What happens when Romanians beat up the Romanian Leu

What happens when Romanians beat up the Romanian Leu

Scared by the possibility of a massive depreciation of the Romanian Leu, Romanians ran to banks and exchange offices on Monday to buy Euro. The result was quite proportional, but especially caused by their own expectation of depreciation: the large demand for foreign currency took the Romanian Leu to its worst official exchange rate in history. The drama of Monday has little connection to the statement of the National Bank of Romania official regarding the possibility of a 6 Romanian Lei for 1 Euro exchange rate or to the fact that it was later taken out of context.

The real problem is that Romanians have reached the end of their nerves and strength and were brought to a situation where they overreact to the slightest of stimuli. The nerves of Romanians are tensed by the chaos the entire political environment has created. Romania has a Minister of Finance that is disappointed in himself, a Prime Minister whom whatever he does looks like a simple victim and a President that renounces the team whose captain he is only when the good stuff happens.

At the beginning of 2009, when everybody was in a crisis and only Romania wasn't, when the Government excused itself that it couldn't raise the salaries of teachers by 50%, the President of Romania was proudly refusing any sort of IMF help.

Less than two months later the 20 billion Euro loan we're going to start paying off next year was taken out. Romanians were told at the beginning of 2009 that they we're going to be hit with an economic growth of just 2% of GDP. Instead of that we had a severe 7% recession, with thousands of bankruptcies and hundreds of thousands of employee terminations. Shareholders were promised some unexpected help in the middle of that storm. The Government gave them as a "gift" the minimum tax, claiming that the "ship" needed to be cleared of its rats. At the beginning of 2010 there was talk of an economic growth of over 1% of GDP. A few weeks later we were back to a recession. Romanians were promised a lean state, that wouldn't have drivers with 1000 Euro a month salaries. The state employee terminations don't even represent 5% of total. While the private environment operated salary cuts and made employee terminations left and right to adapt to the new crisis conditions, the state, a year and a half later, still has no analysis showing from where and whom they're going to lay off.

The last drop that filled the glass up to its tipping point was raising VAT. Romanians don't care about the decision of the Constitutional Court: "if the Government is that smart, they should have foreseen that". They watched in silence every time Berceanu and Udrea came on TV with sorry looks on their faces, saying there's no money for roads or housing, to create an impression that in order to have the money taxes would have to be increased. They watched in silence when the Government admitted that it can't restart the economy, not because it didn't want to do it, like the President of Romania once stated, but because restarting the economy would mean raising taxes.

When VAT was raised, however, nobody could watch in silence anymore. The only promise of the Government that was still left standing was the one regarding keeping "large" taxes and duties at the levels they were before the crisis. It was enough for one tiny bit of information about the possibility of a 6 Romanian Lei for 1 Euro exchange rate, added to the one regarding the VAT increase, presented by the Government as the last possible option, to be used only in extreme cases, to make them run to the banks and give up on the Romanian Leu.

If the political environment won't take the warning regular citizens and investors that have had their budgets screwed over gave on Monday, it will be in for a big surprise.

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