The economic crisis is over. Financial instability continues

Romania, just like the US and even the EU have escaped the economic crisis. It is a mistake to still call "crisis" the issues which the countries of the world are having right now ... perhaps because analysts are thinking simplistically, or due to the lack of adequate words - in particular in Romanian - to define what is happening in the world right now. I hope that the media and the analysts will stop talking about the European and implicitly about the Romanian crisis as quickly as possible and they will focus on the issues concerning the redefining of the economic thought and practice on a global level.

In my opinion, we are talking about a TOTAL change of the economic models, of the structures and the way the economies operate. We are talking about a new relationship between risk and return - one where volatility will be much higher than it was in the past, and the notion of "risk free' will become a mere economic utopia - a necessary redefining of the concept of ratings - sovereign, local authority or company - a change of the approach of the rating of an entity. Financial institutions will need to adjust their capital, and therefore their operations, lending and investment policies, as well as the compensation policies (especially when it comes to management). This is the reason why I wrote total in all caps: almost nothing of the "old economic and financial order' is left standing today. The reformation of the capitalist economic system will be profound and it stems both from the appearance of the "new economy' as well as from the world's demographic changes and the problems of the social-democratic political systems in Europe.

Thus, we must learn to talk about and to search for ways to adapt to this new economic model (which is not yet structured and will probably be defined in the coming years). From this point of view, 2012 will be critical to some nations - or groups of nations such as the Eurozone, or more extensively, the EU - as well as for companies and the financial institutions. The financial sector is at the center of this deep change: banks and investment firms need to provide the bridge between companies' and individuals' need for cash and long term funding and the excessive and the excessive amounts which some countries and the world's rich own, or the accumulation of money (rather virtual than real) of resources in the investment and pension funds. As the risk/return ratio has been irremediably fractured, the two parties can not agree on the returns that they will need to pay/earn in the new context. So far, the financial institutions have been unable to coordinate efficiently, to explain and eventually to convince investors and the borrowers about the new reality of the markets. Just like ratings firms failed to assuage things and to push them towards a sort of consistency; on the contrary, they continue to use old methods when analyzing a new situation and obviously the results are wrong.

The effect on the economy comes from the uncertainty of the financial markets. Companies find it hard to finance themselves and do so at a higher cost, they are afraid to make investments and to hire people. They will survive somehow - even though some of them may pay the price of the ambiguities of the financial system, perhaps undeservedly - but on an aggregated level the continuation of this state of uncertainty will make the foundation of the wealth of nations and especially that of individuals even more fragile.

All in all, 2012 will be a very hard year when it comes to political decision. If the lack of initiative which we saw in 2011 will continue, we will sink even further down the depression spiral. And it will be especially harder since the changes in mentality (especially when it comes to risk and personal financial gain) demand too much time to take effect - time which we do not have.