BUCHAREST, Feb 13 (Reuters) - The Romanian government should have consulted the European Central Bank before approving a widely criticised new tax on bank assets, which could have a material impact on financial stability, the ECB said in a letter to the finance minister quoted by a local news site.
The Social Democrat government introduced the bank tax and other measures in December through an emergency decree, with no impact assessment or public debate. It billed the move as a way to cap borrowing costs, ahead of two election years.
Critics say the tax won’t keep interest rates lower but will damage stability and profits at banks and cut the value of Romanian assets. The day after the tax was announced, Romanian stocks plunged 12 percent, wiping out what had been one of Europe’s best market performances of 2018.
The tax applies to banks’ financial assets and is tied to money-market rates. Romania’s central bank warned it was an attack on its independence.
Romania does not use the European Union’s single currency, but member states are required to consult the ECB on legislative changes that concern financial institutions and markets.
The ECB joins two major international development banks, the European Bank for Reconstruction and Development and the International Finance Corp., in complaining formally to the Romanian government about the new tax.
“The ECB considers this non-consultation to be a case of non-compliance by the Romanian authorities with the duty to consult the ECB on draft national legislation,” the bank said in a Feb. 5 letter sent to Finance Minister Eugen Teodorovici, which was obtained by local news website www.hotnews.ro.
“The risk that the tax may have a material impact on the stability of the banking system cannot be excluded,” the statement said, noting the decree was approved without an impact assessment.
Romania’s finance ministry and the central bank are currently working to make the tax less painful, with the next meeting scheduled on Feb. 18. The central bank has urged the government to uncouple the tax from money-market rates. (Reporting by Luiza Ilie, editing by Larry King)