Remedies for overcoming the present financial crisis

Titus SUCIU Transilvania University of Brasov

Remedies for overcoming the present financial crisis

1.Solutions 2.Options and remedies for Romania 3.Conclusions

Solutions
The most liberal economies of the world, the American and the British ones, nationalized numerous financial institutions under the pretence of saving the small business, but in fact covering the huge losses provoked by leaderships of those institutions. We consider that the state should not be merely the fireman on duty, and the losses should not be supported by the wider society. We ask ourselves the following question: can a financial crisis be replaced with a moral one? Is it all right for those responsible for hundred billions of dollars detriments to retire unhindered with hefty allowances and for the population to suffer the costs?

Solutions
Obamas plan to stimulate the economy sums up to 825 billion dollars, split into two equal installments, in 2009 and 2010. Here are a few of the points on the Obamas plan: every American who earns below 200000 dollars a year will benefit a tax cut of 500 dollars and per family the cut will rise up to 1000 dollars; other tax cuts estimated to 275 billion dollars are expected to stimulate consumption, which generates two thirds of the GDP; 119 billion dollars will be directed to the 50 states of America, especially for health care and administration; the most affected social groups - unemployment, social security will be allotted 106 billion dollars; 90 billion dollars will be invested in infrastructure, 54 billion in energy sector and 16 billion dollars will be distributed for research (Mu, Buneci, Gheorghe, 2009, p. 158).

Solutions
In Great Britain, the government decides the states intervention in the banks Northern Rock and Bradford Bingley and injects EUR 44.8 billion in saving, through nationalization, the banks Royal Bank of Scotland, Halifax Bank of Scotland and Lloyd TSB. Therefore, the generalised bankruptcy of the British banking system could be avoided. Gordon Brown develops a relaunch plan of EUR 24.2 billion, that is, % of the GDP, having as a main element cutting the VAT from 17.5% to 15%. (Mu, 2009, pp 161-162).

Solutions
On January 12, 2009, the German government announced the guidelines of its economic relaunch plan, worth EUR 31 billion, on a two-year period and continuing another previous program of EUR 31 billion, adopted at the end of 2008: - investments in infrastructure of EUR 18 billion, - the decrease of the tax per salary from 15% to 14%, - the absolute reduction of contributions to insurances and division of the sum between employer and employees. - a germanised version of the scrap car program, with each buyer getting EUR 2,500 on buying a new car and scrapping another, which was more than nine years old. - each child gets 100 euros, payable once. Therefore, the German government fights the crisis with a program worth EUR 81 billion, which represents 3.2% of the GDP forecasts for 2009-2010. (Mu, 2009, p171) .

Solutions
In France, Sarcozys plan focuses on the public state investments, with EUR 10.5 billion and of the companies with state capital and local communities, with EUR 11.4 billion, with a total cost of the crisis reaching EUR 26 billion. The structure of the program of measures in December 2008 included: - a program for building 70,000 additional residential units, - EUR 4bn for equipment and infrastructure in public investments, - doubling the number of loans with 0 interest, - exoneration of employers taxes on hiring employees, - EUR 1,000 premium for an old scrapped car, - EUR 300m fund, destined to reorganising the automobile industry.

Solutions
Moreover, Nicolas Sarcozy resumes the crusade for an enterprisers capitalism and against an enterprisers monopole. Heads of state in France, Germany, England and Italy have made five historic decisions, and these are: - all banks will be supported, and each state is going to adapt to its own situation, - managers who are responsible will be sanctioned, with reference to the presidents of the banks going through difficult situations, who will be invited to resign, - states can break the European limits, as far as the public deficit is concerned (The European Commision will allow the states direct intervention in order to support enterprises), - all financial market players will be checked up (listing agencies, investment funds and banks will be the object of thorough checkups in order to avoid side-slips, - appeal for restructuring world finances by organising a summit G-20. (Mu, 2009, p 164-167).

Solutions
Here area few of the austerity measures taken by some of the member states of the EU the example of the Poland: the cut of the expenses for goods and services; the Czech Republic: dismissals from the budgetary sector; Hungary: the cut of the bonuses for the budgetary sector; the freezing of the salaries in the budgetary sector, of pensions and other social benefits; the cut of subventions for heating and lodging; the cut of the allowances for families, for children, sickness and maternity leave and the rise of the VAT (Voinea, 2009, pp. 155-156).

Remedies for Romania

Following negotiations with IMF, the Government of Romania adopted a series of austerity measures, meant to limit the effects of the economic crisis and encouraging a possible economic relaunch. Austerity measures adopted: reduction by 25% of the expenses in the public system starting June 2009, increasing the VAT from 19% to 24%. There will be an exception for childrens allocations and for salaries under RON 600. Measures for economic relaunch: the payment of governments debts to companies (EUR 1bn); insuring governmental investment programs: - investments in rural economy, support for SMEs in the rural area, rural roads, rural infrastructure (EUR1 billion); - investments in environmental infrastructure ( EUR 0.7 billion); - continuation of investment programs through relevant companies in the Ministry of Economy (EUR 2bn); - 4,000 ANL residential units; - 1,000 houses for specialists; - rehabilitation of 500 km of county roads; - rehabilitation of 400km of national roads; - finalization of works on ring roads: Sibiu, Cluj, Oradea, Lugoj, Iai, Constana; - continuation of works on the motorways: Transilvania, Bucharest - Ploieti, Constana- Cernavod, AradTimioara; - continuation of the programs Scrap Car, First Silo, First House; - granting governmental guarantees to companies that got European financiering but are not able to insure cofinanciering; - grating further support to companies that hire unemployed people. Program to fight against tax evasion; Limiting public acquisitions: (www.infomondo.ro/politic)

Remedies for Romania

The imminence of a third year of economic contraction worries foreign investors. Therefore, The Foreign Investors Council (FIC) proposes authorities a set of measures, the following of which are considered a priority: Bank for SMEs. This measure would generate a 0.4% rise of the revenues to the state budget and would create 9,000 new jobs. Fast privatization of the state companies. FIC proposes a transparent privatization of a share of some state companies, by listing them on the Stock Exchange and through strategic sales, including of the minority stakes. The money thus made should be redirected to agriculture. Private security companies at the Customs. Businesspeople ask for a simplification of the tax payment methods, simultaneous with focussing checkups on companies that present a high risk rate. In addition, FIC is willing to hire, on its personal expense, a security company to improve customs checkups. Prima Cas (First House) should be made possible for the second house as well. FIC promotes the setting up of a Registry of Outstanding Debts registered by the state budget. As far as European funds are concerned, the measure suggested is outsourcing or centralising fund access process management, which would lead to a 3.6% increase of the GDP by 2015. At the same time, the bank representatives in the Council claim that the project Prima cas has to be continued, but in a different form. They are for extending it for the clients who already own a house, simultaneously with reducing the state guarantees to only 50% of the loan value. Hosting the European Football Championship in 2020, chance for infrastructure and tourism. This project, in partnership with Hungary, would have a major financial impact on the economy as there will be new airports, highways, hotels and stadiums.

Remedies for Romania

In an interview taken by editor Ion Longhin Popescu, to the University Professor Constantin Roman from ASE (The Academy of Economic Studies) Bucharest, the latter proposes the following solutions in order that Romania should exit the crisis. These technical solutions have been verified in Romanias economic past and in other countries practice: Additional tax for uncultivated farming lands; Reimbursement of the excises from diesel oil and electric power price to farmers based on the production made and the surface of exploited land; Renegotiation of two sectors with IMF: education and health, so that secondary budgets should have deficits higher than 7-8%, so that investments are made possible; Stopping doctors and IT specialists haemorrhage to the West, so that the graduates be no longer able to leave abroad unless they pay back the money spent on their education and training to the state; Organising master courses to train European project developers

Remedies for Romania

Moving the Court of Accounts under the subordination of the Ministry of Justice, of the Ministry of Finances and Ministry of Interior, so that any tax evasion file should be signed by representatives of the three ministries, thus giving heavy weight to the checkup act; Reduction of the tax per profit rate from 16% to 5%, with two restrictions: 1 the money should be deposited to an account open in a bank in the country; 2 the difference between 16% and 5% should not be spent, but deposited in a development or investment fund; Establishing a tax that differs according to the salary, encouraging families with more children, who would pay lower incomes, and encouraging birth rates as well; Reintroduction of the tax payers diary and the global tax return per family; Application of the Australian experience in the rural education field, which involves lessons through the radio or the internet; Turning ministries into cost centres, and businesses to be governed by a professional secretary of state, according to the corporate government law, which says that the management board of each ministry should include an auditor in charge for the entire administration. (Formula AS, no. 930, 931/2010)

Conclusions

In order that Romania should overcome the crisis we propose the following solution: Extending the Scrap car program for tractors and farming machines; Reduction of the flat tax from 16% to 14%; Non-taxation of reinvested profit; Reduction of the number of ministries to 7 and of the governmental agencies by 60%; Introduction of the fast amortization system for all productive investments; Cutting budget expenses on public acquisitions; The cost of the mobile telephony conversations should be paid by the holder, regardless of the position; Reduction by 5% for taxes paid in due time; VAT payment on collecting the invoice money; Helping young people by reducing tax per salary by 10% on hiring

Conclusions

Setting up a wholesale market network to take delivery of fruits and vegetables; The unblocking of the armament industry; Taxing 30% in units serving fast food products; Institutional support for promoting Romanian products for export on other markets than the EU (China,India,Brasil, Russia); Shift towards non-polluting energies (solar and wind power); Stimulating privatization in fields such as education, health, research; Decrease of bank interests in order to facilitate crediting; Encouraging purchase of domestic products made in Romania; Price cuts for food products made in the country from domestic resources; Obliging local authorities, through law, to make investments, firstly in priority fields (water supply, treatment of used waters, sewage, transport, health, education); Reduction of the tax per dividends to 5%.

Conclusions

Apart from these measures mentioned above, there have to be added some strong measures to eradicate corruption through: - attributing state orders through a transparent auction system; - orienting the state budget towards transparent public policy priorities, in the contributors interest and not for the politicians clientele; - depoliticization o control bodies at all levels; - complete eradication of pressures from political factors over economic agents, especially for collecting funds for political parties; - real independence of justice, finalization of corruption cases and drastic sanction of the corrupted; - directing funds from EU and WB on rational grounds and not on political grounds to local communities; - adopting a legislative framework based on EU requirements and strict observance of the juridical regulations regarding: conflicts of interests, publishing dignitaries wealth, financiering political parties; - for the institutions financed by the state there should be provided for the possibility to transfer the surplus from a fiscal year to another, in order not to get to the situation where, on closing the fiscal year, the sums should be spent by all means or destination, to avoid the reduction of the allocated budget in the next fiscal year.