Silviu Cerna

Economist, Professor, Ph.D., the West University of Timișoara, expert in monetary policy and banking systems

The Draghi Report: Whatever It Takes to Increase European Competitiveness

No. 49, Sep.-Oct. 2024 It is often said that by declaring that he would do “whatever it takes”, the then President of the European Central Bank, Mario Draghi, saved the Eurozone from the financial and sovereign debt crisis of 2012. His solutions for reviving the growth of the Union’s competitiveness European (EU) are presented in a much larger document (400 pages), published last week, but the general principle is the same: “whatever it takes” must be done. This organization needs, he claims, a “new industrial strategy” to stimulate economic growth, which involves additional investments of 800 billion euros annually. The amount represents 4.7% of GDP, more than double the American aid received by European economies through the Marshall Plan. But it is an “existential challenge”. More

Inflation: A Well-Known Phenomenon

Silviu Cerna

Over the past two years approximately, inflation has resurfaced in Romania. Initially, price increases appeared to be temporary and due to purely external causes: international commodity market tensions and supply difficulties in a context of strong recovery of the global economy after the end of the pandemic restrictions.[1] Thereafter, inflation was found to be persistent and fueled by domestic factors, both on the supply and demand side.[2] In the short term, the most recent and possibly the most important cause of inflation has been the increase in energy prices exacerbated by the war in Ukraine. In the medium to long term, inflationary pressures are likely to increase as a result of structural factors such as imbalances in the Romanian economy, stagnating investment, demographic decline, a shift to (more expensive) green energy etc. The way these factors act and combine is specific to the Romanian economy, and, as a result, a monetary policy adapted to indigenous realities is necessary. The monetary policy decisions taken by the Fed, the ECB and the other central banks in the region that are not part of the euro area will also be of particular importance. These external decisions are important in view of the evolution of the interest rate differential and the orientation of international capital flows into which the Romanian economy is inserted. More

State and Prosperity

Silviu Cerna

The strong global recession, caused by the containment measures imposed by the Covid-19 outbreak, as well as the aid granted by many countries to people and companies, has led to increased budget spending and public debt all over the world. This phenomenon has been added to the expansionary monetary policy of central banks, which in many cases has gone as far as monetary financing of a large part of public debt, which has led to the rise of inflation. In addition, the “relaunch” measures and the economic consequences of the war in Ukraine have led to the increase and intensification of the state’s intervention in economic activity and the continuous weakening of the market economy, on whose proper functioning depends on the well-being reached by a part of the world at the beginning of this third millennium. More

The Anti-Capitalist Mentality: A Big Problem for Romania

Silviu Cerna

Decades of anti-capitalist propaganda have left deep traces in Romanian collective psyche, which causes poverty, unemployment, corruption, etc., to have an air of verisimilitude to capitalism, not to the reminiscences of communism.The word “capitalism” comes from “capital”, which derives from “caput, capitalis”, meaning heads of cattle (lat.), once identified with wealth, in general. It is first attested in 1850 in the writings of Louis Blanc, a French politician and historian of socialist political orientation.[1] However, it remained little used, being ignored even by Karl Marx in his famous book, Capital, published in 1867. The word penetrated with full force into political discussions only at the beginning of the 20th century, namely as an antonym for socialism. In scientific circles, it was validated by Werner Sombart’s brilliant book, Der Moderne Kapitalismus (1902). Although it was not used by Marx, this word was quite naturally incorporated into the Marxist conception, according to which the history of mankind comprises the following social arrangements (modes of production): the primitive commune, slavery, feudalism, capitalism and communism (called in its first stage “socialism”). The word “capitalism” is therefore polysemic, being used in politics and ideology as well as in scientific language. Hence, probably, the ambiguity of its destiny. More

Modern Monetary Theory and Its Poisonous Implications

Silviu Cerna

The Modern Monetary Theory (MMT) is often mentioned in the latest economic debates, especially in the USA, where it is supported by some (left-wing) candidates of the Democratic Party to the Presidential elections of 2020 and their economic advisers. Recently, a first edition of a macroeconomics manual with over 600 pages, where this theory is presented, was rapidly sold out. The explanation for this bookstore success resides in the fact that the new theory seems to provide governments with economic policy tools susceptible to be used when the interest rates are very low or even zero and will, probably, remain so in the near future. More

Romanian Stabilization in the 1920s and the Missing Gold Reserves

Silviu Cerna

Despite ending the First World War as one of the victors and, as a consequence, having doubled its territory and population and reaching its political goal, i.e. the union of the territories with the majority of the Romanian population in the form of a national state, Greater Romania was, economically, severely affected by the war. According to certain estimates, the war has caused ROL 31 billion worth of damages (Romanian Leu). In addition, the war triggered the disruption of the economic activity, trade deficits in relations with foreign markets, financial chaos and inflation. More

“Are Central Banks Literally Independent?”

Silviu Cerna, Ion Pohoață

The independence of the central banks – mysterious or miraculous entities in the eyes of masses – is practically an inexhaustible topic for scholars-economists and political scientists, as well as for business-persons and policy-makers. Still, the ultimate bill-payer of all institutional settings and governance organizations is the consumer-citizen. For this character this bell (of the debate) tolls. More

Inflation Is Back: What Is to Be Done?

Silviu Cerna

The pressing matter of inflation is once again on the minds of the citizens and the National Bank of Romania (NBR), whose goal is to preserve and maintain price stability. Over the previous year, inflation has dramatically risen. It continues to include a significant external component, amplified by the economic consequences of the war between Russia and Ukraine, most notably the sharp increases in the price of energy and raw materials. Over the last couple of months, inflation has intensified and spread, leading to it eventually being internalised. As a consequence, the normalisation of monetary policy is necessary. More

Political Uncertainty and Inflation

Silviu Cerna

Recent political events in Romania (the removal of some ministers, the dissolution of the ruling coalition, the dismissal of the government by a motion of no confidence etc.) created a great deal of uncertainty regarding fiscal, monetary and legislative policy. The measures promised or claimed by politicians in response to the powerful impact of the energy crisis on the Romanian economy and society, which have already been affected by the COVID-19 pandemic, increase this uncertainty. In particular, uncertainty concerns the nature, magnitude, and timing of financial support measures for the population and businesses, the monetary policy measures projected by the National Bank for the inflation slowdown, absorption of EU funds, sustainability of public debt etc. Many public voices, from journalists to analysts of credit rating agencies and international financial institutions, warned that this uncertainty about the conduct of economic policy is affecting the behavior of businesses and the population in terms of production and consumption expenditure, investments, new jobs creation etc. More

The Economic Consequences of the Russian-Ukrainian War

Silviu Cerna

The Russian invasion in Ukraine marked a new war in Europe, which started four months ago and whose end is not yet in sight. The longer the conflict lasts, the larger the threats to world peace will become. The Western world’s reaction was to apply severe economic sanctions, to impose penalties, mainly as deterrence. Even though it is too early to see the end of this war, some economic consequences are already visible.When Ukraine was invaded by the Russian army, the world’s economy was already in a huge stagflation, not comparable to the one from 1973-1974. This economic shock was strong enough to impact the demand in different sectors: fossil energy (oil, gas and coal), food (corn), chemical fertilizers (based on potassium and nitrogen) and industrial raw materials (nickel, titanium). Those goods accounted for a good percentage of the exports of Russia and Ukraine, and the war led to an increase in the world prices for those goods. More

Economic Sovereignty: Between Slogans and Realities

Silviu Cerna

In the speeches of some politicians and in the writings of some Romanian journalists and economists, the slogan of economic sovereignty is often present. The economic conception expressed by this phrase is obviously inspired by the xenophobic-autarchic model of the Communist economy, but it is also reminiscent of the “Through Ourselves” policy applied in the interwar period. In order to be economically independent, Romania must come out of the world in one way or another! The problem is that in the face of globalization, leaving the world can have serious consequences. Ultimately, autarky means reducing imports and limiting foreign capital inflows, which impedes economic development and makes economic sovereignty impossible. More

Euro Adoption: Chance and Challenge for Romania

Silviu Cerna

Like the other Central and Eastern European countries, Romania committed itself to adopting the euro as soon as it will meet the necessary conditions. The candidates have, however, a considerably large margin of manoeuvre in determining the moment when they will adopt the euro. Especially two accession criteria to the Monetary Union – harmonization of the legal framework with the Eurozone standards and the prior participation in the European Exchange Rate Mechanism II (ERM) – are entirely under the sovereign control of the states. On the other hand, the institutions of the Eurozone have an important role in the euro adoption process, notably when it comes to assessing the extent to which a certain country is ready to participate in the ERM II. More