Cornel Ban (except from Neoliberalism in Translation)
The economic turmoil triggered by the financial crisis of 1929 dealt a heavy blow to the modernization project of Romanian liberal elites. Faced with the first spasms of the crisis in 1929, the new Agrarian Party government applied a macrostabilization package demanded by the foreign banks that financed the bulk of the government deficit, with the French central bank playing the leading role.
Thus, faced with the massive transfers of hard currency made by the local chapters of foreign banks, the central bank decided to stick with France’s “Gold Bloc” and refused to introduce convertibility controls until 1932, which led to an unprecedented hemorraging from the hard currency stock. Second, fiscal policy was contractionary. Budget deficits and state spending were cut, leading to cuts in wages for the state’s numerous employees or for their non-payment for several months. Third, the protectionist laws of 1924 were scrapped. Foreign capital was welcomed, with some of the foreign loans being paid by granting lucrative monopolies (telephones, road building and matches) to the foreign lenders.
The macrostabilization package ended up aggravating the state of the economy and leading to debt rescheduling negotiations in 1933. The terms were humiliating: foreign banks demanded, and ultimately attained, a decision to put the country’s finances under the control of a joint committee of the League of Nations and representatives of foreign banks (Axenciuc 1997: 361). As foreign banks began to reduce their exposure in Romania, as the world demand for Romanian grain and oil fell, and as domestic demand remained constantly low, the economy entered into a tailspin. The fall in demand led to a deflation rate of 30 percent and to a collapse in the real value of wages of 27 percent. Between 1929 and 1933 gross output and industrial production were halved and almost 500 factories entered bankruptcy. As a result, almost a third of the industrial labor force became unemployed and state receipts fell by almost 40 percent.
The social costs of the macrostabilization were considerable. There were 370 industrial strikes, some of them concluding with the shooting of large numbers of strikers by gendarme and army regiments sent to quell the protests. Yet the social downfall of the crisis did not lead towards a more socially embedded liberalism, as it did in other agricultural European states at that time (e.g. Denmark). On the contrary, the failure of the Agrarians to stick to a more socially progressive agenda strengthened the hand of authoritarian social forces. The weakness of the Marxist left exacerbated the situation: the social-democratic vote was largely insignificant, and the communists’ subservience to Moscow as well as their questioning of Romania’s borders with the USSR made them largely insignificant even when they were allowed to compete in elections. Against this background, the far-right became increasingly successful at attracting the votes of peasants and urban lower middle classes.
As world demand for grains and oil picked up in 1934 and as the state boldly increased domestic demand through a spike in military orders, the output grew again after 1934. Yet the liberal project had been politically damaged, because the authoritarian forces grouped around the monarch, who was inspired by fascist corporatism and far-right parties, took control of popular discontent. As a result, the liberal project came to an end in 1938 when King Carol the Second dissolved the Parliament, instituted single-party rule and terminated the long-standing constitutional regime.