Capital flows "must reach Romania too"

President Traian Băsescu said on Wednesday, before going to Brussels, that Romania wants "a form of guarantee" from the European Council to ensure that euro area banks would not withdraw their capital flows from their branches in Romania and other non-euro area countries.

He explained that if in Romania the capital flows of the parent banks were limited, our country would have difficulties in 2012 in terms of obtaining domestic borrowing to finance the retirement and health systems and social programmes.

"I am not asking the the media in Romania to understand, let alone support it. But I want to show you some figures which might help you better understand where we stand", Traian Băsescu said.

The President said that in 2011 Romania had borrowed from the domestic banking market 56 billion lei, equivalent to 13.2 billion euros, to which another two billion euros borrowed from foreign markets were added.

"If capital flows, provided by parent banks for the use of their banks in Romania, decreased, Romania would be in great difficulty, and, therefore, we could no longer fund even the expenditure budget for this year.”

"Therefore, we claim that, in the capitalisation process of banks in the euro area, the need to maintain capital flows to the non-euro area branches of these banks should also be taken into account", Traian Băsescu said.

The President also explained that his message about the need to carefully watch the budget may be better understood if people took into consideration the fact that in case of a budget deficit of 3 percent of GDP in 2012, Romania would have to borrow 71.6 billion lei, or 16.7 billion euros from the internal market, plus other two billion euros from foreign markets.

Traian Băsescu stressed that the risks to financial stability in Romania in 2012 are many and offered an example.

The head of state showed that, if it got to Greece's debt restructuring formula, by taking the 20, 40 or 60 percent from the banks that financed the Greek Government, they might want, initially, to withdraw from some markets as Romania is, to cover their need for capital.

"For these reasons we consider it necessary for Romania to have a clear position, so that we could provide the necessary funding for next year", the President continued.

He also said that not only the government funding is at risk, but also that of the private sector, while the exposure in Romania of euro area banks is of 40 billion euros.

Translated by: Zoia Ciacu
MA Student, MTTLC, Bucharest University