Failed Cotroceni negotiations: Who will lead Romania through its worst fiscal crisis?

Negotiations at the Cotroceni Palace on the appointment of a future prime minister and the adoption of a new fiscal package have become bogged down in a complex political deadlock, marked by tensions between pro-European parties and increasing domestic and foreign pressures. With just days before the interim government's term expires, President Nicuşor Dan has yet to announce a clear candidate for prime minister, with the European Commission and the Ecofin Council expecting a firm fiscal plan by early July, and unions threatening street protests if the uncertainty continues.

After yesterday's discussions at the Cotroceni Palace, two major options are on President Nicuşor Dan's table: a political one - Ilie Bolojan, an influential leader of the PNL, and a technocratic one - Leonardo Badea, first deputy governor of the National Bank of Romania, with a PSD-ist past. Bolojan, although initially reluctant, recently expressed his willingness to take over the head of government, provided that he has increased powers, including the freedom to choose and dismiss ministers at will. Such a request has caused reluctance among other political actors, who view with suspicion the idea of an overly autonomous prime minister in a fragile coalition. In this context, the model of a "strong-handed" government risks deepening the already existing political rifts. In contrast, Leonardo Badea appears as a technocrat with a solid profile in the economic and institutional area, but perceived as being close to the PSD, which fuels fears about his impartiality. Although he has a long academic and administrative career and recently published a severe analysis of the imbalances in the Romanian economy, his ability to manage a heterogeneous coalition is questionable. In addition, the PSD has expressed strong reservations about the idea of a new technocratic government, citing the negative experience with the Cioloş government, and has warned that it will not accept measures that affect the low-income population, such as the VAT increase.

In parallel, the USR is insistently demanding the rapid appointment of a prime minister to resume negotiations on the fiscal package. Senator Cristian Ghinea was blunt yesterday at the Cotroceni Palace: without a prime minister with a clear mandate, technical discussions on the future fiscal package are pointless. The USR also insists that spending cuts be agreed before any discussion on tax increases, a point of view that clashes with the plans of other parties. Beyond Bolojan and Badea, other names from the technocratic circle were also mentioned in the informal discussions for the position of Head of Government, such as Delia Velculescu (IMF), Ionuţ Dumitru (chief economist at Raiffeisen Bank) and Anca Dragu, former Minister of Finance and current Governor of the National Bank of the Republic of Moldova.

The lack of consensus on the future fiscal package is also aggravated by the oscillating position of the PSD, which has not yet decided whether or not to participate in the government. The Social Democrats condition this decision on the conclusion of technical negotiations and the organization of an internal referendum, in which the party members can make an informed decision. In addition, the PSD categorically rejects the idea of selling new blocks of shares from profitable state-owned companies on the BVB and insists that the budgetary measures protect vulnerable citizens.

In this tense context, the president of the UDMR, Kelemen Hunor, warned in the discussions at the Cotroceni Palace that the fiscal plan must be a long-term one, of four to five years, and proposed a series of tough measures: cutting all privileges and bonuses, increasing VAT to 21% while maintaining a reduced rate for food and medicines, increasing the dividend tax to 16%, profit tax to 16%, flat rate 10%. However, Kelemen Hunor acknowledged that the implementation of these reforms cannot be done at the pace imposed by the current political crisis.

We also mention that yesterday, before the meeting with the representatives of the pro-European parties, Nicuşor Dan also spoke with the representatives of the trade union confederations to whom he presented the economic and financial situation in which the country is and what fiscal measures must be implemented quickly to recover public finances. Representatives of Cartel Alfa, the National Trade Union Bloc, CNSLR - Fraţia, CNS Meridian and the Confederation of Democratic Trade Unions of Romania (CSDR) conveyed to President Nicuşor Dan that the austerity measures that have been circulated in the media are unacceptable and that the unions do not agree "with a heirupist system to cut bonuses and salaries, which would lead to a fall in purchasing power, which is already eroded by the galloping inflation we are facing”.

All these divergent positions between the parties, the requests received from the social partners - unions and employers, the lack of a common will and the approaching deadlines - we must send the fiscal adjustment plan to Brussels by June 30th - are creating enormous pressure on President Nicuşor Dan, who must urgently decide whether to go with a politician, a technocrat or opt for a compromise formula that would include a rotating government between the PNL and the PSD, a solution that is less and less accepted by the liberals, who spoke out against it yesterday through Senator Vasile Blaga. With each passing day without an agreement between the pro-European parties, the risk that Romania will remain stuck in an interim government is growing, while the fiscal crisis is knocking at the door and Brussels is waiting for clear answers. The indecision at the top of Romanian politics thus risks turning into a crisis of national credibility. Especially since AUR announced that it is initiating a process to suspend President Nicuşor Dan, whom it accuses of violating the Constitution regarding the manner in which negotiations on the formation of the future government are being conducted and of a possible extension of the interim Predoiu Cabinet. With the announcement of the initiated process, the AUR leaders declared that, in the current parliamentary and governmental political impasse generated by the so-called pro-European parties, they are requesting the triggering of early elections so that voters can determine by vote which party or group of parties they want to be in government.