BUCHAREST, Romania-European Union countries need strong central decision-making and common economic policies to cure the ills of the financial crisis, prescribed International Monetary Fund Managing Director Dominique Strauss-Kahn, on a recent visit to Romania.
After meeting with Romanian President Traian Basescu, Prime Minister Emil Boc and National Bank Governor Mugur Isarescu, the IMF chief addressed both houses of Romania’s parliament with his analysis on Mar. 31.
Strauss-Kahn’s main message was about the need for common solutions within the European Union to the financial crisis, because resolving financial problems requires political consensus. However, a unified approach cannot exist as long as there is conflict between individual government proposals and those of the EU, he said.
The reason why the crisis has played out differently in seemingly similar countries, he explained, is because of differences in economic policies and economic institutions that existed before the crisis.
His message to IMF member countries is that the crisis must be used to rebuild European institutions. “When you are in calm waters, the European institutions work, but in troubled waters, their weak points come to light,” he said.
Strauss-Kahn believes this rebuilding will require two changes.
The first is a total transformation of the economic architecture of the EU by the existence of a European authority for decision-making. This would pose technical challenges but is absolutely necessary, he said. The second change is for all the 16 EU countries to have a single economic policy to consolidate current achievements in the area.
Strauss-Kahn warned that in its current state, the EU risks becoming marginalized in the future, in a possible competition with Asia, Latin America, etc. He said that the EU could avoid this situation by increasing its role and competitiveness.
Speaking about Romania specifically, the managing director explained that when you rely on capital inflow as Romania had, when crisis comes, it is normal to have trouble when that capital flow suddenly stops.
He noted that in Romania there have been positive developments in many areas, such as per capita income growth and rising living standards.
Nonetheless, Romanian lawmakers will face a challenge ahead because of the gap that currently exists between economic improvement and the unemployment rate that is expected to continue to rise for at least six more years. So while Romanians are asking their government to quickly regulate the financial sector, lawmakers have the tough job of explaining that jobs will still be cut further, but the overall economic situation is actually improving.
Strauss-Kahn said that the role of the IMF is to offer consultation and resources. According to him, the IMF is a controversial organization, appreciated by some people and criticized by others. But in his view, the institution is like “a doctor who offers help when asked.” The medicine, money, also comes with instructions meant to change previous defective behavior by replacing it with balanced, better thought-out fiscal policies.
The IMF “not only cures the symptom, but its cause,” said Strauss-Kahn.
The IMF makes recommendations to those who call for its help, he said, but each country must decide whether or not follow its suggestions, and the government is the one that chooses which measures to apply, and how to do it.
IMF director also mentioned the social conditionality of crisis recovery solutions, to ensure that there are safety nets to support those most vulnerable in the crisis, such as the elderly with very low pensions, low-paid civil servants, etc.
At the end of his speech, Strauss-Kahn highlighted his main message again, that it is time to re-engage European countries towards cooperation and coordination, and move towards higher EU integration and strengthening of economic policy.
He said the role of the IMF, an organization founded in 1944, is to ensure not only global economic stability, but also the peace that lies behind economic stability.
