WEEKLY FISCAL AND POLITICAL REPORT - September 9 - 15, 2019
Internal Affairs    The Romanian prime minister found a technical solution to allow the normal functioning of the Government meetings after the president refused to appoint interim or full ministers in the vacant positions. Thus, by a government decision, it was transferred from the Ministry for Relations with the Parliament to the General Secretariat of the Government, the competence to give a note for the draft laws and emergency ordinances considered by the Government. In the absence of a holder in the Ministry for Relations with Parliament, the Government could no longer adopt before this week's decision ordinances and emergency bills. The promotion of this solution allowed the resumption in normal conditions of the activity as of this week.   The absence of full or interim ministers in important portfolios (such as the Environment), even if it no longer affects the functioning of the government meetings, impacts the activity of the respective ministries, being expected to cause delays in promoting different regulatory initiatives by them (e.g. at the Environment, Energy and Home Affairs ministries).   In an attempt to quickly restore the full government formula, the Prime Minister sent new nominations for vacant portfolios to President Klaus Iohannis this week. For the minister positions vacant due to the resignation of ALDE members, the prime minister nominated members of this political group (to emphasize that the political component of the government will not change and, as such, that it is not necessary for them to be endorsed by the Parliament) (EN). The president rejected the new proposals, stressing once again that he expects the Government to follow the procedure of a support vote in parliament (EN).   In this context, a first solution to the institutional deadlock between the President and the Prime Minister is expected to occur along with the decision of the Constitutional Court of Romania. Its ruling should be expected to take place at the earliest on September 16-22. The government will likely await the Constitutional Court ruling and postpone the moment of asking the parliament for an endorsement vote of the new ministers. It is worth pointing out that the PSD Government is using this period to attract the support of different MPs, mainly from ALDE. The former minor government party is going through strong internal convulsions after several leading leaders (at the same time also MPs) agreed to collaborate with PSD and were excluded from the party (former Minister of Foreign Affairs and ALDE Vice President Teodor Melescanu was elected this week President of the Romanian Senate, with PSD support) (EN). The PSD does not hold however presently the number of votes necessary to ensure its majority in the Parliament's plenum.   At the other pole, the opposition forces continue to be divided on future developments that should occur after the adoption of a no confidence motion against the Dancila government. Political negotiations will continue in the new week, and the submission and debate of the censorship motion will continue to be postponed.   International Affairs The designated President of the European Commission, Ursula von der Leyen announced the list of Commissioners to be part of the future formula of the European Executive. The Social Democrat MEP Rovana Plumb is nominated to take over the Transport portfolio. The list was approved this week by the Council of the European Union (EN). In the next period will take place the hearing of each designate-Commissioner in the Special Committees of the European Parliament, following which the plenary of the European Parliament will give a vote on the entire proposed formula of the new Commission. The European Council will have to approve then with majority of votes the new Commission.   Dacian Ciolos, president of PLUS Romania but also of the political group RENEW Europe in the European Parliament, announced that the group MPs will not vote in favor of Rovana Plumb in her hearing by the Transport and Tourism Committee, due to the suspicions regarding her moral integrity. For the same reason, the RENEW Group has adopted a similar position towards other candidates nominated for the position of European Commissioners (EN). There is a possibility that the vote in the Committee on Transport and Tourism could be one of rejecting the Rovana Plumb, in which case Ursula von der Leyen will most likely ask Romania government to nominate a new candidate.   It is worth underlining that this week the European Central Bank (ECB) announced a cut in its main deposit rate by 10 basis points, to -0.50%, a record low. ECB also announced that a new bond-buying program will start on November 1st. The program will entail 20 billion euros per month of net assets purchases for as long as it is necessary (EN).   ECB decisions came in line with the economists’ expectations. They are aimed at revigorated to stimulate and reinvigorate the euro zone economy, given the negative trends registered this year.   Economic & Fiscal Updates   Given the political tensions and the absence of a formal majority in parliament, the economic agenda of the government has been rather poorly represented in the last period. In this context, it is worth noting the latest recorded macroeconomic developments, namely the confirmation of the economic growth of 4.7% in H1 2019 compared to H1 2018, respectively 1% in Q2 2019 compared to Q1 2018 (EN), as well as the slight reduction of inflation from 4.1% in June to 3.9% in July (EN). Economic growth continues to be sustained mainly by consumption, and the trade deficit continues to grow. Thus, Romania's trade deficit grew to 9.48 billion euros in the first seven months of the year, 1.89 billion euros more than recorded in the similar period last year (EN). The industrial production fell with 3% in July compared to the same month of 2018. It is the second month in a row that the industrial output contracts (EN).


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WEEKLY FISCAL AND POLITICAL REPORT, September 2 - 8, 2019
President Klaus Iohannis refused this week to appoint the interim ministers to the positions that have become vacant in the Government after the resignation of three ALDE ministers (for Energy, for the Relation with the Parliament and for Environment portfolios) (EN). In return, Prime Minister Viorica Dancila announced that she asked the Constitutional Court to verify the existence of a constitutional conflict between the Government and the Presidency on this topic (EN). Currently, in the Government of Romania, along with the vacant ministerial positions that were held by the ALDE ministers, there are another two more portfolios (at Education and Home Affairs) where the interim period ensured by two members of the Cabinet is close to reach the legal deadline (of 45 days). The position of vice premier on economic issues is also not represented since August 15. In these cases (Education & Internal Affairs) if the interim terms will reach the end, the state secretaries will receive delegation of powers in advance from the interim ministers, and the ministries functioning will not be impacted. In the case of the portfolios that were held by the three ministers of ALDE, before submitting their resignations, they did not delegate their powers to state secretaries from the respective ministries. This led to the emergence of a blocking situation at the Government level - all bills and emergency ordinances adopted by the Gov’t have to be signed for example by the Minister for relations with the parliament. Not surprising, no government meeting was held this week. A government decision issued on Monday allow the Government to issue emergency ordinances without the signature of Minister for Liaison with Parliament. The settlement by the Constitutional Court of the conflict between the Government and the President will last at least a few weeks. The refusal of President Klaus Iohannis to appoint interim ministers is a form of pressure on the prime minister to speed up the demand for a parliamentary vote to appoint new full ministers. The government has about 30 days from now to complete the procedure, but it does not seem to be in a hurry to proceed. At the same time, the opposition has not advanced significantly in order to submit and vote on the censorship motion. The current political status quo is advantageous for the opposition formations, allowing their candidates to enter the electoral race for the Romanian presidency with an anti-government speech. We anticipate therefore that in the course of next week neither of the two procedures will be finalized, but it is likely that their timetable for debate will become clearer.


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WEEKLY FISCAL AND POLITICAL REPORT, August 26 – September 1, 2019
The ALDE leadership decided this week the withdrawal of the party from government (EN). 3 of the 4 ALDE ministers (the Minister for the Environment, the Minister for Energy and the Minister for the Relations with the Parliament) have resigned from the Cabinet (EN). The Foreign Minister chose to remain in the Cabinet and resigned from ALDE. During the next two weeks it is expected to see clarifications regarding the state secretaries representing ALDE who will continue to hold their positions or who will resign. It is also to be clarified how PSD and ALDE branches will collaborate in county councils and local councils where the two parties hold the majority. ALDE's departure from the Government implicitly leads to the dismantling of the parliamentary majority that resulted from the 2016 parliamentary elections. In this context, the leader of the main opposition parliamentary formation, PNL, declared that the party will submit a new censorship motion (EN). All opposition parties have announced that will support such an endeavor. The simple majority in the parliamentary plenary session is formed by the support of 233 parliamentarians. The opposition formations currently have 235 parliamentarians, the PSD has 202 parliamentarians, the national minority group consists of 17 parliamentarians and 11 are independent MPs. From the point of view of mathematical calculations, if a new censorship motion will be indeed supported by all the 6 opposition parliamentary formations it will stand good chances to be adopted (especially if some independent parliamentarians or from the national minority group will also support such an endeavor). However, even in this scenario PSD can continue to hold the majority in the upper house of the Parliament, the Senate of Romania (with 69 senators, one more than the one needed to ensure the simple majority). According to the PNL leader, the censorship motion will be submitted for debate and vote in Parliament only after 233 parliamentarians will sign for its registration (the exact number of MPs needed for the censorship motion adoption). This approach indicates that the Opposition is not in a hurry to submit it, a censorship motion going to be voted at earliest in 2-3 weeks and at latest near the presidential elections. Until then, another test that can indicate the support that the PSD Government is enjoying in the parliament will be represented by the vote to support the new proposals of ministers, in the places vacated by the departures of the ALDE ministers. Due to the change in the political configuration of the Government following the exit of ALDE from the government, it is necessary to validate the new ministers in the parliament (EN). The prime minister has 45 days to request a vote of support in parliament. If the majority of MPs will vote to support the proposals it will become clear that there is still no alternative parliamentary majority. If the vote is negative, the Government will continue to work and will have to come up with other proposals. Most likely the opposition formations will prefer to see if the government still has the needed parliamentary support for the validation of the new ministers, before submitting the censorship motion. If, however, the government will postpone the request for a support vote to the upper limit of the 45 days, the public pressure will increase on the opposition formations to evaluate firstly the government's support through the censorship motion. Also, worth mentioning is the withdrawal from the electoral race for the presidential elections of the president of ALDE, Calin Popescu Tariceanu (EN). ALDE and Pro Romania announced that they will support the independent candidacy of former MEP Mircea Diaconu (EN). Also, Alexandru Cumpanasu, president of an NGO and uncle of the kidnapped and most likely killed adolescent in a recent case that benefited from a wide media exposure, announced his intention to run for office. Both candidates (if the second one will materialize) will attract votes especially from the area of ​​the left wing electorate, affecting the chances of Prime Minister Viorica Dancila to enter the second round of the presidential elections.


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WEEKLY FISCAL AND POLITICAL REPORT, August 19 – August 26, 2019
The main political event of the week was the holding of the official meeting between the President of Romania and the President of the United States of America (EN). The consequences of the meeting can be analyzed in two plans: governmental and political. At the governmental level, a joint declaration was signed, which contains elements of a general vision, such as the creation by Romania of an attractive framework for energy investments or the two countries opposition to the North Stream 2 project. Also, at the governmental level, a Memorandum of Understanding on 5G technology has been signed, which states the commitment to respect transparency and security criteria when developing 5G telecommunications networks. The memorandum was interpreted by analysts as having the role of excluding Huawei from the development of the 5G network in Romania (the Chinese company has presently an agreement with Vodafone on the Romanian market for the realization of 5G infrastructure). President Klaus Iohannis announced that the topic will also be on the agenda of the Supreme Council of Defense of the Country. Most likely, a solution will be sought, in the form of establishing selection criteria when granting 5G licenses, which will limit / exclude the involvement of the Chinese company in the development of the 5G telecommunications network in Romania. Politically, President Klaus Iohannis received explicit support from the US president for his re-election for a new term, about 3 months before the presidential election date. President Klaus Iohannis is considered as the candidate with the highest chances of victory in the November presidential elections. The meeting with the US President will only strengthen his chances to be re-elected. Also this week, the PSD president, Viorica Dăncilă was validated at the Congress of the party, unanimously, as the social democrats candidate for the Romania Presidency (EN). In the same context, the People's Movement Party nominated former Liberal minister Theodor Paleologu as its candidate for Romania Presidency, and the actor and former independent MEP Mircea Diaconu also announced his intention to run for the most important position in the state. He may be endorsed by Pro Romania and ALDE. In fact, today, Monday, August 26, a clear conclusion is expected on the possible political Alliance between Pro Romania and ALDE, as well as the way in which the realization of this alliance will be accompanied or not by ALDE's exit from the government. Should ALDE leave the government, most likely the current cabinet will remain a minority one and will ensure the exercise of governance until after the presidential elections (no other formation being interested in accessing governance in the current electoral context).


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WEEKLY FISCAL AND POLITICAL REPORT August 12 – August 18, 2019
The decision of the PSD leadership to reject the requirements of the minority government formation - ALDE (to reform the state institutions, to draft a new government program and to restructure the government) as well as of any possible co-opting of Pro Romania to the government, sent a message of strength to the political alliance. At the same time, it adds further uncertainty on the stability of the government coalition. On Tuesday, August 20, expires the deadline until ALDE expects clear commitments from the prime minister / PSD on the implementation of the requirements submitted by the liberal democrats. Considering the PSD's refusal to respond to the requests, as well as the rejection by the Social Democrats of a government collaboration with Pro Romania (a party with which ALDE started negotiations for the creation of an Alliance), it remains to be seen whether or not ALDE will escalate tensions in within the government coalition. ALDE has a choice between forcing itself out of government or maintaining the governmental status quo. Even if ALDE will remain in government, the two parties will hold an extremely fragile majority (only 3 votes) in the next parliamentary session. Any other departures from the PSD parliamentary groups during the pre-election period will accentuate the fragility of the government stability.  


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