Radio România Internațional

Tag: political instability

Economic effects of political instability

The deadlock related to the establishment of a parliamentary majority to propose a prime minister and, therefore, the impossibility of forming a new Government, is having acute effects on the economy. On Thursday, the Bucharest Stock Exchange closed in the red. The BET index, which includes the 20 most traded companies, went down by 2%, and the BET-Plus, which shows the evolution of the 43 most liquid shares, decreased by 1.97%. The benchmark index for the return on investment funds or the one that measures the evolution of the 10 energy and utility companies also reported a decline. Citing political uncertainty in Romania, this week Fitch rating agency downgraded the country’s outlook from stable to negative, the lowest possible rating. This translates into the increase in the price of Romania’s international loans, which makes economists even discuss the need for Bucharest to resort, possibly, to the expertise of the International Monetary Fund, known for its austerity policies.

The economy was already struggling in the absence of political instability. Budget and current account deficits are very high, inflation continues to financially burden people, economic growth is experiencing a significant slowdown, and public debt has exceeded 50% of the GDP and continues to grow. If political instability continues, the economy may face other problems, Professor Mircea Coşea warns, arguing that political decision-makers are basically sabotaging their own economy:

“What are the immediate consequences? The collapse of the Stock Exchange. The Stock Exchange is the most important indicator concerning the evolution of the economy. It reported a loss of 1 billion or so EUR in a matter of minutes. Effects could manifest themselves in the field of the exchange rate as well, as the Leu could have problems. Here, the National Bank will make an effort, as it has always done, to keep the national currency afloat, but it cannot do so indefinitely. It is a very complicated context. We will have a stagnation of investors’ interest in coming to Romania and a freezing of foreign investors’ projects during this period of political instability. And we will have much stricter monitoring from the European Union with regard to what is happening in the fiscal and budget field, considering that we have signed a fiscal program with the EU to remedy the deficit for 7 years. In the context where we face major delays with the implementation of Recovery and Resilience benchmarks, with a year and a half left to implement them, it is possible that absorbing money from this mechanism could also hit certain obstacles”.

In other words, Mircea Coșea says, a country that is not stable is an unpredictable country. Unpredictability is the greatest difficulty that a business plan can encounter, including at national level. (VP)

20 December 2024
December 4, 2024 UPDATE

PARLIAMENT – The interim president of the National Liberal Party, Ilie Bolojan, on Wednesday said the pro-European parties in the new Parliament, PSD, PNL, USR, UDMR and the group of national minorities have agreed to create a coalition as part of a joint resolution. The coalition will seek to ensure stability and reforms. The four parties are expected to hold together over 55% of total seats in Parliament after the completion of the redistribution process. The other three parties that entered Parliament, AUR, SOS Romania and POT, seen as ultranationalist and sovereigntist, will hold 37% of MP seats. The exact figures will be made public at the end of the week once all mandates that were left vacant after the election are redistributed, the president of the Permanent Election Authority, Toni Greblă, says. The new Parliament is expected to officially start its activity on December 20, when the four-year term of the current legislature is set to end.

DOCUMENTS – The president of Romania, Klaus Iohannis, on Wednesday declassified 5 documents presented by the Interior Ministry, the Foreign Ministry, the Romanian Intelligence Service and the Special Telecommunications Service in the November 28 meeting of the Supreme Defense Council. The documents regard infringement of electoral advertising regulations ahead of the 1st round of the presidential election. We recall that following last week’s meeting, Council members noticed that cyber-attacks sought to influence the first round of the presidential election, held on November 24.

FINANCE – Finance Minister Marcel Boloș on Wednesday said the Government has withdrawn 6 bln EUR from the Reserve Fund to deal with imbalances triggered by the recent political uncertainty. Romania is undergoing a period of uncertainty until a new government is sworn in to stabilize and finalize the country’s budget policies, the Finance Minister added, expressing hope the crisis would end. The same difficulties in terms of state bonds and loans are also transparent on the stock market, Minister Boloș went on to say.

FLOODS – The Government has updated the national strategy for the management of medium and long-term flood risks. The updated document provides a number of general objectives, including the need ot modernize the protection infrastructure, including embankments and dams, implementing natural solutions, such as water draining, introducing tight regulations for the use of farmland in at-risk areas and providing risk management training to technical staff. The implementation of these goals are estimated to cost approximately 18 bln EUR, which will be covered with EU funds from the Recovery and Resilience mechanism.

NATO – Ukraine’s allies should provide enough military assistance to “alter the course of the war once and for all”, NATO Secretary General Mark Rutte said in Brussels, which hosted the two-day meeting of NATO Foreign Ministers. On Tuesday, in her speech before the Foreign Affairs Council, Romania’s Foreign Minister, Luminița Odobescu, said NATO membership presented Romania with the strongest security guarantees it ever had. Over 5,000 NATO troops are currently deployed to Romania for deterrence and security consolidation purposes, the Romanian official recalled. Another positive effect of the presence of foreign troops is an economic boost, while NATO membership itself reinforces Romania’s credibility at international level, including on financial markets, the Romanian official said.

GAUDEAMUS – A new edition of the Gaudeamus Book Fair has kicked off in Bucharest. Organized by Radio Romania, the event this year is presided by a special honorary guest, Mircea Cărtărescu, one of the best-known and internationally acclaimed Romanian contemporary writers, the recipient of countless national and international awards. Some 200 exhibitors are taking part in the fair, which until December 8 will bring visitors hundreds of book launches and numerous premieres. (VP)

4 December 2024
Effects of the political crisis in Bucharest

The Romanian Social Democrats, who have been ruling the country for only one year alongside their junior partners, the Alliance of Liberals and Democrats (ALDE), have managed to devour two prime ministers. The internal crisis within the Social Democratic Party (PSD), triggered by misunderstandings between the party leader Liviu Dragnea and the two prime ministers, Sorin Grindeanu and Mihai Tudose respectively, which Dragnea himself proposed for the post, has turned into a serious governmental crisis, with all the associated consequences.

Last summer the Social Democrats got rid of Sorin Grindeanu, following a scenario unheard of in Romania’s post-communist history. At the time, PSD toppled its own government through a no-confidence vote. This week however, things went smoothly, with Mihai Tudose in the role of the victim. He tendered his resignation without burning his bridges, in spite of the fact that his conflict with Dragnea was at its peak. According to commentators, the last straw to break the camel’s back was Tudose’s refusal to further collaborate with Interior Minister Carmen Dan, one of Dragnea’s protégées, after a scandalous case of pedophilia in the Romanian Police.

Tudose’s resignation did not go unnoticed in the international press. “Romania has lost its second prime minister in seven months after Mihai Tudoses own political party withdrew its backing. The Social Democrat (PSD) prime minister said he was resigning with his head high”, the BBC reports. “The party has been riven by a power struggle which also claimed his predecessor, Sorin Grindeanu, in June”, the BBC also says.

Reuters also reported on this topic saying that “tensions between Tudose, appointed in June, and the party’s powerful leader Liviu Dragnea erupted last week when the prime minister asked his interior minister, a close Dragnea ally, to quit, accusing her publicly of lying to him. She refused. Monday’s vote by the 67-member PSD executive committee is seen consolidating the grip on power exerted by Dragnea, who pushed out Tudose’s predecessor Sorin Grindeanu in a no-confidence motion last summer.”

On the other hand, as a consequence of the political crisis, the domestic currency, the leu, has dramatically depreciated against the euro, reaching a record low level. The main market indicators do not fare better either. Political instability generates concern in the business environment, for which reason such situations should be solved as soon as possible, representatives of the banking system say.

Head of the Romanian Banking Association, Sergiu Oprescu explains: “Obviously, in such moments banks assess the situation in terms of stability and predictability. In this case, it normally translates into concerns. We hope that low predictability situations such as this one will be as short as possible. Any form of clarification of less-clear political situations, such as the current one, could increase the trust of market players and investors.”

It remains to be seen how things will evolve in the economic and financial banking sector, especially if the political crisis continues.

17 January 2018