The economy could shrink by as much as 9% in the second quarter, and the Government’s options include raising taxes or a public spending shake-up, says Andreea Vass, personal advisor to the Prime Minister.

"A more pessimistic scenario is justified, in order to avoid being taken by surprise. A responsible Government needs to be prepared for the worst, but hope for the best. It depends on how the economy will react to the anti-crisis set of actions and how the banking sector will behave," Vass explained.

Whereas the 6.2% economic decline in the first quarter took even the most pessimistic analysts by surprise, the situation in the second quarter could be even worse and the decline much more abrupt. And while the economy is completely frozen, the Government is wasting its time on political disputes.

In a pessimistic scenario, the economy should see a 7% drop this year, compared with the base scenario where the contraction is seen at 4%.

Vass specified that the Government did not have much choice; raising taxes was one solution, even though a not really welcomed one. "I am not for this alternative, because it could be an obstacle in the way of the private sector’s development." Another alternative would be a shake-up of the public spending, which can be done by cutting salaries – a less justified measure or by personnel cutbacks. "We will have to eliminate all the areas of public administration with excess staff," Vass said.

Lucian Anghel, BCR’s chief economist, says that since salaries are being adjusted in the private sector, the same should happen in the public sector, too. He added that salary cuts would be a better option than personnel cutbacks, given that rising unemployment can be detrimental to the economy.

The economy could shrink by as much as 9% in the second quarter, and the Government’s options include raising taxes or a p