Over-indebtedness was already a problem for many people in the European Union. The current pandemic-induced crisis has a severe impact on household earnings and debt. After the period in which the natural persons debtors to banks and non-banking institutions (but also SMEs) have a moment of respite in the payment of installments, if they resorted to the suspension of payments, there will be an explosion of insolvencies. These are people who will not be able to cope with the payment of utility bills, not just interest rates on loans of various kinds.
The proportion of individuals with arrears of payments will be very high, the same as unemployment, especially since, unfortunately, for years, economic growth in Romania has been based on consumption and not on investment. And those sectors of the economy that thrived on this flawed model are the most affected by social distancing measures. I am skeptical about a safe relaunch without additional costs and investment in the HoReCa business, for example.
The coronavirus crisis (COVID-19), as well as the economic and social challenges it entails, come at a time when many vulnerable groups in Europe (and Romania is no exception) were already exposed to debt. The pandemic could also aggravate an existing situation in the EU, with the population of some southern and eastern European countries being disproportionately affected by debt, arrears and the risk of poverty vis-à-vis the more prosperous North.
In Romania, the number of employment contracts terminated since the establishment of the state of emergency is approaching 350,000, while over 891,000 individual employment contracts have been suspended, according to data published on Wednesday by the Romanian Ministry of Labor.
It's understandable why until May 14, 2020, 126,000 individuals and businesses had appealed to the suspension up to nine months repayment rates, interest and fees on loans. In the meantime, the government has decided to extend the period for requesting the suspension of rates until June 15, 2020.
A rather difficult period will follow for the Romanian population, not only for the one indebted to the banks. Even the support of daily living could be burdensome, especially since, anyway, in Romania, a fairly high percentage of the population (more than 25% of the population) was at risk of poverty or financial exclusion in 2019.
Following the global financial crisis of 2007, many countries have strengthened their institutional responses to over-indebtedness. Financial recovery measures by accessing the advice of financial advisers or resorting to personal insolvency have become available and accessible in several Member States. Rebalancing of budgets can be done through negotiations with creditors, as well, and the law of insolvency of individuals also exists in Romania.
It is important, however, that these emerging issues be addressed quickly, the social protection to be coordinated in all Member States, in order to avoid deepening the negative consequences for national economies but also for society. Otherwise, we will have at least a few years of poverty and mass economic and social exclusion, with an economy that will relaunch in a non-unitary way, only in the sectors that will prove to be the most flexible and innovative in the face of the effects of the pandemic.
Europe needs to turn its attention to the two strengths it now has compared to the post-World War II situation: labor mobility within its borders and the common market. If Europe and the Member States understand that they will be able to rebuild the Union's economy on a stronger footing and with fewer dependencies and outsourcing than in the pre-lockdown period, citizens can also hope for an easier personal recovery. Otherwise, we can expect the deepening of social failures, the perpetuation of blockages in the chains of production-supply-consumption, ideological radicalization and even social unrest.
It is therefore time for a reset of the economic environment on a sustainable basis, so that the post-pandemic was not a regression in the lives of European citizens and the business ecosystem.
