I was talking earlier about financial education. In fact, all non repayable fund projects build in the minds of mayors and local mayors the idea that the state has to give us. It’s this mentality that the state, the European Union, has to give us.
Communism in general started from the idea of the bright future, it started from the counterfactual idea that said: “Sir, let’s now tighten our belts, let’s now make efforts, let’s now make sacrifices for the prospect of a golden future”. But as we see, this golden future is yet to come, because we witnessed 30 years from the Revolution without hospitals, roads, so the bright future mentality is a counterfactual mentality. Because people today want better living conditions, people today want sewage treatment plants and hospitals, people today need better roads. Let’s do something so that we can put things in place not in a decade, not in the perspective of another 30 years, but in a year, two, three, because the investments in the NRRP will not be completed so quickly. Due to bureaucratic access conditions, due to countless factors. What are you doing? No more streets? No more sewer? Do you just sit and watch because nobody gives you any money?
We need to use existing financial instruments, we need to use loans, we need to use bonds, we need to use public-private partnerships, SPVs, special purpose vehicles, project companies – there is a whole range of financial instruments that can be used to make Romanians’ dreams come true. We are wondering, how do other countries do it? How is Switzerland doing, how is the UK doing now after Brexit? How can they build schools, hospitals, solve their infrastructure problems, which obviously arise, without help from the European Union. Just think, the Mayor of New York doesn’t wait for the Federal Government or New York State to give him money to build the city’s roads. What are those mayors doing? Do they have any funds available that we don’t know about? No. The moment you drop the paradigm that I have to get it from the state, or I have to get it from the EU, and try to change the prism a little bit, you can see that all the infrastructure investments made by developed countries are made with bank loans or bonds. We have a major problem with borrowing and it’s also reminiscent of the communist period. “Well, I’m not borrowing because I have now way I can pay it back, I’m not borrowing because it would mean borrowing the future of the children of the citizens of my city, I’m not borrowing because I’m not Romanian for the future Local Councils to pay back the money, I’m not borrowing because I’m not doing anything.” But that’s actually a misconception. You’ll ask me why.
It’s very simple: you have an amount of money. Whether it comes from the state budget, the EU budget, the local budget – it doesn’t matter. You have an amount, let’s say 10 million, that you want to build a bridge with. But is it socially equitable to get it done from the local budget this year, take 10 million and build the bridge? The bridge lasts 50-100 years, so doesn’t it make sense that the bridge should be paid for by the taxes of the taxpayers who use it over its lifetime, i.e. the taxes paid over a 50-year period? Isn’t this where the notion of social equity in investment comes in? Why should I, or we, pay for a bridge that will be in use for 50 years this year out of our taxes? What’s the rationale? Because money from the European Commission, money from the state budget and money from the local budget comes from the taxes we pay. It is not fair. The right thing is that everyone who uses the bridge also pays for it. There is this principle of social equity in investment, but it is not taught in our schools, or in our universities, nowhere, and it says exactly that. And then, I commit to a 50-year loan and pay the loan repayments and interest equally each year from the local budgets of those years. I provide intergenerational equity, I provide a much easier discharge of debt service on each year’s local budget, and I can do much more than just one bridge. Because all I have to pay is the interest and the principal repayments, which have to be equally distributed. This means social equity in investment. That is why loan should not be seen as a burden, a burden that is wrongly placed on future generations, but as a fair distribution of the financial effort between the generations that are also using that investment objective.
In the United States, and not only there, also in New Zealand and Australia, and in the Commonwealth countries in general, which are much more rooted in the historical tradition of repayable finance and capital markets, things are much simpler. Going back to the bridge example. The City issues bonds, secures the execution of the project from the money raised from the population by selling the bonds and we also ensures that equity, because the bonds are issued for a longer period, generally much longer than the credit period obtained from a bank loan. Basically, the municipality borrows from citizens, or from legal entities, or from investment funds, and this means that it generates internal public debt. Increasing domestic public debt for investment is not a bad thing. That’s where the tens of trillions of dollars the United States have in domestic debt. Because that money flows through the domestic, domestic capital market in that country, so through the New York Stock Exchange, between the population, or pension funds, or investment funds and the government through that. In fact, it is money drawn from the population savings or wealth. This money is productive because it’s used to achieve infrastructure objectives that benefit the very same people who put their savings at stake.
Practically, this money that ends up in municipal bonds through the capital market and capital market mechanisms is money that is used to develop the country, to develop the local economy and local infrastructure. It is money that accelerates and often multiplies, it has a leverage effect, because it attracts other non-repayable funds, and that’s how you get much faster an infrastructure that is both useful and in a permanent process of development. Not just waiting for European funds or transfers from the state budget. There are many localities in Romania that have managed to overcome this way of thinking and are not only looking for European money, not only for state aid. They do not stay in this socialist and centralist paradigm, but they have taken the reins in their own hands, they have started to think like real managers and they are thinking about alternative financing solutions even in the absence of European funds, or even in periods when these European funds are not available.
