Finance

Romanias populists turn fire on central bank chief

A senior politician in Romanias ruling party is courting financial danger for the country in a campaign against its central bank chief.

The feud between a government adviser and the internationally respected head of the National Bank of Romania may end up undermining the countrys standing in markets as well as its hope of adopting the euro.

Darius Vâlcov, a former finance minister who remains economic adviser to the government while appealing a corruption sentence, has waged a months-long television and social media campaign to oust Mugur Isărescu, the longstanding and fiercely independent central bank chief.

Isărescu has been governor of the Romanian National Bank (BNR) for most of the 29 years since the fall of communism. Abroad, hes considered a safe pair of hands who has ensured the stability of the currency, the leu, through turbulent political times.

But Vâlcov, who is seeking a change of policy at the central bank, is trying to push Isărescu out — or at least deny the 69-year-old another term after his mandate expires October 11.

After his key ally Liviu Dragnea was jailed on Monday, questions began arising about Vâlcovs future in the government.

“I wish from all my heart that the new governor and the new team at BNR will be a team of patriots,” Vâlcov said on an evening talk show on March 10. “Otherwise Romania will never be able to pull its head out of the dirt.”

Critics say that Romanias ruling PSD party, which won power on a platform designed by Vâlcov, is following a playbook from leaders such as Donald Trump and Hungarys Viktor Orbán in trying to influence, if not control, the central bank.

Trump and Orbáns playbook

Vâlcov and his colleagues criticized Isărescu for policies favoring banks — using lurid language to blame him for high borrowing costs for citizens and businesses.

“We have seen the mission of the current leadership for 29 years,” Vâlcov told POLITICO last month. “We are ranking last in Europe on interest rates, it cannot get any worse.”

Vâlcov also said in March that he had evidence of staffers from the central bank talking down Romania, by discussing financial affairs with foreign financial institutions and credit rating agencies. “In other countries these people would be guilty of treason,” he said.

“It is important to underscore that no changes must be made which may erode in any way the independence of the institution” — Mugur Isărescu

In a half-joking response, a BNR spokesman urged Vâlcov to file a criminal complaint with his evidence.

The governments attacks risk being seen as contrary to international norms, in which the monetary authority safeguards financial stability against political impulses to pump up short-term growth. The perceived interference could also weigh on Romanias ambitions of adopting the euro within a half decade. The independence of a countrys central bank is a golden rule for eurozone members.

A spokesman for the central bank declined to comment for this article or make Isărescu available for an interview.

Isărescu in February dismissed the attacks from the PSD on the central bank as “pathetic.” In a speech, he made a point of saying that Vâlcovs comments do not influence the policy of the central bank.

In early May, Isărescu confirmed he is not seeking an extension — although he did not rule out accepting one if the parliament proposes it.

Populist architect

Vâlcov, 42, is at the forefront of the PSDs Trump-inspired attacks on so-called globalists, George Soros and often on EU institutions.

In 2018, he was sentenced to eight years in prison for corruption, including taking bribes and laundering money while he was mayor of the city of Slatina and later a senator.

He left the cabinet shortly after the sentence, but with his case under appeal, he remains free to work as a high-ranking official, making him one of the most influential people in the country. He denies all the allegations.

After his key ally Liviu Dragnea was jailed on Monday, questions began arising about Vâlcovs future in the government.

Vâlcov has also drawn criticism for Facebook posts, including one publishing the mental health diagnosis of anti-government protester Sandu Matei, and another comparing Romanian President Klaus Iohannis, who belonged to the liberal party before taking office, to Hitler.

Vâlcov denied media reports that he wanted the central bank job for himself.

But there is nothing to stop PSD from selecting a governor that is prone to political influence, said Claudiu Năsui, a member of the Romanian parliament and its finance committee from the Union Save Romania, an opposition party. “Politically speaking they have all the power.”

Controlling the central bank, and implicitly the money supply, “fits like a glove for politicians who are avid for power, although it could crash the economy,” Năsui said. “If the leadership [of the central bank] changes, the currency will definitely suffer.”

Interest-rate fight

“Under no circumstances does our government want to make monetary policy,” Vâlcov told POLITICO. “We want to join the euro in 2024 and we are aware that at that point many of the functions of the central bank will pass on to the ECB.”

“But the two institutions, be it the BNR or the ECB, and the government, need to collaborate on the basis of the principles established at the beginning, namely the interests of the citizen.”

While interest rates across the EU are at a record low, businesses and citizens are charged more on average on loans in Romania, as banks are factoring in a high inflation rate — the highest in the bloc — among other things.

While the eurozones base rate is zero, Romanias is 2.5 percent as of May 8.

“If in Europe a person or a company is able to take out a loan with an interest rate below 2 percent, I dont see why in Romania it wouldnt be able to also,” Vâlcov said in the interview.

The PSDs problem is that Isărescu is not collaborating.

Suggestions that “anyone should play with the interest rates are dangerous,” Isărescu said in February.

In March, Isărescu said that the independence of the central bank “should be strengthened.”

“It is important to underscore that no changes must be made which may erode in any way the independence of the institution,” he said.

Steady hand

Isărescu is not just defending his turf. According to finance professionals, he is aiming to project a sense of stability.

“Markets and rating agencies are veRead More – Source