LIVE COMMENTS The real economic crisis is just beginning

LIVE COMMENTS The real economic crisis is just beginning

Friday's Constitutional Court decision won't really save anyone. Not a single soul. On the contrary. Pensioners, happy to have escaped with their pensions intact for the next half year continue to be exposed to the loss of purchasing power. The inevitable rise in VAT will cause inflation, and inflation will do nicely what the state wanted to do by force.

National Bank of Romania officials foresee an inflation of up to 15% if VAT goes up to 24%, more than ten percentage points over the inflation estimate made in the spring. As such, pensions won't lose 15% because the state wants it, they'll lose 10% (in purchasing power) on account of inflation. More so, there is a risk, which should be taken into consideration seeing the very slow reaction times of the Government as regards the crisis, that pensioners not receive their pensions at all for a time period, because the state will run out of money. 85% of something is always more than 100% of nothing.

One way or another, visibly or invisibly, every Romanian will pay for this decision, unfortunate not because it forces the Government to come up with 1.3% of GDP in record time but because it postpones discussions with the IMF. Romania doesn't need the IMF money, seeing as National Bank of Romania reserves are at record levels. The state doesn't need money, it needs trust. Without this trust, the Romanian Leu will go down and interest rates on state loans, domestic or foreign, will go up to level.

Romania just cannot afford

The measures proposed by the Boc Cabinet, cutting state employee salaries 25% and pensions 15% are bad because they could have been avoided, up to a specific time. It would have been enough that the state terminate 10% of state employees and not raise pensions in the 2009 election year. These measures are bad because they represent the state's inability to cut its own expenses and raise its income.

However, these measures, these statements of inability of the state as a whole and especially of the Executive as regards the economic chaos Romania is in, were the only ones capable of ensuring a balance, be it fragile, between budget deficit reduction and not affecting the business environment. The Government will now have to find and implement in just a few days measures necessary to rustle up 1.6 billion Euro.

It's almost certain that there will be a tax increase. Seeing as an increase of the flat rate tax would be an unforgivable error, or just plain useless (were talking about taxing the symbolic profits companies obtained last year and dropping the salaries of all employees via more drastic taxation), the money will be taken from the pockets of Romanians not straight from the desk where they pick up their salaries but from the other end of the financial circuit, where they pay for their shopping. More so, we still have to wait and see how the business environment will react. If they won't be able to swallow the sour pill of larger VAT, employers will again terminate employees.

Less employees means less social insurance paid to the budget and, therefore, less money for pensions.
Friday's decision didn't really help anyone. The total bill we will all pay will exceed that of cut pensions tenfold. Irrespective of how bad an anti-crisis measure is, there is always something worse than it: it just not being there.

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