BLACK SEA BLOG: Political infighting could trigger economic havoc in Romania

By bne IntelliNews October 14, 2009

Bogdan Preda in Bucharest -

The Romania government fell in a no-confidence vote on October 13 for the first time since it returned to a democratic parliamentary system 20 years ago, adding an open political crisis to the economic one that hit Romania earlier this year.

The government of Prime Minister Emil Boc, who is head of the Liberal Democratic Party that will support incumbent President Traian Basescu in presidential elections due next month, was ousted in a 258-176 no-confidence vote called by the National Liberal Party and the Hungarian Democratic Union, and also supported by the larger Social Democratic Party. The Social Democrats were part of a loose governing coalition until October 1, but pulled out after PM Boc fired their interior minister, Dan Nica.

While opposition parties claim that Boc's government has failed to adequately tackle the country's problems during the crisis, the PM, hailed by president Basescu, accused the opposition of ousting him because of his intention to change the pension law by calculating the payments on the basis of contributions rather than special merits and titles. He accused legislators of being more interested in preserving their high state pensions and those of their political friends.

Until the political parties and the president agree on a candidate for a new prime minister, Romania will be governed by Boc's cabinet, although without the power to initiate laws or approve important decisions. Opposition parties want an independent to head a cabinet of "technocrats" until after the presidential elections scheduled November 22, with a runoff expected December 6.

The problem the EU-member faces is that it will have an unstable and fragile government during one of the most difficult periods for its economy, at a time when the country needs strong government to safeguard the country's interests and the pledges made to the EU and IMF. And the lack of confidence shown by investors in the politicians' ability to cope with the economic crisis has already made itself plain on the country's financial market: the currency fell to a seven-month low, closing at almost 4.3 lei to the euro. Currency traders suspect the central bank stepped in the market to prop the leu against the euro, business daily Ziarul Financiar reported.

The reality behind the scenes

Seen from the perspective of a country that needs to press on to fulfil the standards of the EU that it joined in 2007, Romania looks like it's at risk of heading for the biggest political and economic crossroads since 1989, when it broke with communism and started its rather painful and too often slow transition to a full market economy. The problem is that this could get even worse and last longer than anyone expects, especially as the country's leaders either don't seem to care enough or don't exactly know how to tackle the many issues at stake.

Even with a serious financial crisis already showing its effects, Romania's government and politicians in general appear more concerned about how to preserve their previous lavish living standards and continue making money, rather than beyond the cheapish soap opera act of merely pretending they are either governing or willing to do so responsibly if elected.

Hundreds of thousands of workers face the sack and serious payment cuts, while politicians are too busy antagonizing each other to approve a state budget for 2010 despite evidence that there's not enough money to pay salaries and pensions or cover health needs to taxpayers.

Since October 1 when the Social Democrats pulled out of the government, Boc's cabinet worked only with members of the Liberal Democrats and seems to be willing to continue like that, with its remaining ministers also covering other portfolios as acting ministers. But even with Boc's cabinet ousted, the opposition will still need to persuade Basescu nominate a new premier to form the new government just weeks before he is to again run for president on November 22.

Although at least in theory the previous government with the Social Democrats in it had the strongest support in parliament in at least eight years, it was unable to pull together a sound working plan to help the country cope with the global crisis that had reached its shores. Meanwhile, the former government had no choice but to pose nicely for a EUR13bn loan from the International Monetary Fund, with even more to come from the EBRD, the EU and the World Bank. This effort, however, hasn't so far helped the government to limit the economic contraction of almost 9% in the first half of this year from a year ago, while the IMF sees the country posting a budget deficit of 7.3% this year, another almost 6% in 2010, and 4.2% in 2011, all levels above the EU-agreed limits. Moreover, the government was just as inefficient at absorbing the billions of euros in financial assistance from the EU because of a lack of qualified projects, so it faces losing such funding.

Soon after they formed the previous government in December last year, the Liberal Democrats and the Social Democrats, until then the country's worst political foes, instead used their governing act as a beauty contest in preparation for the presidential elections this year. That's because in Romania, unlike other many European countries, the president plays a key role in approving governments and passing laws voted by parliament, as well as heading the National Supreme Defense Council, which also includes the intelligence services.

Why the battle is so fierce this time

Everything is about politics in today's Romania. Each party tries to put its own people in key positions, ranging from the local administration, to government, to utility companies and even some multinational companies, because each party wants to use such means to stay in power longer in order to take advantage of the act of governing, with all the benefits deriving from it. Among such benefits are the powers to decide the spending priorities of public and even EU money after deciding what projects are needed, while also heading the commissions organizing the tenders and awarding the contracts. Romanian newspapers and TV shows, though only a few of them are editorially independent these days, are full of such examples.

Simply put, as in most countries with a similar system, compounded by a fragile democratic system, a party with majority support in parliament and a winning presidential candidate is the recipe for political success in Romania, a country known for its corrupt system and social environment. Or so its politicians think. That means such a party could form the government alone, pass all the laws it wants through parliament and have them all signed into law by the president. And this is what all of the three main parties want. The Liberal Democrats and their presidential candidate, current President Traian Basescu, want that. The Social Democrats and their candidate Mircea Geoana, the head of the Senate want that too. And the National Liberal Party, who lost power in last year's elections, wants that too, together with their candidate and party head Crin Antonescu.

The problem, though, is that Romania in 2009 and 2010 is no longer the same country where foreign investors rushed to pour billions of euros, and that's because of the global financial crisis. With a banking industry that became reluctant to lend to Romanian individuals, companies and dozens of large companies that are now firing tens of thousands of people and a near-standstill in the real estate market, there's less money sloshing around in the economy. The immediate consequence of the current situation is that there's also less money around for many of the parties, politicians and governmental structures in place, all of them fighting to get a bigger piece from a smaller pie this time.

Another problem is that those foreign investors still willing to come to Romania could soon find it's going to be extremely difficult to find reliable partners in the government to get the minimal guarantees they're all looking for in terms of fiscal and economic policies. Any foreign investor would have to rely more on guarantees and pressure from the European Commission concerning Romania as a member of the EU rather than from Romanian officials themselves, because the latter seem to either not last in their positions these days, or to be incapable of being accountable enough.

Ironically, 20 years since it broke with dictatorship, Romania clearly needs a firm hand and clear policies to fix things before they spiral out of control. And again, ironically, at the time of the worst financial crisis in decades, it doesn't seem to have either. That's probably because things look so sombre in the country these days that any party or government willing to take the appropriate measures to fix things in the economy would become highly unpopular. So the only things parties and their candidates can do at this point in time is criticise their political enemies and make promises.

Following the logic of political power games in Romania, one could expect that soon after the elections in November, any presidential candidate would fight to boost his own party's popularity and push for early legislative elections to warrant for majority support in parliament.

For now, incumbent Traian Basescu has the first chance, although not without a run-off, most likely against Mircea Geoana. If Basescu wins, his party will probably find it hard to form a coalition with any other large party, because they are already firm foes with both the Liberals and the Social Democrats. He could at most hope that dozens of lawmakers from the two parties join the Liberal Democrats to give them a parliamentary majority, or force early legislative elections after helping his party gain enough popularity. The problem, though, is that if he and his party want to behave responsibly in terms of social promises, it will be difficult to gain popularity in Romania at a time of crisis.

If Geoana wins, his party will most likely try to govern for a while with help from the Liberals, the third-biggest party in Romania. After that, the Social Democrats too, will likely push for early legislative elections.

If he or she cares at all about the country, any politician coming to power in Romania would have to rely on the country's top economists and also seek help from abroad in putting together a workable plan that's clearly going to have painful social consequences. Any government would have to genuinely crack down on corruption as well as encourage hiring based on merit rather than party affiliation. Otherwise Romanians, most of whom are too dissatisfied by politicians to even think to vote, may soon find out that their leaders have failed to bring them the benefits of the EU that accepted their country's membership.

More than ever before, Romania needs a government that knows what it's doing with the economy to prevent economic collapse, while at the same time preserving its citizens' hopes for better living standards. For now, Romania has neither the political wisdom nor the prospects of such a dream team.

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