Romania's Unsustainable Stabilization: 1929-1933

The Banque de France's (BDF's) conducted a mission to the National Bank of Romania (NBR) and the National Romanian Government between 1929 and 1933 to advise Romanian monetary and financial authorities. It took place in complement to two loans respectively provided in 1929 and 1931 to stabilize the leu and to develop the economy. After 4 years of cooperation, Romanian authorities were obliged to restrict convertibility to defend the leu. The Romanian Government was also unable to follow French's advice and finally defaulted. After the contributions of Mouré (2003), Cotrell (2006), Torre and Tosi (2010), and Raceanu (2012), this paper contributes to the analysis of this sequence: it supports the thesis that the Great Depression and its effects were not the primary causes of the failure of this cooperation episode. Two other reasons were indeed both sufficient to cause a default of the Romanian part and a failure of the cooperation sequence, unexpected by the French part: (i) a change of repudiation costs of the loans between 1929 and 1933, (ii) unadapted advices from the French mission / excessive cost for the Romanian part to follow them. To obtain this result, we first use archive documents to determine at which moment the Romanian and French parts agreed or disagreed during the 4-year cooperation. Second, we develop a game theoretic model analyzing on rational basis the motives which could explain a late default of the Romanian part, unexpected by the French part. Third, we apply a cliometric analysis onto original data from the National Bank of Romania, which shows that the advices were probably unadapted / too costly to follow. We conclude that at least one of the sufficient conditions exhibited by the theoretical model is empirically validated, which makes inessential the Great Depression as a cause of the default.