Romania Political Briefing: Outlook for 2020: a Coalition Government Who Has to Deal with the Pandemics Oana Cristina Popovici

ISSN: 2560-1601

Vol. 36, No. 1 (RO)

January 2021

Romania political briefing: Outlook for 2020: a coalition Government who has to deal with the pandemics Oana Cristina Popovici

1052 Budapest Petőfi Sándor utca 11.

+36 1 5858 690 Kiadó: Kína-KKE Intézet Nonprofit Kft. [email protected] Szerkesztésért felelős személy: Chen Xin

Kiadásért felelős személy: Huang Ping china-cee.eu 2017/01

Outlook for 2020: a coalition Government who has to deal with the pandemics

2021 started with a new liberal Government, representing a coalition formed by three parties which managed to impose the majority in the new Parliament, elected in December 2020. The probability of populist measures, meant to further affect the budget deficit, is reduced, but the Government has to deal with several major problems this year: first of all, the adoption of the state budget; secondly, the relaunch of the economy while continuing to handle the COVID-19 pandemics and the vaccination campaign and finally, drawing the Resilience and Recovery Plan for absorbing the European Union’s funds.

The end of 2020 in Romania was marked out by the elections for the National Parliament, whose results were meant to shape the new political environment. The results were in the favour of the Social Democrat Party, which gathered almost 29% of the total number of votes, followed by the National Liberal Party (NLP) with over 25% and the Union Save Romania (USR) and PLUS alliance, with over 15%. The results were not the expected ones for NLP, which was the main favourite to win the election, according to the opinion pools. In addition, the tradition was that the new Prime Minister to be nominated among the members of the winning party. However, very quickly, NLP managed to form an alliance with USR-PLUS and the party of ethnic Hungarians in Romania, UDMR, and to ensure the majority in the Parliament. As a consequence, the three parties negotiated and proposed an NLP Prime Minister, in the person of Florin Cîțu, the former Minister of Finance in the Orban Government. The choice of Cîțu was a delicate one, as he was the one nominated to be the Prime Minister in March, after the first Orban Government was dismissed by motion of censure. At that moment, given the SDP majority in the Parliament, he had low chances of being accepted, and at that moment he was considered to be one of the less desirable persons to hold this position. However, he decided not to accept the mandated and refused the nomination, therefore, in the midst of the crisis and the debut of pandemics, the second Orban Government was formed. This time, in December, President Klaus Iohannis designated Florin Cîțu for this position and the NLP - USR-PLUS - UDMR Government passed the vote of Parliament, with 260 votes, over the 228 required ones, just before Christmas. On the other hand, SDP also considered that it deserved the leading of the Government, being the first ranked in the polls, therefore the party’s discontent increased.

This is the context in which this year starts on the political arena. NLP, although it is the party providing the Prime Minister, had a lower performance than expected. The loss of the election raised complaints inside the party. This is why a new reform is expected. Some of its members admit that strong leaders and a refresh of the party’s image are needed because the fight for 2024 has already begun. In addition, the entry into Parliament of extremist parties tends to shows the failure of a political class still rooted in the past, but also the failure of the educational system. This year the NLP congress is expected to take place, meaning that changes at the leadership of the party could occur.

SDP, which started the year from an unfavourable position following the events in 2019, improved its image. USR-PLUS managed to enter the governing team, being at the lead of several ministries in the new Government. The entering in the Parliament of the Alliance for the Union of Romanians (AUR, whose initials mean “gold” in Romanian) is the surprise of the last elections. Mostly unknown in the mainstream landscape of Romanian politics, it has an extreme right, ultranationalist and anti-European orientation. The party was founded in December 2019 and had a vocal presence on social media lately. In this context, it is possible to assist to an increase of the patriotism and nationalism, similar to other waves in this part of the continent. Romania used to have a similar conservative party during the 90’s, but its ascension ended starting with 2000. Now, analysts consider that it was replaced by this new one. For the moment, AUR leaders declared that the party will not form alliances in the Parliament.

The new Government’s objectives are to achieve stability and to enhance commitment and competence in order to modernize Romania, according to the governing agreement 2020 – 2024 signed by the leaders of NLP, USR-PLUS and UDMR. The 18 ministers are distributed between the members of this alliance. From this point of view, analysts and even NLP members consider that the Cîţu Government has a difficult mission. On one hand, the hardest fight would be the one inside the government. NLP had to manage the relationship with USR. Their disagreements in the past almost threatened their partnership. Such difficulties are also signalled in an analysis of the rating agency Fitch, which considers that the result of the Romanian elections reflects the current political uncertainty and creates a difficult environment for the elaboration of fiscal policies. The agency states that running a coalition formed by three parties could consume political energy and hamper NLP’s attempts to implement certain measures, as well as its ability to prevent a long-term weakening of public finances. On the other hand, NLP has to deal with SDP, which continues to be a redoubtable opponent and is skilled in seizing the vulnerable points, while AUR seems to have its own path, not supporting the pro-European

NLP attitude. SDP remains the largest party in Parliament, and, by forming an opposition bloc, would make it more difficult to implement policies, according to analysts. SDP already started to make a strong opposition, launching accusations towards the Government. These are signals that the whole year will continue in a similar manner.

In addition, there are some major problems that the Government has to face this year. Firstly, the Government has to build the draft law on the 2021 budget. The public money must be allocated by sectors, in accordance with the macroeconomic targets set through the government program. It is a difficult mission, given the impact of the pandemic on the economy and the limits raised by a budget deficit that is forecasted to surpass 9% of the GDP in 2020 and the economic decline of over 4% this year. Moreover, NLP leaders have repeatedly promised that they will not increase the current level of taxes and duties, nor will impose new ones. According to the Fitch agency’s analysis, this work on the 2021 budget will be a test for the cohesion of the new administration involving the members of the three parties and an indicator of the future fiscal policy.

It is clear that the need to limit the COVID-19 pandemics will continue to be the main driver of any political measure. The Government needs to give high attention to the vaccination campaign, given that the first doses of COVID-19 vaccine are expected at the beginning of this year. The already existing vaccination strategy must be applied efficiently, but it has to be doubled by an information campaign, especially since an anti-vaccine current is soaring. In this context, the new party AUR might have an important influence, especially that its growth was also due to pronounced inclination toward dissatisfaction with anti-COVID measures.

At the same time, the post-COVID economic reconstruction will be a major challenge for which the Government will have to find solutions. Prime Minister Cîţu has already promised that he and his team will do everything for the economy to recover in 2021. One of the means for doing this is the absorption of the EU funds. In this respect, the Government has to finalize the Resilience and Recovery Plan, required by the European Commission. The NLP Government has launched the project in public debate, but both USR-PLUS and UDMR want changes and completions in infrastructure, development of new technologies, digitization and the green transition. On the other hand, SDP has threatened that the Government will introduce austerity measures during this year. According to the SDP leader, the European Commission is alerted by the increase of Romania’s public debt, therefore the Cîţu Government will be forced to take fiscal consolidation measures. On the other hand, the probability of populist measures, meant to further affect the budget deficit, is reduced, which is a good signal for international markets and investors. NLP and USR-PLUS are committed to gradually taking steps towards

3 fiscal consolidation. Still, there is no consensus on the scope and precise timing of short-term measures, given the economic and health challenges posed by the pandemic, according to analysts. The extension of such indecisions has negative effects on the long term, given that Romania has a problem with a low capacity of collecting revenues to the state budget, on the background in which salaries and pensions are a large destination of these revenues. One of the main challenge for the Government would be to ensure the stability of the economic environment and to enhance predictability for the fiscal policies.