Budget deficit and rising infections, but economic turnaround plans on paper

Emilia Olescu, George Marinescu ( Translated by Cosmin Ghidoveanu)
English Section / 11 august 2020

The month had a stormy debut from its first day, when the Government presented the Naţional Plan for Investments and Economic Turnaround, which is when PM Ludovic Orban said: "< < Reclădim România > > (We are rebuilding Romania) is a program for investments and supporting Romania's economic development. (...) Economic development, which needs to lead to the lifting of the standard of living for every citizen in this country, can only rely on investments, on the increase of the competitiveness of the Romanian economy and of Romanian companies, and here, the government needs to have vision, needs to have will, to mobilize resources, to be in constant talks and partnership with the business sector to find the best solutions, to ensure the increase of the competitiveness of the Romanian economy. (...) That is why we want to invest in modernizing the transport infrastructure, to increase the competitiveness of companies, to increase Romania's attractiveness for investments that generate jobs, that generate development, which in the end generate revenues to the state budget. That is why, in the coming period, I have to tell you clearly that the investments that are being made by the government, by the government companies, will speed up".

Present at the event, president Klaus Iohannis said: "Romanians deserve a network of highways on an European level, an energy system that is powerful nationally and regionally, competitive industries and services. We can have all of that only through accelerating the major investment projects, in an efficient, professional and transparent manner. (...) But any ambitious investment plan needs appropriate financing. For that reason, European grants need to become an essential pillar of our development.

Romania cannot afford to miss any opportunity for financing and development, nor to pursue minor, short-term goals, that may be tied to electoral interests. It is important to exploit as well as possible the European financing mechanisms, such as the SURE initiative and the European economic turnaround plan. (...) With their help, we will be able to support the small and medium enterprises, research and innovation, investments in transeuropean transport networks, all with the goal of stimulating economic growth and creating productive and well paid jobs, for Romanians living here and for those that return home from abroad".

Besides, when it comes to European grants, on July 21st, after the meeting of the European Council, president Klaus Iohannis announced that Romania has an allocation of 80 billion Euros for the 2020-2027 period.

Immediately after the launch of the new plan, the social-democrats said that the document was nothing but an updated copy-paste from the governing program which the PSD proposed to voters in 2016.

Support for SMEs

However, in July, in the two government meetings, the members of the Orban cabinet have approved, through emergency ordinance, nearly all the legislation needed for implementing the National Plan for Investments and Economic Turnaround. Out of those acts, we mention the emergency ordinance concerning the grants for SMEs, through the Ministry of the Economy, Energy and Business Sector, with a total of one billion Euros, the regulation of flexible work (kurzarbeit), the ongoing support of companies in the HoReCa sector, which have not resumed their activity because of the pandemic, the emergency ordinance concerning the national program for the introduction of natural gas in the urban rural localities in Romania, program which will be financed with 235 million Euros, out of the funds allocated for the 2014-2020, and with 800 million Euros during the 2021- 2027 scheduling period.

Two more programs for supporting SMEs have been approved last month: IMM Leasing and IMM Factor. The main coordinates of the IMM Leasing program concerns a level of guarantees of up to 80% for loans for the procurement of IT equipment and 60% for the loans for the acquisition of equipment, other equipment and machinery. Small and medium enterprises are eligible for this program, as are companies with more than 250 employees. The guarantee will be provided for amounts of up to 5 million lei per beneficiary and has advantageous lending terms, such as: up to 50% subsidized interest, zero down payment and zero management fees.

When it comes to IMM Factor, the government passed this program to come and stimulate the guarantee instruments for some payment facilities between traders, called factoring or the sale of receivables.

Concerning this program, Ionel Dancă, the head of the Chancellery of the Prime-Minister said: "When a trader has contracted a delivery of goods and services, for a certain deadline, they can go to a lender, to a commercial bank, and request, through factoring, the immediate payment of invoice. They go with their invoice to the bank and request payment of up to 80% of the invoice, until its payment by the suppliers. In order to incentivize such a practice, the Government is bringing this product, and guarantees the payment of that invoice to the lender, up to 50%. If a retailer has a delivery of goods and services with a price of 1 million lei, with a payment deadline of up to three months, they can immediately go to the bank and ask, until they get the money from the customer, 80% of the amount of that invoice, respectively, 800000 lei. The Government comes in and gives the lender 50% of that amount, 400000 lei, respectively. (...) Similarly, the sale of receivable works for the amount of those receivables at their nominal value, respectively, when a trader has a certain receivable to collect from a customer, it can be bought, like a loan, by a lender, by a commercial bank, at its face value, in part or in full".

Another draft law, this time, for the development of the construction sector, as well as for the change of the way the "First home" (Prima casă) program is applied, has been changed and passed by the Orban government in July. The program will be called "Noua casă" (The New Home) and it creates the possibility for young families to buy a home of up to 120 square meters. Through that law, people looking to buy such a home would receive government guarantees of up to 140000 Euros, state guarantees of up to 60% of the guaranteed loan and a downpayment of 15% of the purchase.

Electoral interests are harmful to health

Political disputes have intensified in the first half of July, after, on July 3rd, the Constitutional Court published the argumentation of its ruling of June 26th, concerning the unconstitutionality of the law 55/2020 on the norms which establish quarantine and the isolation of individuals during the epidemic.

The government reacted quickly and on July 6th, it sent a legislative draft in the Parliament, which had serious flaws according to the majority led by the PSD, concerning the quarantining of goods - which was abandoned - and concerning the isolation of asymptomatic patients. Nevertheless, after three days of heated debates, on July 9th, the law passed the chamber of Deputies, but it got stuck in the Senate for a week, during which period thousands of people exited the quarantine and isolation upon request and hundreds of asymptomatic people have refused their isolation based on the ruling of the RCC. This was reflected in the daily rapid increase of the number of people infected with Sars-Cov 2 and in the increase of the number of deaths caused by Covid-19.

So, whereas on July 13, four days after the Chamber of Deputies passed the law, we had 413 individuals infected, on July 17, after the Senate passed the law, 799 cases were recorded, for the negative effect to be seen starting on July 22nd - when we passed a number of 1000 cases(1030 newly infected), a level which we only fell below once, on August the 3rd, but which we are still above of now. Besides, on July 30, the 1300 level was exceeded, with 1356 infected people, a record which was only passed on August 7- 1378 infected persons.

We also remind that on July 15th, the Government has extended the state of alert by another month, due to the unfavorable epidemiological situation in Romania.

Social-democrat turmoil, electoral deals

Another time of dispute was represented by the Emergency Ordinance passed on July 31st whereby the Government has rescheduled the doubling of allowances for children until 2022, with the first increase set to take place on September 1, 2020, by 20%. Right away the PSD representatives have declared that they would reject in the Parliament the new normative act which violates the legislation in effect and the decision of the Constitutional Court concerning the immediate doubling of the children's allowances.

As a matter of fact, the social-democrats had talked, one day before, in the National Executive Committee, about the failures of the current liberal government, and Marcel Ciolacu, the interim president of the PSD had announced that his party's MPs would submit a motion of no-confidence in mid-August.

In the Executive Committee Meeting of July 30, 2020, the leaders of the PSD have established the manner for submitting candidacies for the August 22nd Congress, when the new leadership of the social-democrats is going to be elected. In that meeting, the PSD candidates for the mayoralties of Bucharest have been appointed and it was announced that Gabriela Firea has the party's support for another term as Mayor of Bucharest.

When it comes to the local elections, the month of July was also marked by the signing of the political deal between the PNL and the 2020 Alliance USR PLUS, concerning shared candidacies in the September 27th election of Bucharest. The negotiation began on July 31st, and ended on August 1st, in the early morning, when the leaders of the three parties have established that Nicuşor Dan would be the candidate for the position of municipal mayor, and Vlad Voiculescu would occupy the position of deputy municipal mayor. The candidacies for the position of mayor for three districts have also been allocated: three to the PNL, three to USR PLUS. The political deal between the three parties does not include the PMP, which caused the displeasure of Traian Băsescu, who intends to spoil the agreement between the liberals and USR PLUS by potentially running on his own for the position of municipal mayor.

Prior to this elector alliance, another one was created between the political parties led by Victor Ponta and Robert Negoiţă - who recently resigned from the PSD. The Pro Bucureşti 2020 Alliance will propose doctor Ioan Sîrbu for the position of mayor of Bucharest, and Robert Negoiţă will run for another term as mayor of District 3.

The budget deficit after six months - 4.17% of the PPIB, from 1.94% in the first half of 2019

The budget deficit has deepened to 4.17% of the GDP (45.17 billion lei), in the first six months of this year, compared to 1.94% YOY, when the deficit had already doubled compared to the January-June 2018 period, the Finance Ministry announced on July 28.

The budget execution published by the Ministry of Public Finance (MFP) points out that "more than half of the deficit, respectively 23.04 billion lei (2.13% of the GDP),is generated by the amounts which were left in the economic sector through the tax breaks and one-off expenses for fighting the effects of the COVID-19 pandemic".

The revenues of the consolidated budget have amounted to 146.25 billion lei in the first semester of 2020, down 1.6% YOY. The consolidated expenses of the general budget (191.43 billion lei) have 13.6% increased in nominal terms YOY.

rThe first deadline for the lawsuit between the CNSAS and Isărescu - on September 18th

At the end of last month, the court set the first hearing in the lawsuit between the CNSAS and NBR governor Mugur Isărescu would be September 18. The National Council for Studying the Archives of the Securitate (Consiliul Naţional pentru Studierea Arhivelor Securităţii - CNSAS) has summoned Mugur Isărescu to ascertain the position of collaborator of the Securitate (the former political police).

The CNSAS claims, in the document sent to the court, that Mugur Isărescu was recruited by the Securitate when he was a researcher and the World Economics Institute (Institutul de Economie Mondială). The documents in the dossiers of the Securitate invoked by the CNSAS show that Isărescu was used by the Securitate as a person of support/source since back in 1979. He allegedly submitted reports under the nickname "Manole".

During his alleged collaboration with the Securitate, he provided information denouncing those who conducted activities that opposed the communist regime, such as negative comments on the standard of living in Romania under the communist regime compared to other countries, the CNSAS claims, which indicates two reports: one of December 16th 1987 and one of March 5th, 1985.

The CNSAS shows that the information provided by Isărescu concern the restriction of the right to private life and the right to freedom of speech. The CNSAS has asked the Bucharest Court of Appeal to ascertain his role of collaborator of the Securitate after lawyer Gheorghe Piperea notified the CNSAS about one year ago about the governor's collaboration with the Securitate.

The Court of Justice of the European Union has forced Romania to pay 3 million Euros for the incomplete implementation of the Directive concerning money laundering prevention measures

The Court of Justice of the European Union (CJEU) is forcing Romania and Ireland to pay 3 million, and 2 million Euros, respectively, to the European Commission, because they have not completely implemented, within the required delays, the Directive on preventing the use of the financial system to launder money or finance terrorism, according to a press release issued in mid-July by the European court (CURIA).

The quoted source states: "Directive 2015/8491 seeks to prevent the use of the EU financial system for money laundering and financing terrorism. The member states were required to implement that directive in their national legal system by June 26, 2016 and inform the European Commission on the measures taken in that regard. On august 27, 2018, the Commission notified the Court with two lawsuits concerning the failure to meet the obligations, alleging that Romania and Ireland, on the other hand, have not completely implemented Directive 2015/849 within the required delays, nor have they submitted the appropriate national implementation measures. Furthermore, the Commission has decided, on the grounds of art. 260 paragraph (3) TFUE2 , to require Romania and Ireland to pay daily comminatory damages , starting on the day of the ruling, for their failure to meet their obligation to report on the measures for the implementation of the same directive and on the other hand, and on the other hand, to pay a lump sum. The Commission later informed the Court that it partially desists its action, to the extent where it won't ask for the application of daily comminatory damages, request which remains without object after the complete implementation of the Directive no. 2015/849 in the Romanian and Irish law".

The two countries have challenged the application of the regime of sanctions stipulated in article 260 paragraph (3) TFUE, according to the communique by the CJEU. The communique further states that Romania and Ireland have also claimed that the request of the Commission to impose the payment of a lump sum is not only unjustified, but also disproportionate compared to the situation of the case and with the goal of such a monetary sanction. The two countries have criticized the Commission for not clearly justifying and on a case-by-case basis the decision to demand the imposition of such sanctions in the case.

The Romanian Constitutional Court has postponed until September 23rd its ruling on the law concerning the capping of interest rates

In July, the Romanian Constitutional Court (CCR) has postponed its ruling on the law concerning the capping of interest rates until September 23rd.

The unconstitutionality exception of the provisions of the Law for consumer protection against excessive interest payments has been raised by the liberal deputies.

At the time of the complaint made by the PNL, PSD senator Daniel Cătălin Zamfir, who initiated the draft law, wrote on his Facebook page: "Even though many people hoped that the PNL would not challenge with the Constitutional Court the law of capping interest rates, they were wrong. I knew they would, because it is obvious that they have great interest in protecting the profits of banks and Non-Bank Lenders. The law of capping interest rates would be a lifeline for all those who have ongoing loans with banks and Non-Bank Lenders, as well as for those who are going to borrow in the future.

Romanians pay three times over the lending compared to European citizens, and the banks' profits are triple in European compared to the European average!

Why don't you want to relieve Romanians' loan burden? Why don't you want Romanians to pay lower installments? Not only is it legal, it is also fair! Most countries in the EU have had their interest rates capped for a long time! By challenging this with the Romanian Constitutional Court all you are doing is extending the torment of three million Romanians who pay unfair installments to banks and Non-Bank Lenders! What are your arguments? That it's a populist law? Is doing justice to people populism?"

After the law passed the parliament, senator Daniel Cătălin Zamfir stressed: "Banks and non-bank lenders will not be allowed to charge any interest rate they please! The law will also apply to ongoing loans and it stipulates:

1. For mortgages, the Annual Effective Interest rate may not be higher than the NBR benchmark rate +2%;

2. For consumer loans, the Annual Effective Interest rate may not be higher than the NBR benchmark rate +15%;

3. For consumer loans below 15000 lei, the total amount to repay may not be greater than double the borrowed amount".

The draft law is part of a package of four acts meant to protect financial services consumers: The law for protection against excessive interest rates; The law for the protection of consumers against abusive and hasty foreclosures; The law for protecting consumers against the speculative sale of receivables (retractul litigios); The law for protecting consumers against exchange rate risk (conversion).

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