Romania yet to find a way to form a new government

Brussels – The political crisis that has been gripping Romania for months continues to spiral. The future government partners cannot agree on the distribution of posts and, more importantly, how to reduce the country’s gigantic budget deficit while the deadline for presenting the recovery plan to Brussels is looming.

The black smoke came in yesterday evening (June 19) when the umpteenth coalition negotiations between the four pro-European formations trying to give the Balkan country a government came to a standstill. The day was supposed to end with the announcement of a new prime minister to replace Cătălin Predoiu, whose interim mandate expires today.

Bucharest
was left without an executive in early May after the candidate of the PSD-PNL-UDMR majority (Social Democrats, Liberals, and representatives of the Hungarian minority), Crin Antonescu, failed to secure enough votes in the first round of the presidential elections to advance to the runoff, then won by the capital’s former mayor, Nicușor Dan.

Talks between the PSD, NLP, UDMR, and USR (the center-right party founded by Dan) stalled on the thorny issue of the VAT increase. The leader of the NLP, Ilie Bolojan, would like to raise it from 19 percent to 21 percent. He says it is the only way to start shoring up national public finances. However, Dan, who presides over forming the new executive as head of state, is against it. In addition to the USR, the UDMR is against the tax increase.

Reducing the massive state budget deficit is a real race against time for Bucharest. By June 30, the government (which still does not exist) must present Brussels a credible deficit reduction plan to Brussels, reducing the deficit-to-GDP ratio from 9.3 percent (the highest in the EU) to below the 3 percent threshold, as required by European constraints.

The path to recovery can take place over a seven-year time horizon, but proposals on how to get there must be sent to the Commission by the end of the month, or the next NRRP installments risk being frozen (and investor confidence risks declining further). The main tools available are cutting public spending, favored by Dan, and increasing taxes, starting with VAT, as suggested by Bolojan (who would have found the backing of the SDP on this).

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In reality, what is in doubt is the composition of the future governmental team (the press dubbed it the ‘Mauritius coalition’ because of the colors associated with its members). Theoretically, the agreement between the parties envisages a half-term changeover between Bolojan and a social democrat in the post of prime minister.

However, the president of the UDMR, Kelemen Hunor, is becoming increasingly impatient with the ongoing tug-of-war and, according to the local press, has gone so far as to threaten to withdraw his party from the negotiations. The Hungarian minority party would like to maintain control of the Ministry of Finance, while the coalition agreement would entrust it with the Ministry of Development and Culture. The potential partners also disagree on distributing other top roles, including those of the intelligence services and two judges at the Constitutional Court.

Numbers in hand, the UDMR is not strictly necessary to keep the executive on its feet: even if the latter were composed only of the PSD, PNL, and USR, it would hold 175 seats out of the total 331 seats in the Chamber of Deputies (the lower branch of the Romanian legislature), where the majority threshold is 166.