LAURENŢIU MITRACHE, EXECUTIVE PRESIDENT OF BANK LEUMI ROMANIA  The Governments" Great Art - How And How Much To Become Involved In The Economy

Following the international financial crisis and the problems facing some of the largest banking groups in the world, governments have started to massively buy shares into the financial giants to prevent them from falling. In such context, Laurentiu Mitrache, Executive President of Bank Leumi Romania, shared with us his opinion on state interventionism.

"As the economy started to grow faster, complications appeared and the state needed to intervene. It became obvious that the Americans" excessive liberalism, or excessive non-interventionism, created the problems that are now making the entire world suffer," Mitrache said.

The first signs of crisis were visible in the United States of America when the real estate market started to crumble. Later, it was the U.S. Government that rushed to give billions of dollars in aid to the major financial institutions on the brink of bankruptcy.

"The governments" and the parliaments" great art is to see how and how much to become involved, namely through a programme and a doctrine that need to be as clear and close to reality and the truth as possible, because there may be doctrines out there, but romantic ones," said the head of Bank Leumi Romania.

He also offered BURSA some examples: "Britain has no choice. You cannot allow RBS to go bankrupt because the consequences could be much greater than simply taking money from the public sector and putting it in the private sector."

The situation is a bit better in Romania, as the local banking system is not facing problems as severe as in other countries. However, the banks" struggle for local financing sources has been sharpening, as the market is flooded with promotional offers for saving products. Mitrache believes that the interest rates will not stabilize because local resources have always been insufficient, considering that, ever since the 1990s, Romanians have been inclined to spend and not save. "The lack of liquidities was compensated by foreign investments and banking networks. If we look at the ratio between loans and deposits on the local market, we have the answer: the money came from abroad!," he said.

What happens if foreign banks are out of money, too? According to the executive president of Bank Leumi Romania, "the money on the Romanian market is becoming more expensive, but banks cannot lower their lending portfolio overnight, but in time, so the competition will continue. For how long? Probably two or three years."

• Romania"s economic growth will be insignificant, if any

Another recent controversy relates to Romania"s economic growth outlook for this year. In Mitrache"s opinion, if there is going to be any economic growth, it will be insignificant. There is also the chance of having a recession. "The ongoing crisis has proven once again that no one can foresee economic developments. Two months before the crisis, the leading rating agencies were extremely optimistic while the major auditors were saying everything was perfectly fine with the banks that lost hundreds of billions later," Mitrache added.

Looking at the economic growth achieved in the last quarter of 2008, we notice that the Romanian economy placed fourth among European Union members. For the entire year 2008, Romania posted an economic growth of 7.1% of the gross domestic product, but the budget deficit exceeded 5%, thus jeopardizing the planned adoption of the euro. "I believe that we will adopt the euro because this is in the EU"s best interest before it is in our best interest. If we want to have an efficient European Central Bank and if the EU wants to achieve a better performing copy of the U.S., the need for a single currency is very stringent," Mitrache explained.

Although all efforts are being channelled towards accession to the EuroZone, the adoption of the euro "will make the cost of living much higher, which was also the case in other countries, but things will eventually set in," Mitrache concluded.

• An agreement with the IMF would be helpful

Although the International Monetary Fund imposes certain conditions for disbursing financing, Laurentiu Mitrache believes that such loan agreement would be helpful: "It would be helpful because the country risk analysts take all these factors into account and, even if you don"t have a problem, if they think you do, it"s just as bad as if you did. From this perspective, an agreement with the IMF is important."

Asked if a possible loan agreement with the IMF would lead to higher taxes, the executive president of Bank Leumi Romania said: "I think that taxes will be increased, perhaps after the presidential elections. Tax increases will probably become imperative starting next year, irrespective of who is president or of whether the structure of the Government remains unchanged or not. You cannot simply waltz your way out of the crisis." However, he emphasized that it was not the volume of the tax that mattered, but the way of spending it.