Francly speaking

The Swiss National Bank’s had its balance sheet expand 5X since 2008 and about 2X since the institution of the cap in 2011. Due to what the SNB’s communiqué calls “recent divergences between the monetary policies of the major currency areas” and since “the trend is likely to become more pronounced” with the ECB’s contemplated “quantitative easing”, the bank decided to continue to protect the Swiss by eliminating the peg which, by the way, spent pretty much all its time wallowing on that floor since 2011.

It was presumably the prospects of the Swiss economy being joined at the hip with detrimental “trends” that prompted such “surprise” defensive action. This is not entirely aligned with conventional macroeconomics which, venerating free-trade, may find it hard to understand why an export oriented country (20th largest exporter in the world) would let its currency strengthen; perhaps because it is also the 18th largest importer. True, the SNB may adjust using other tools, insofar as possible—if Isărescu has “plenty of room for maneuver” in Romania, the SNB likely has some in Switzerland. That conventional macroeconomics might be hitting its limits, namely entering those areas which are supposed to “never happen” and in which increases in the money supply have no further price level impact, only slowly comes to the surface. Note that this seems to have happened in the US (quantitative easing but no inflation, or so we are told repeatedly in Krugman’s NYT column) and …deflates the case for austerity so loved by various Bretton Woods leftovers.

Therefore, the main problem in Romania (and likely other “periphery” economies) that do do not belong to “major currency areas” is not the alleged 75,412 debtors who ignored the fine print on their CHF-denominated loans (individually painful as that may be but for which Hungary, for instance, found the solution (ignore the tortured vocabulary of the sycophantic author)), but the way the national bank (BNR) lives out the same spirit that animated SNB, namely, benefitting its own economy. The BNR had cut the interest rate just the previous week , a move to fight deflation, allegedly. The timing was interesting in itself, as the move coincided with the eurozone consumer price report, the BNR apparently forgetting that the Romanian currency is not the euro.  As the other danger dangled before “analysts” was the recurring bogeyman–the alleged Homeric proportions of a potential Grexit; and, as Krugman says, “printing money is normally a pleasant experience for governments” but does not seem to stem prices falling as rate cuts by BNR since 2012 (from 5.25% to the record low 2.5% today) had a  weak impact on increasing overall lending to private businesses, the claim of “sufficiently large room to manoeuvre” may be exaggerated.

However, BNR’s actions do seem to have a positive impact on loans denominated in lei. Notably, the volume of household loans in euros and other currencies have consistently decreased. This development may have to do both with the declining rate policy of BNR and/ or an increasing unease of borrowers around foreign currency loans—which brings us back to the 75,412 Romanian CHF debtors: the former may definitely be truer than the latter. In any case the overall structure of the total loans shows them almost equally split between household consumption loans and loans to non-financial business (the average difference in loan volume is around 6% since 2007) and moving together (correlation in the .95 range).

Looking further only at the household consumption loans, the picture is:


(Source: BNR, ECB)

One observation is that household consumption loans have changed their composition significantly since 2007. Whereas at the beginning of the period, only about 20% of the loans were taken out for housing, by the end of the period these have effectively doubled (in total, regardless of currency).

What is interesting is that since Draghi started talking “quantitative easing” in earnest in late summer-early fall 2014, the euro has fallen against the dollar (as expected) while staying put or appreciating against the leu. This takes us back to the fairy tales about deflation in the EU and the dangers posed by the situation in Greece, it seems; but it is unclear why a national bank would, within the same time-frame, cut interest rates in its own currency to no avail for spurring business or consumption while also weakening said currency against a falling foreign one. Unless this had nothing to do with the BNr, it being a “market” effect; or the fact that the foreign currency fell against currencies from which the BNR is insulated, to some extent.

Nonetheless, it would still be good for the Romanians to be able to buy more euros for their lei, on the one hand, perhaps to pay down on those euro loans; on the other hand, insofar as the eurozone can purchase more cheaply (in terms of euro) whatever Romanians export , a stronger leu could potentially impact exports, which is 70% into European countries. That impact is more believable than in the case of the Swiss insofar as they export high value non-commodities (gold (jewelry), pharmaceuticals,  watches/clocks, animal and human blood (!), special machinery and tools), in contrast with today’s Romania (cars, vehicle parts, insulated wire, refined petroleum, rubber tires , textiles, scrap iron, footwear).

Apropos of economic strength, Switzerland turns around gold (20% of import and export) while Romania turns around insulated wire–thanks again to Mr. Manoilescu’s framework–the idea that it is the (high) value added products that should be exported is made even more manifest.

So, since all macro conversations are not comprehensible for the “proles”, the current discourse focuses on the tail that wags the dog: the 75412 Romanian debtors in CHF. True to current political form, the BNR and Isarescu take a condescending view of the debtors (“childish”, “phantasy”, “dreaming”) and the solutions other countries have implemented, some well ahead of the Swiss Bank move (where was BNR when others, e.g., Orban, were solving these, at the time only contemplated, macro problems in November 2014 (well before the Swiss delivered the shock!)—busy propping up the euro, perhaps). And, of course, the best solution recommended is “to let things settle”—right, as BNR did in 2008… So let things settle when the regular proles are conerned, but intervene madly to prevent things from “settling” when the banks are. Isarescu seems to think that BNR’s role is to ensure the prosperity of the banks (“de ce sa plateasca bancile?”, Isarescu asks rhetorically). Interestingly, the press/ conferences do not straight out specify the amount of the loans (as of 6-Feb)—they just dance around it with ancillary statistics.

In any case, attraction of joining the euro becomes even more less so…


A. Voicu



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- Economie - Istorie economica - Finante - Administrarea crizelor
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