Poking the Giant

Sometimes, the kooky chaos that’s always going on in Romania is entertaining. Other times, it’s hard to find something to smile about.

But there’s one truly professional group in Romania who never joke around and take everything extremely seriously.

I’m talking about the Central Bank of Romania, about which I’ve written before at considerable length.

BT Phone Home

As you know, the Hee-Haw Gang currently running Romania decided to spring a bunch of new taxes on people just a week before Christmas, crashing the stock market and causing all kinds of other chaos.

The government has plunged the economy into chaos

Devilishly entitled “The Greed Tax,” the new taxes also included penalties on banks, and that’s a big no-no:

“We call it ‘the tax on greed’ and its impact next year will probably be around 3 billion lei,” Comrade Teodorovici said.

“With banking systems largely foreign owned, a bank tax is a politically convenient way to shift the burden of fiscal tightening from domestic to foreign actors,” Morgan Stanley analyst Pasquale Diana said in a note.

The only truly Romanian (commercial) bank in the country, Banca Transilvania, saw its shares go down 21% the day the new “greed tax” was announced. All the other big banks in Romania are owned by companies from other countries.

Grandpa’s Angry

Meanwhile, the Central Bank of Romania wasn’t going to sit by and let some foolish politicians mess with the banks, and so they sent a letter to the government.

Luckily, HotNews got a copy of it.


My translation of the opening paragraph:

In response to your letter on December 19, 2018, asking the Central Bank of Romania’s opinion on the emergency ordinance to raise taxes, we hereby send you a series of analyses that we have conducted.

We would also like to mention that since we only had a limited amount of time to prepare this report, our conclusions must be considered merely preliminary in nature.

And then it goes on for several pages :)

Here’s the gist:

Basically, the (nearly invisible) yellow line is assuming that the “Greed Tax” is never implemented. Banks are predicted to make a small profit.

But if the “Greed Tax” is implemented (which it has been), total income by all banks will be negative. In other words, banks will lose money, the exact opposite of what banks are supposed to do!

But there’s more:

Essentially, even if the “Greed Tax” hadn’t been implemented, only nine out of 23 banks are forecasted to remain profitable in the next two years.

But since the Greed Tax did become law, maybe only one or two, and maybe not a single bank will be profitable over the next two years.

The emergency ordinance will have a powerful effect on the business cycle and will likely cause the lending rate to rise …

If the proposal to collect taxes on a trimestrial basis [i.e. four times a year] is adopted, we predict that eight banks which now play an important role in the [Romanian] economy might not have enough funds to continue operating by the year 2020. We urgently ask that the Ministry of Public Finance take into consideration the impact on the financial stability of the country before taking any action.

Oops, too late.

Good lord, this is gonna be a wild year for Romania, especially since the government still hasn’t even set the budget for 2019 yet.

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