Mugur Isărescu: "We are seeing a destructuring of capitalism"

The priority for next year will be for our society to escape the patterns of the previous electoral years, with promises more or less out of touch with reality, Mugur Isărescu, the governor of the NBR said yesterday.

He also warned that the experience of the previous crises has shown that society forgets quickly.

The NBR governor said: "We are ahead of an electoral year, and all of us, not just specialists in economics and finance, are becoming increasingly aware, that we have major budget issues. There is constant talk about finding solutions. Sometimes, the solutions proposed for us are ridiculous, but they are discussed nevertheless. These debates, which are heavily publicized, can"t be overlooked. Will society and the politicians escape the pattern of the previous electoral cycles, when more or less realistic promises were made?"

He added that "the extent to which the economies of the world were affected by the global crisis, depended on the vulnerabilities of each of them, but there are always some unfair occurrences, and some countries are falling". Mugur Isărescu added that the vulnerabilities created during the good times will decide which countries will make it out of the crisis weaker and which ones will make it out stronger: "Regardless of how many lessons we have learned and we are going to learn, the experience of the previous crises shows that the social memory is a short-term one. I am not referring here to a memory of a few generations, but rather to something which is extremely frequent".

According to the governor of the NBR, the current crisis brings old disagreements to the forefront: "I"ve heard the same tune with various tones and you know how it goes: it"s the tone that matters. The speeches oscillate between two extremes, < laissez-faire > and interventionism. (...)The NBR, as an institution, was viewed both as a hero and as an enemy".

What seemed inconceivable two or three years ago in Europe and the United States, is now accepted, for instance quantitative easing was a blasphemy, and today it is heavily used, Mugur Isărescu explained. He explained that for the most part, governments were caught unprepared, and we are seeing a destructuring of capitalism: "We are seeing a rather quick dismantling. This dismantling is serious, most people don"t even realize the extent of the damage.

Destructuring means damage, and it is happening even though new structures are difficult to get together, and the world is living in confusion. Even the political structures seem to be functioning more inefficiently, but I know that there is nothing new under the sun. Any adjustment is at first rejected and then we encounter both situations, either the adjustment is made very fast, either it is extremely late. Between the two extremes, life takes us to the optimal version, while the talks on the subject swing between the extremes. (...) Are there such easy solutions and are politicians that near-sighted?"

• Isărescu: We can"t bet on the same increase of the exports"

Mugur Isărescu also said that the economic growth forecast for 2012 will be revised "because we can"t bet on a growth of exports just like we did before".

He added: "Let"s not forget, even though we have a short term memory, that Romanians need to learn some lessons. And there are lessons which we need to remember".

Moreover, he said: "Solutions seem simple, such as: cutting social security contributions, lowering taxes, but when you look at them, you can find that six months later, they"ve failed, because you can"t finance them. The lowering of social security contributions (CAS) would lead to increased investments in the private sector, but it would mean less resources available for investments in the public sector. Any unfinished investment means an immobilized resource. A country develops or expands its living standard when it mobilizes its resources, not when immobilizing them. Prioritizing investments is essential, but let"s see what having 40,000 unfinished projects means".

• Isărescu: "In Romania, debates on Keynes are sometimes trivial"

The governor of the NBR said that the excessive debt which countries took on before the crisis represents the biggest issue, because this limits the room available for intervention, which was proposed by Keynes himself: "In Romania, debates on Keynes are sometimes trivial. Keynes never said that anything goes at anytime, during the good times governments should have kept a reserve to be able to intervene when there are problems. (...) The current issue is precisely the fact that countries accrued excessive debt prior to the beginning of the crisis, which left the current governments unable to accrue further debt, meaning that they can"t apply the solution of Keynes. But his solution clearly said: during the good times, make you keep your ability to intervene".

The governor of the NBR claims that the solutions proposed by Keynes are still viable, but only when a country still has room to maneuver, when it hasn"t accrued excessive debts and it is able to finance its spending.

In this context, Isărescu brought up Germany"s opposition to an easy solution to the Greek situation, and showed that the largest economy in Europe was careful to leave itself enough room to maneuver and underwent restructuring prior to the crisis.

He explained that Germany preserved its ability for intervention, and said that in Germany, the living standard and real wages haven"t grown since 1997-1998.