Economic Meltdown

Posted by carlyluvsunited on Wednesday, 25 March 2009

I read this today in The Guardian and it kind of upset me. After all the hard work people from my country have put in to try to make ourselves good members of the EU and able to stand on our own two feet proud of what we have achieved and proud of what we have come through as a nation, and now, due to problems beyond our control we have had to go and ask for help from the EU in the shape of cash loans to prop up our economy. We are very proud people and to be forced to do this is something we are not happy with.....but we have faced worse crises than this and come through it.

The European Union, IMF and World Bank today bailed out Romania with a €20bn (£18.5bn) loan in return for severe cuts in public spending and wages.

Romania becomes the third EU country to turn for financial assistance in the current recession after Hungary and Latvia which have together received €9.6bn from Brussels. Latvia has also been given €2.2bn from individual EU countries.

Today's package sees the IMF put up €13bn, the EU €5bn and the World Bank €1bn. The European Bank of Reconstruction and Development and other creditors are committing the extra €1bn.

East European countries in the EU are in economic freefall as the slump deepens in the west which is the main source of their exports. Business sentiment in Germany, the eurozone's biggest economy, today fell to a 27-year low.

"I am pleased that it was possible to come to an agreement rapidly on a significant financial assistance package," said JoaquĆ­n Almunia, EU economic and monetary affairs commissioner.

He added: "I welcome the commitment by the Romanian authorities to implement a major programme of economic adjustment aimed at bringing the economy to a sound and sustainable growth path, including through strengthening financial sector supervision.

"I am aware of the hardships that Romania and its citizens are encountering at this time of crisis but I am confident that, with the right policies and with the help of the EU and other international bodies, they will emerge stronger."

Romania, among the poorest of the EU's 27 members, is being urged to recapitalise its banks, boost its deposit guarantee scheme and toughen supervision, including winding-up laws.

It is also urged to undertake "an orderly correction of imbalances in the medium term" and "improve competitiveness" – IMF-speak for savage wage cuts. Latvians are experiencing cuts of between 20% and 30% in their incomes.

At the core of the programme is a commitment by Bucharest to limit the budget deficit to 5.1% this year and to cut it further to 3% – the ceiling imposed by the Maastricht treaty – in 2011. Other measures imposed as a condition of the loan are due to be outlined later.

The European commission and Ecofin, the council of economic and finance ministers, said the Romanian financial sector should continue to provide adequate funding of institutions and of the wider economy.

"In this context we would very much welcome the confirmation of the long-term commitment of foreign parent banks to Romania and to support their subsidiaries in the country," they said in a joint statement. Western banks have €1.5tn in outstanding loans to eastern Europe.

Last week, in anticipation of further demands as the crisis deepens, the EU summit agreed to double a special fund for countries in balance of payments difficulties to €50bn.


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