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

• Ionel Blănculescu proposes a European project to manage sovereign debt

• "The major danger is panic followed by contagion!"

We are on the verge of panic on the financial market of the Eurozone, says economist Ionel Blănculescu, who has proposed a European level project, for the management of sovereign debt.

"Panic has already gripped the banking system in the Eurozone, but it is not yet visible, it isn't felt", Ionel Blănculescu said, who added: "That is why, about a month and a half ago, just in time, in my opinion, I have launched a draft for a solution, which I have sent to the main European governments".

His plan provides the creation of the European Agency for Sovereign Debt, an agency subordinated by the European Commission and coordinated by the ECB.

Mr. Blănculescu said: "This agency will buy sovereign debts from banks in the Eurozone, centralize them and concentrate them and issue bonds with the equivalent value of those amounts, which will then be sold to the European Commission and the ECB. The amounts obtained from the sales to the two European institutions, would be used to capitalize the European banks, and the amounts recovered from the countries in question would be used to buy back the bonds sold to European Commission and the ECB, closing the loop, with benefits to all the involved parties".

In turn, governments temporarily transfer their sovereignty to the EU, meaning that they allow the agency to act at their level, consensually, of course, for the purpose of the total or partial recovery of the European bailout package".

According to Ionel Blănculescu, the agency can exploit a series of assets, the claims which countries have against other countries, especially those outside the EU, gold reserves, to an extent, companies which are fit for acquisition, and many other valuable assets.

The principle which the initiator of the project relies on is that those who are responsible for the failure to honor the obligations taken on by the European banks, on the basis of loans taken on for years on end, must bear the financial cost themselves, "instead of just sitting by and watching the huge efforts of European taxpayers, including Romanians, who have no responsibility or involvement in this gigantic embezzlement which is happening on a European level, conducted by the politicians who led those countries".

Mr. Blănculescu also said that there are two European nods to the Romanian solution, "only partial of course, on a different plane of financial logic and thought": one by Commerzbank Germany, a financial giant, which has approximately 800 billion Euros in assets, which last Sunday announced the creation of an institution which would acquire and manage the sovereign debts on the bank's portfolio, in order to avoid contagion of the other assets, and a second one, just this Saturday, when the German finance minister said that every country needs to create a financial institution which would take on the ballast of sovereign debt, which exceeds 60% din PIB and would recoup those amounts over time, from their own taxpayers, by taxing them.

Ionel Blănculescu states that his solution (ed. note: which is also explained in detail on his website www.blanculescu.ro) is becoming increasingly more practical, and close to being implemented. He said that two European governments have contacted him, expressing their interest in the initiative.

Mr. Blănculescu also explained why he feels that the greatest threat is the onset of panic: "In Europe, for years banks have placed their resources in government bonds (which were considered as having zero risk). This has now changed, and the major banks have come to own thousands of billions of Euros in sovereign debt. The medium term outlook for those banks is about 2-3000 billion Euros, and the amounts coming due which countries were unable to repay have already exceeded 240 billion Euros, of which 80 billion need to be repaid urgently, as the European banks can no longer function without somebody actually covering up those amounts. In the case of the proposed solution, that would be the European Agency for Sovereign Debt. They need to be recouped urgently because they were attracted from the population and from companies, through deposits or other similar instruments.

The major danger, which can not be controlled, is the psychological one, of panic, followed by contagion".

According to him, the European banking system can be infected through contagion: "The virus is spreading from one bank to the next, through currency conversion or through other instruments by which the owners of financial resources can protect their money. For example, the fact that people are converting their money is proven by the fact that the dollar strengthened for the fourth week against the Euro (ed. note: last week)".

Blănculescu also discussed the common plan of Central banks to manage liquidity in the banking system: "I was in Brussels last week, and according to information circulating in the European financial market, on the night of Tuesday to Wednesday, I found out that one of the largest European banks, whose name has not been disclosed, for obvious reasons, was close to default and would no longer be able to honor its customers' payment orders, which would have sparked off the blowup of the European financial system, which major European personalities are prophesizing more and more often. On the next day, the European Central Banks, especially the ECB, and even the American FED, have announced a plan to manage liquidity in the European banking system, thus confirming that something bad has happened and trying to quash the looming panic in the market. However, these are only palliatives, which can only work for days or weeks".

Ionel Blănculescu went on to say: "Banks roll over debt all the time. They take my money to pay the one on the left or the one on the right. But, at a certain time, when the number of people who are unhappy or the number of clients who want to transfer their funds or have their payment orders met on time come to the bank, as they have not been processed, the banks won't be able to satisfy them".

Romania is directly and indirectly tied to what is happening in Europe, but it won't be hurt too badly, Ionel Blănculescu considers: "In the event of a complete blowup of the Eurozone, Romania will only feel the tremors. Sure, we will feel some effects, but Romania is protected by the fact that it is insignificant from a financial point of view, and it is not included in the Eurozone, among the 17 states which have yet to adopt the single currency.