“The reason why the government intervenes [in the economy] is to level the cycle. For this, the policies must be countercyclical. When the policies are procyclical, then it’s better not to intervene at all, because the results can only be bad,” Mugur Isarescu told a conference organized by the Romanian Academy on Wednesday.
As examples of good countercyclical fiscal policies, Isarescu mentioned limiting public spending and reducing the budget deficit during periods of economic growth and increasing government expenditure during periods of recession.
However, as the state used procyclical fiscal policies in times of growth, there are not enough resources to reverse the policies during periods of economic decline.
“This is Romania’s main problem: it has no resources to become countercyclical so it has to remain procyclical,” Isarescu said.