extreme. I have loans myself, taken out at an interest rate higher than 7%. I could very well feel frustrated myself about this, so to speak. But I"m hoping that once this "First Home" program gets under way, it will stimulate banks to lower interest rates, like I was saying, for current loans as well. For some of them at least, as it all depends now on the calculation formula, margin and Euribor.

Reporter: So the program has morality issues...

Bogdan Chiriţoiu: If the Government will have a responsible policy, interest rates will go down. Any government policy is going to create some kind of discrimination! For instance, take the agreement with the IMF. Had we not entered this agreement, who knows where the exchange rate for the Euro would have went... What does this mean for people who have loan payments in Euros? Their loan payments would have gone up, if it wasn"t for the IMF loan. People who have no payments get no benefit from it, but people who have payments in Euros do. How far can you push this line of thinking? Three or four years from now, Romania could reach investment grade level again. As we know, we are now rated non-investment - "junk". Should Romania keep its current "junk" rating just for the sake of people who took out loans recently or whose business relies on specific levels of the interest rate? If anyone is looking for perfect justice, they"ll have to wait for the afterlife. Morality is not our concern. We are concerned with competition between companies.

Reporter: So just like there are citizens that are unhappy with this program, are there any banks that feel like they"ve been left out of this program?

Bogdan Chiriţoiu: So far we have not received any complaints from banks, including those who did not participate in the "First Home" program.

Reporter: Thank you!n

The "First Home" program will be presented to the European Commission as a form of social aid

Bogdan Chiriţoiu: Any government policy is going to create some kind of discrimination!