“Sometimes, when pondering the budget deficit and the catching-up process, one might say let’s widen the deficit to 10% [of the gross domestic product] to accelerate growth. However, not many realize that a large budget deficit will have to be corrected eventually, and this can lead to a bigger setback,” Isarescu told a seminar.
The central bank’s chief said the local economy has to deal with the deleveraging process of foreign banks following a prolonged financial crisis in the euro area, which prompted international lenders to reduce their external funding.
He said the European Union regulators should create a mechanism that would help with both bank integration and deleveraging across the bloc.