Mugur Isărescu, the longstanding central bank chief in Romania | Robert Ghement/EPA Romania’s populists turn fire on central bank chief The ruling PSD party is pushing to oust long-standing central banker Mugur Isărescu.

A senior politician in Romania's ruling party is courting financial danger for the country in a campaign against its central bank chief.

The feud between a government adviser and the internationally respected head of the National Bank of Romania may end up undermining the country's standing in markets as well as its hope of adopting the euro.

Darius Vâlcov, a former finance minister who remains economic adviser to the government while appealing a corruption sentence, has waged a monthslong television and social media campaign to oust Mugur Isărescu, the long-standing and fiercely independent central bank chief.

Isărescu has been governor of the Romanian National Bank (BNR) for most of the 29 years since the fall of communism. Abroad, he’s considered a safe pair of hands who has ensured the stability of the currency, the leu, through turbulent political times.

But Vâlcov, who is seeking a change of policy at the central bank, is trying to push Isărescu out — or at least deny the 69-year-old another term after his mandate expires October 11.

After his key ally Liviu Dragnea was jailed on Monday, questions began arising about Vâlcov's future in the government.

“I wish from all my heart that the new governor and the new team at BNR will be a team of patriots,” Vâlcov said on an evening talk show on March 10. “Otherwise Romania will never be able to pull its head out of the dirt.”

Critics say that Romania’s ruling PSD party, which won power on a platform designed by Vâlcov, is following a playbook from leaders such as Donald Trump and Hungary’s Viktor Orbán in trying to influence, if not control, the central bank.

Trump and Orbán's playbook

Vâlcov and his colleagues criticized Isărescu for policies favoring banks — using lurid language to blame him for high borrowing costs for citizens and businesses.

“We have seen the mission of the current leadership for 29 years,” Vâlcov told POLITICO last month. “We are ranking last in Europe on interest rates, it cannot get any worse.”

Vâlcov also said in March that he had evidence of staffers from the central bank talking down Romania, by discussing financial affairs with foreign financial institutions and credit rating agencies. “In other countries these people would be guilty of treason,” he said.

“It is important to underscore that no changes must be made which may erode in any way the independence of the institution” — Mugur Isărescu

In a half-joking response, a BNR spokesman urged Vâlcov to file a criminal complaint with his evidence.

The government's attacks risk being seen as contrary to international norms, in which the monetary authority safeguards financial stability against political impulses to pump up short-term growth. The perceived interference could also weigh on Romania’s ambitions of adopting the euro within a half decade. The independence of a country's central bank is a golden rule for eurozone members.

A spokesman for the central bank declined to comment for this article or make Isărescu available for an interview.

Isărescu in February dismissed the attacks from the PSD on the central bank as “pathetic.” In a speech, he made a point of saying that Vâlcov's comments do not influence the policy of the central bank.

In early May, Isărescu confirmed he is not seeking an extension — although he did not rule out accepting one if the parliament proposes it.

Populist architect

Vâlcov, 42, is at the forefront of the PSD’s Trump-inspired attacks on so-called globalists, George Soros and often on EU institutions.

In 2018, he was sentenced to eight years in prison for corruption, including taking bribes and laundering money while he was mayor of the city of Slatina and later a senator.

He left the Cabinet shortly after the sentence, but with his case under appeal, he remains free to work as a high-ranking official, making him one of the most influential people in the country. He denies all the allegations.

After his key ally Liviu Dragnea was jailed on Monday, questions began arising about Vâlcov's future in the government.

Vâlcov has also drawn criticism for Facebook posts, including one publishing the mental health diagnosis of anti-government protester Sandu Matei, and another comparing Romanian President Klaus Iohannis, who belonged to the liberal party before taking office, to Adolf Hitler.

Vâlcov denied media reports that he wants the central bank job for himself.

But there is nothing to stop PSD from selecting a governor that is prone to political influence, said Claudiu Năsui, a member of the Romanian parliament and its finance committee from the Union Save Romania, an opposition party. “Politically speaking they have all the power.”

Controlling the central bank, and implicitly the money supply, “fits like a glove for politicians who are avid for power [sic], although it could crash the economy,” Năsui said. “If the leadership [of the central bank] changes, the currency will definitely suffer.”

Interest rate fight

“Under no circumstances does our government want to make monetary policy,” Vâlcov told POLITICO. “We want to join the euro in 2024 and we are aware that at that point many of the functions of the central bank will pass on to the ECB.”

“But the two institutions, be it the BNR or the ECB, and the government, need to collaborate on the basis of the principles established at the beginning, namely the interests of the citizen.”

While interest rates across the EU are at a record low, businesses and citizens are charged more on average on loans in Romania, as banks are factoring in a high inflation rate — the highest in the bloc — among other things.

While the eurozone's base rate is zero, Romania's is 2.5 percent as of May 8.

“If in Europe a person or a company is able to take out a loan with an interest rate below 2 percent, I don’t see why in Romania it wouldn’t be able to also,” Vâlcov said in the interview.

The PSD’s problem is that Isărescu is not collaborating.

Suggestions that “anyone should play with the interest rates are dangerous,” Isărescu said in February.

In March, Isărescu said that the independence of the central bank “should be strengthened.”

“It is important to underscore that no changes must be made which may erode in any way the independence of the institution,” he said.

Steady hand

Isărescu is not just defending his turf. According to finance professionals, he is aiming to project a sense of stability.

“Markets and rating agencies are very sensitive to any attempt to influence the central bank independence,” said Ciprian Dascălu, chief economist at ING Bank in Romania.

Isărescu, who turns 70 in August, took the job in 1990 after a bloody revolution overthrew the communist regime and brought in capitalism.

He’s been there ever since, apart from a stint as a technocrat prime minister in 1999 and 2000. He also ran as an independent for the Romanian presidency in 2000, winning only 9.5 percent of the vote.

He is credited with forcing the banks, which are mostly foreign-owned, to bring in some €3 billion of capital to shore up their Romanian units during last decade's financial crisis, as plummeting real estate prices hurt the mortgage market.

Isărescu helped preserve balance in some of Romania’s toughest periods, according to prominent Romanian journalist and frequent PSD critic Cristian Tudor Popescu, who began editing newspapers around the same time Isărescu first took office.

Romania's central bank was a rock, Tudor Popescu said on a recent TV show. “In moments of great tension, those of critical economic and financial importance for Romania, such as in 1999, when we verged on state bankruptcy, or 2009-2010, when the global crisis hit Romania hard.”

“At those moments the BNR was the last refuge, the last redoubt of stability and of rational, professional decisions, when governments of the day were dithering,” Tudor Popescu said.

Think of the borrowers

In the government's view, the central bank needs to balance its inflation-targeting mission with a need to help borrowers, in the form of cheaper credit.

Vâlcov, told POLITICO he has three goals for the BNR: protecting consumers, lowering interest rates and spurring lenders to boost credit for businesses.

“I wish these three things would be fulfilled by the new governor and the new leadership of the National Bank,” he said, making clear Isărescu needs to go: “When I say new, I mean new.”

Vâlcov said the government’s objective is that, by 2020, the average interest rate on consumer and business loans in Romania should not exceed the EU’s by more than 50 percent.

As lenders tell it, however, the central bank’s target rate is only one of several influences on what they charge. They also factor in a borrower’s individual record, and their own cost of doing business. Bankers say Romania’s recent so-called greed tax has added to those costs.

As Dascălu explained, the central bank's policy only has direct influence over loans whose interest has a variable component. Those are usually calculated as an add-on to the central bank rate.

"The margin over the floating rate in a floating rate loan is determined by factors such as the risk of the country and the credit risk evaluation of [the] customer," he said.

That won't stop political opponents from trying to lean on the central bank and its long-service president.

Vâlcov, in another TV appearance in February said Isărescu has “even exceeded the pope” in the length of time spent in office. “It is time to step aside and leave the job to someone younger.”

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