THE "BUSINESS BEHAVIOR IN TIMES OF CRISIS" CONFERENCE ORGANIZED BY THE BURSA NEWSPAPER Lucian Croitoru: Measures to restore confidence in the markets were necessary

The 50% haircut of the sovereign debt will involve "losses" for the banking system which has invested in bonds, but a set of measures which would "restore" on the market was needed, Lucian Croitoru, advisor to the governor of the NBR said yesterday, referring to the measures which were taken yesterday at the summit of the European leaders for the rescue of the Eurozone, which took place on Saturday night.

He said: "The markets were expecting from this meeting proposals which would be incisive, coordinated and very credible. The need to satisfy this set of measures is to restore confidence on two markets. First of all, on the market for financing the banking system, where the spreads had seen a massive increase, making it difficult for banks to issue new medium and long term debt and on the sovereign debt market".

The advisor to the governor of the NBR said that the financial markets needed an increase in capitalization "in order to restore the confidence of those who finance banks on the medium and long term".

"It can be assumed that a higher recapitalization would avoid a "credit crunch", and will allow credit to return to a normal level", according to him.

Lucian Croitoru added: "The 50% haircut on the sovereign bonds involves losses for the banking system which invested in them. Naturally, the states have already announced that they would participate in this involvement of the private sector at their side, with 30 billion Euros. Investors and the markets will review these elements and it will take time to see to what extent they will come to the conclusion to satisfy their expectations and we will see then whether confidence was restored or not".

He added that he has requested in Brussels that the recapitalization of banks be conducted without affecting the economies of emerging countries: "A recapitalization of banks in the Eurozone which were revealed to need by the stress tests was demanded. It was agreed that this recapitalization would be conducted without affecting the banks of emerging economies, because these economies have remained more dynamic than in the Eurozone, to a great extent, or whether this recapitalization would be performed with outflows of capital from these countries, this would naturally result in a reduction of their potential fro growth".

Wednesday night, the leaders of the European Union have reached an agreement to erase 50% of the Greek debt and have also requested that banks which have exposure to sovereign debt increase their capital by 106 billion Euros. European leaders are also considering increasing the capital of the European Financial Stability Fund to 1,000 billion Euros, from 440 billion Euros.