THE TIME FOR WARNINGS IS OVER Romanian Government Has Lost The Battle With The Crisis Already

The deadline that the Government set for themselves to have the State Budget for 2009 endorsed by Parliament is approaching fast, but results seem to be delayed. Financial newspapers wrote yesterday about the meeting between the business community and the Finance Ministry. The result? As expectable: the Government does not have an actual crisis management plan. The list of measures proposed so far is nothing but the proof of the authorities inability to perceive the true nature and magnitude of the recession that is starting to kick in. Indeed, 2009 will be only the beginning of the crisis in Romania and, since authorities seem to have given up on any crisis management plan, we could see economic growth again in two years.

The lavish waste of money in the last few years has left us without any means to sustain such plans anyway. And to increase the State revenue in 2009 would be simply impossible, even if taxes are increased. The authorities" hopes are still kept alive by the beautiful dream of EU funds, but such funds will simply not be disbursed, because the funding sources behind them are vanishing one after the other.

Other Eastern European economies are in more or less the same situation. The authorities" lack of credibility is the common factor that has caused an accelerated depreciation of the regional currencies since the beginning of the year. The trend will probably pick up speed, as foreign direct investments in the area are plunging. World Bank data shows that such investments in emergent economies will decrease by 180 billion USD in 2009, as multinationals are cutting budgets as much as they can, according to Bloomberg. World Bank International Finance Manager Mansoor Dailami explained that the foreign direct investments decline would cause further depreciation of the currencies of the emergent economies, even if investment fund exits stopped.

"In 2008, it was a stocks and portfolio story. This year, it will be an FDI story," Dailami told Bloomberg. The World Bank is also forecasting that the first world trade contraction in the last 26 years will take place in 2009. Under these circumstances, to allocate financial support for some economic sectors just because of the fear of grave social consequences will be an irresponsible waste of borrowed money.

However, before we get to the point where we are able to waste money, we should be asking ourselves who is going to give us the money to implement the Government"s crisis management plan, as long as even Britain is facing a serious reduction of foreign financing for their banking system? Financial Times wrote yesterday about the new trend, which is having a major negative impact on the financing of companies in the real economy. The British newspaper quoted a Bank of England report showing that "outstanding loans to UK banks by overseas institutions fell about 20 per cent in the four months to November alone." But which financial institutions stopped trusting the British banking system? Well, most of them are "colleagues" from the EU!

It appears that it is not just the Romanian Government that has lost the battle with the crisis before it even started properly. The sale of governmental bonds issued in the developed countries has intensified in the last few days, placing financing costs on an upward trend again. The default risk perception for Britain, Spain, Ireland, Portugal, Greece and Holland has reached a historical climax, as reflected by the quotations for CDS instruments published by MarkIt.

Perhaps the developed countries can afford to try to rejuvenate their economies buried in debt by promoting even greater debt. So far they have failed and it is quite unlikely that success is a matter of time in this case. Romania does not have this option and the only way to go is to drastically cut any form of public spending. The effects of the accelerated growth in public and private debt for the past few years cannot be compensated by a new lending boost.

What is now visible on the European financial market could be the beginning of a new lending trend: the return of the major international banks to "homeland," partially following the conditions imposed by governments in exchange for financial support.

Is the Romanian Government aware of the magnitude and consequences of these "tectonic movements" now, as they are creating the "crisis management plan"? Nothing said or done so far points in that direction.