DRIIE-International economics

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A central bank’s dilemmas in highly uncertain times - a Romanian view
(Institute for Economic Forecasting, 2015-03) Dăianu, Daniel
This paper looks at policy dilemmas the National Bank of Romania has faced over the years, with the analysis framed in a European and historical context. Some of these dilemmas are of an older vintage, such as how to deal with massive capital flows, how to combat high inflation when resource misallocation is a very burdensome legacy and expectations of high inflation are well entrenched. Other dilemmas are pretty new, or have got salience during the Great Recession. Romania has had to undertake a painful correction of its large macroeconomic imbalances. "Light" inflation targeting has provided leeway for mitigating the fallout from the financial crisis, although high euroization has dented its efficacy. The specter of stagnation in the Euro Area, financial deleveraging, unconventional policies which are pursued by key central banks, the ongoing reform of banking regulation and supervision, a growing shadow banking, how will the Banking Union evolve, etc, make up a very complicated European context and pose a range of big challenges for the central banks of New Member States (NMSs).
A new EU economic governance and fiscal framework : what role for the National Independent Fiscal Institutions (IFIs)?
(European Institute of Romania, 2023-06) Dăianu, Daniel
The European Commission's communication on orientations for a reform of the European Union's economic governance framework asks the European Fiscal Board (EFB) and national Independent Fiscal Institutions (IFIs) to play a more significant role in it. This vision has plenty of merit, but one needs to be careful in how to implement it. Structural reforms and public investment analysis demand an expertise hardly existing at the level of most national IFIs, and any involvement in policy design would make its assessment tricky when IFIs are part of the process: an inescapable conflict of interest would ensue. It could also be perceived as a technocratic encroachment on a democratic decision-making process. In order to play a more significant role in the EU economic governance framework, national IFIs need more resources according to the EU-wide acceptable standards of operation, and, first of all, they need to bolster their macroeconomic and debt sustainability analysis capabilities.
Banking distress-a comparative approach of two business cases in the Banking sector in USA in 2023
(National University of Political Studies and Public Administration, Department of International Relations and European Integration, 2023-06) Munteanu, Bogdan
The aims of the paper are to explore the recent liquidity stress situations encountered by the regional banks in the United States of America (with a particular focus on Silvergate Bank and Silicon Valley Bank, both headquartered in California) and to provide a descriptive viewpoint on the regulatory framework, prudentiality and financial management issues, including accounting aspects and corporate governance. The research methodology pertains to the cause-effect analysis and the dynamics of changes over time and to the synthesis of documented authentic public resources of information, giving substance to the main findings. The paper explores the causes and the consequences of the failing banks from the perspective of implications to the current regulatory environment and prudential requirements, with a view to the financial markets functioning. It analyses the business models and the root -causes that led to the recent distress in the first quarter of the year 2023 in the US banking system. The conclusions draw evidence on how clustered liquidity stress and fast-unfolding bank runs became risk factors, in a context where regulatory environment allowed for a more relaxed supervisory stance on banks and the rising interest rates in an inflationary economy affected the market value of financial instruments as means of liquidity in banks' portfolios. Still, despite some particular situations pertaining to some US banks, the US banking sector remains resilient, with significant risk-absorbing capacities.
EURO zone crisis and EU governance: Tackling a flawed design and inadequate policy arrangements (an essay)
(Akademiai Kiado, 2012-09) Dăianu, Daniel
This paper focuses on the roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the EU governance structure in conjunction with radical changes in the regulation and supervision of financial markets. The EMU was sub-optimal from its debut and competitiveness gaps did not diminish against the backdrop of its inadequate policy and institutional design. The euro zone crisis is not related to fiscal negligence only; over-borrowing by the private sector and poor lending by banks, as well as a one-sided monetary policy also explain this debacle. The EMU needs to complement its common monetary policy with solid fiscal/budget underpinnings. Fiscal rules and sanctions are necessary, but not sufficient. A common treasury (a federal budget) is needed in order to help the EMU absorb shocks and forestall confidence crises. A joint system of regulation and supervision of financial markets should operate. Emergency measures have to be comprehensive and acknowledge the necessity of a lender of last resort; they have to combat vicious circles. Structural reforms and EMU level policies are needed to enhance competitiveness in various countries and foster convergence.
European Union - A case for prudence while managing Imbalances: Debt-Led Economic Growth
(SNSPA, 2022-06) Munteanu, Bogdan
The paper aims to look at the EU Fiscal Framework and Governance from the viewpoints of the challenges to economic growth in a context marked by high inflation, geostrategic risks and commodities markets pressures, of the challenges stemming from the interplay between the fiscal and monetary policies when the monetary policy is constraint to tighten and of the challenges for the national authorities to deploy fiscal measures in a post-pandemic context in which the level of public debts increased substantially and constrain the fiscal space and affect the macro-financial stability. The paper takes into account the considerations and the past approaches at EU level to respond to crises with a view on the fiscal implications to achieve the financial stability, implementing legislative adjustments and working on institutional architecture development. This research takes a look at how to assess and understand the public debts sustainability and explores models and options that are possible to be taken into account by the EU leaders to strengthen the resilience of the EU fiscal framework. The paper concludes that, given the uncertainties caused by inflation, geostrategic tensions, prolonged supply chains bottlenecks, rising commodity prices and diminished fiscal space availability, all these imply expectations for further increases in new government debt instruments issuance, at a moment when the balance sheets in the financial sector (including the central banks) are already constrained by the existing debt.
Geopolitical views and Geo-economic considerations on the German strategy and EU wider framework relations with China
(SNSPA, 2023-12) Munteanu, Bogdan
On July 13, 2023, the German Government has released the first national strategy related to approaching China in international relations, including from a geo-economic perspective. The text of the German strategy is of significant importance for other EU member states and the EU authorities, as it encloses aspects pertaining to the industrial policy and cyber-security, serving nonetheless as a use-case and / or a model for developing a coherent approach to China, including the perspective of economic diplomacy in the larger context of policy dialogues with China. From a diplomatic stance, China has anchored international relations in the countries of Central and Eastern Europe, some of which being EU members - in 2012, China forged partnerships via the "16+1" Cooperation, later extended after the Dubrovnik Summit to "17+1" by the adhesion of Greece. China looks to consolidate bilateral relations in Europe via a multi-level approach and sectorial-specific coordination (to include trade, energy, financial technologies, forestry, maritime services, etc) and the German strategy complements the projected EU-China comprehensive strategic partnership, rather than to be an alternative to it. In this context, the paper explores the implications of the German strategy towards China from the European viewpoint and analyses its value-added potential to supporting the wider angle of EU international relations towards China. The research hypothesis is that in the current international geopolitical context related to China, the German strategy enhances at the national level the guiding principles of EU approach to managing the relations with China and adds value to EU economic diplomacy instead of duplicating it. The research methodology is focused on a qualitative analysis of documented authentic scientific public resources and synthesis of key aspects from a geopolitical and geo-economical wide angle of Sino-European relations. The conclusions draw on the fact that China acts as an international challenger, on a path to consolidate its international role and the EU and the German strategies towards China support the mitigation of exposures to economic dependencies by de-risking linkages rather than economic de-coupling from "a partner, a competitor and a systemic rival" at the same time, as designated by EU.
Overhaul Capitalism to Save Democracy
(European Institute of Romania, 2021-06) Dăianu, Daniel
Why have our societies become so deeply divided, which is inimical to democracy? How do growing distributional conflicts impact governance structures? Why does fake news take often precedence over truth? What should be done to avert that the rule of law is undermined by the rule of the mob? It may be that the current crises (public health and economic) are harbingers of a new turning point in the evolution of capitalism. This evolution is interlocked with cycles of ideas, of public policies, and institutional change. A mixed economy took shape over time, in which a public sector and a private sector cohabit, based on market dynamism, entrepreneurship, with the shares held by the two sectors shifting in accordance with historical and local conditions. The debate that has started after the outbreak of the last financial crisis is about the path of capitalism, of the mixed economy, of democracy. We need to steer the course of events in the right direction via wise policies. Safeguarding democracy relates to the urgency to deal with climate change as an existential threat.
Regaining financial stability : taming financial markets is a must - a focus on NMSs
(Institute for Economic Forecasting, 2011-06) Dăianu, Daniel
The need for a radical overhaul of the regulation and supervision of financial markets has been acknowledged in all advanced economies. And yet, there still is a line ofreasoning which argues that the main source of the current financial crisis is the cheap money of the past, which would have caused large global imbalances as well.But another, that I share, is that something wrong has been occurring with overall financial intermediation in recent decades. This is like saying that structure has been no less important in derailing economies than misconceived policies and unavoidable cyclical dynamics. By structure we mean the configuration of rules and practices in the realm of regulation and supervision, on one hand; and the evolution and practices of financial institutions, including securitization and the growth of the so-called shadow banking sector (which has escaped regulations), on the other hand. Structure has, arguably, influenced policies in view of the relative neglect of systemic risks and the almost blind belief, by some, in the self-regulatory virtues and clairvoyance of financial markets. For a long time financial stability was relegated, de facto, to a second tier policy priority – especially in advanced economies. The current crisis has brought this concern back, with vengeance, and relates it to structure. The “great moderation” reveals itself as a “great misperception” period, which compels a rethinking of regulations and practices, of monetary policy itself (of inflation targeting, too), of the linkages between various domains of economic policy. Nothing seems to be certain any longer, in an increasingly stochastic world. Just think about the huge difference between how Spain and Ireland were judged before and after the eruption of this crisis – with a sharp deterioration of public finances and drastic economic downturn.
Revisiting Euro Area accession terms : fiscal rectitude is not sufficient!
(Akademiai Kiado, 2019-01-01) Dăianu, Daniel
This paper argues that there are conditions for successful euro area (EA) accession, apart from fiscal rectitude. One is an ex ante critical mass of real convergence which should enhance lasting nominal convergence. Another condition is an overhaul of EA mechanisms and policies that should make it a properly functioning monetary union, which implies an adequate mix between risk-reduction and risk-sharing. It is argued that risk-sharing cannot be secured by private sector arrangements only. Entering the ERM2 is deemed to be no less demanding than euro area accession per se, especially for countries that use flexible exchange rate regimes. The paper examines also the influence of production (value) chains on the efficacy of autonomous monetary and exchange rate policies when it comes to controlling external imbalances; macro-prudential policies, too, are highlighted in this regard. Steady productivity gains are a must for surmounting the middle income trap and achieving sustainable real convergence.
Revisiting limits and pitfalls of QE in the emerging markets
(Institute for Economic Forecasing, 2022) Dăianu, Daniel; Alupoaiei, Alexie; Kubinschi, Matei
The pandemic caused by COVID-19 is another huge blow to the world economy after the financial crisis that erupted in 2008. A health crisis has been interweaving with severe economic and social strain following a necessary lockdown for several months during 2020. Although most economies seem to have climbed out of the deep hole caused by The Shutdown, with a current strong economic rebound underway in large parts of the world economy, a longer-term recovery is likely to be difficult as it is surrounded by significant uncertainties and contradictory effects. This paper relies on the line of reasoning presented in Daianu (2020). It highlights the forceful and coordinated policy response in advanced economies in order to deal with the multiple shocks represented by COVID-19. Its main focus is on policy responses in the emerging economies, which have tried to replicate measures adopted in the advanced economies. The paper highlights significant differences between the advanced economies and the emerging economies, which must be considered when trying to adopt QE in the latter. The main inference is that there are limits and pitfalls for the emerging economies when it comes to practice the policy responses of the advanced economies.
Romania's Euro Area accession : the question is under what terms!
(European Institute of Romania, 2017-12) Dăianu, Daniel; Kallai, Ella; Mihailovici, Gabriela; Socol, Aura
Euro area (EA) accession should mainly depend on the achievement of a critical mass of real and structural convergence, which should diminish the risks to operate in an incomplete monetary union. Accession would also be enhanced by reforms in the functioning of euro area institutions and policies which should deal with asymmetric shocks. We argue that the true stake of euro adoption in Romania should be neither “if’’ nor “when”, but “under what terms” and “how it will be done”. The essential prerequisite for real convergence is raising competitiveness. Our analysis shows common problems regarding competitiveness in new member states in terms of infrastructure, institutional development, business sophistication, innovation; it points out the scale of risks attached to a premature euro area accession. This accession does not require the achievement of the euro area average level of GDP/capita (in PPP terms). As we argue, one can imagine Romania’s accession after having achieved a minimum of 75% of euro area GDP/capita average and the fulfilment of a series of structural conditions against the backdrop of euro area reforms.
Russia’s dependence on China may not be enough to save economy
(Jamestown Foundation, 2024-02-08) Colibășanu, Oana Antonia
Russia’s increasing reliance on China for trade underscores potential vulnerabilities due to China’s economic woes and the yuan’s currency controls. This is prompting Russia to aggressively pursue the digital ruble. Despite Western sanctions, Russia-China trade has increased, enhancing bilateral commerce and financial cooperation. Trade is also increasingly denominated in yuan and rubles, furthering the two countries’ goals of de-dollarization. Russia’s economic growth relies heavily on state spending for military purposes, potentially leading to inflation and social unrest. The push for a digital ruble aims to manage these challenges, but highlights long-term economic vulnerabilities
Tax Policy under the Curse of Low Revenues: The Case of Romania (Part I)
(Institute for Economic Forecasting, 2012-03) Dăianu, Daniel; Kallai, Ella; Lungu, Laurian
The Romanian tax revenue-to-GDP ratio has been far below the average level of both the European Union and the New Member States for many years. The decade long growth cycle hid significant structural imbalances in the public budget. This paper attempts to identify reasons why tax revenues in Romania are the lowest among the EU-27 countries. It takes a broader perspective by looking at the main sources of tax revenues over the last two decades. Implications of the policy regime change following the introduction of flat tax in 2005 are considered. It also does a few comparisons with other countries from Central and Eastern Europe by looking at the main tax revenue components.
Tax Policy under the Curse of Low Revenues: The Case of Romania (Part II)
(Institute for Economic Forecasting, 2012-08) Dăianu, Daniel; Kallai, Ella; Lungu, Laurian
It is an acknowledged fact that the tax revenue to GDP ratio in Romania is extremely low. This article suggests several ways through which budgetary revenues can be increased and, in the process, strengthen fiscal consolidation. Increasing tax collection rates, combating fiscal evasion and bringing parts of the shadow economy into the open would repair a fractured sentiment of fairness in the Romanian society. In particular, the results in this paper show that public sector revenues could rise by the equivalent of 4% of GDP if only half of the informal economy were to be brought to light.
Unconventional Monetary Policy: changing European Central Bank's perspective on Financial Governance
(SNSPA, 2017-06) Munteanu, Bogdan
The paper aims to look at the European Central Bank governance in terms of decisions taken to deploy a new kit of unconventional monetary policy measures, in order to respond to a new economic paradigm characterized by dynamic change in evolution, high volatility and enhanced financial risks. As an institution, the European Central Bank is led by the Governing Council and the decisions taken on how to use monetary policy impact an entire financial system. European Central Banking governance is about safeguarding the common currency and ensuring a future for the economic and monetary area to emerge stronger. For this purpose, when conventional monetary policies reach limits in their effects, it is time for the European Central Bank governance to analyse and assume the decision to deploy the arsenal of unconventional monetary policies. The experience of recent years showed a positive effect of the European Central Bank's unconventional monetary measures, but costs could rise in case of extensive use of such measures. When these measures are used in combination, the effect is amplified and the European Central Bank needs to assess when it is time to withdraw the support, how to communicate and what exit strategy should use, what the costs are and impact can expect.
When policies fuel economic cycles
(Institute for Economic Forecasting, 2017-03) Dăianu, Daniel
The Great Recession has brought back into the limelight the issue of cycles, of policies which fuel, or mitigate crises. There is a specter of much lower economic growth in the industrialized world. Central banks are over-burdened. This makes central bankers’ life much more complicated and obfuscates the borders between monetary policy and fiscal policy, especially when financial stability gets to center stage. New systemic risks show up in capital markets. The Eurozone has escaped collapse owing to ECB’s extraordinary operations and large macro-imbalance corrections in its periphery, but major threats persist. This paper focuses on economic cycles and policies in an international (European) context. The financial cycle is a key concept in the logic of this paper. The experience of European emerging economies is taken into account. Attention is paid to linkages between domestic cycles and financial cycles, drivers of financial cycles, finance deregulation and systemic risks, ultra low interest rates, the international policy regime and global stability.
Which way Goes Romanian Capitalism? - making a case for reforms, inclusive institutions and a better functioning European Union
(European Institute of Romania, 2013-12) Dăianu, Daniel; Murgescu, Bogdan
This paper examines the Romanian economy and its version of capitalism from a long-term perspective and in a broad context. It focuses on economic prospects in the face of a legacy of backwardness and the endurance of domestic weaknesses, in the context of the Great Recession and the eurozone crisis. Romania has a pressing need to mobilise its internal resources and absorb EU funds on a much greater scale so that it can enhance economic growth and mitigate external shocks. To this end, Romania needs to undertake thorough reforms in the public sector, combat rent-seeking and waste, foster domestic savings. The functioning of institutions and of taxation should convey a sense of fairness to citizens. Romania needs to rethink its growth model. Romania must improve its education system by increasing the level of resources assigned to education and creating coherent policies to strengthen institutional capacities and to improve quality standards. The Romanian economy would benefit significantly from EU policies that are more responsive to the economic and social fractures revealed by the current crisis. Not least, financial markets have to be tamed in Europe and elsewhere if they are to serve economies.

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