Isarescu warns state to cut spending or else inflation will come

After the European Central Bank started to “print money” to allow euro zone countries to get financing, NBR too warns that the only choice to cutting public spending is inflation.

NBR risks ending up having to “print money” by buying government securities directly to allow the Finance Minister to cover the deficit, unless the state manages to cut spending and become efficient, which would, however, translate into a harsh inflation.

The direct financing of the state by central banks – considered a real “blasphemy” in economy circles before the onset of the financial crisis, was the only solution the central banks in the United States of America, United Kingdom and even the euro zone found to stabilise the markets and drive the economy towards a rebound.

Back in the nineties, when Romania was not even on the radar of international investors, the NBR covered the financing needs at the cost of a higher inflation.

The financing of the budget deficit is covered by foreign loans for the time being, yet Romania has to “fight” to stay out of the group of countries considered too risky by foreign investors who withdraw their money as a result, NBR Governor Mugur Isarescu warns.