COMMENT: Romania literally can't afford any more of this political squabbling

By bne IntelliNews May 22, 2007

Bogdan Preda in Bucharest -

It's hard to say whether Romanians' need for leaders with a strong personality is a legacy of the Ceausescu-era or simply part of their natural desire to see things getting done. Either way, the voters' message, expressed via the referendum at the weekend, is clear enough: they place more trust in President Traian Basescu than the majority of the 322 lawmakers, many of them Basescu's former allies, who voted to impeach him for alleged abuse of power.

Reporting back for duty

Together with France, Romania is the only EU country where the president has additional powers such as those of heading the armed forces and secret services, appointing prime ministers and swearing-in governments, and even countersigning laws voted by parliament. And for reasons that have much to do with former corrupt lawmakers who went unpunished, broke far too many promises and have wasted too many opportunities, voters seem to be willing to keep things this way.

Basescu, who waged his own war against corrupt politicians and businesspeople, leading to his suspension for a month before almost three quarters of the 44% of voters who took part in the referendum voted to reinstate him, is giving Romanians the hope that justice will finally be done, and that those who amassed fortunes overnight from public money and preferential secret deals with the state will be punished.

His opponents, such as former ally Prime Minister Calin Popescu-Tariceanu, the head of the National Liberal Party, as well as leaders and lawmakers of the opposition's biggest Social Democratic Party and Greater Romania Party, all accuse Basescu of masquerading and populism. And of exceeding his constitutional powers. Even the co-ruling Hungarian Democratic Union ethnic party's lawmakers claim Basescu lacks balance in a country that became a member of the EU only five months ago.

Basescu's victory in the referendum reveals a painful picture: parliament, as it is now, no longer reflects the will of Romanians as they expressed it in the November 2004 elections, when Basescu and Tariceanu ran together in a grand coalition. So the questions is, will this lead to early elections? In addition, is Basescu going to be able to impose his will to change the electoral law to force lawmakers to be elected directly, not through their parties?

The answers to those questions remain unclear. What can be said for sure, though, is that politicians and lawmakers will continue to fight Basescu for as long as they can and in doing so waste a lot of energy on internal squabbling instead of focusing on its urgent EU projects, which will risk losing billions of euros from EU funds this year and next. Can Romania afford that? The answer is categorically no.

Wake-up call

The popular confirmation of Basescu and his policies came as a wake-up call to most parties and lawmakers who had voted to oust him. Some of PM Tariceanu's allies, with whom Basescu was at loggerheads over the PM's refusal to accept early elections in 2005, already favour the Liberals leaving government in order to lick their wounds in opposition.

Not Tariceanu though; he vowed to stay on as head of the government, which risks further fueling the rift with Basescu and almost willing the president into making another show of force. Tariceanu and his allies are likely betting that there's enough time between now and the end of 2008, when new legislative elections are due, for them to work out another survival scenario. And they're probably betting that Basescu, encouraged by his recent victory, will miscalculate and become increasingly populist and dictatorial – which, in a country that's now a full member of the EU, would be unacceptable.

If Basescu is to survive, he must convince the EU that what he's doing is right. So far, he has persuaded politicians belonging to the powerful European Popular Party that his push for early elections is the right thing to do. But is that enough? Probably not, given that it's only a month until the EU starts looking into Romania's efforts in reforming its justice system and agricultural sector. Therefore, one can't expect early elections very soon; in fact, not before the second half of this year, and even then only under additional pressure from the EU on Tariceanu and his allies.

Meanwhile, Romania will probably see its currency growing ever stronger against the euro and the dollar as if it's business as usual. Such a scenario would be subject to a rapid change only if the government embarks on unwise policies such as reversing the flat tax or a making drastic change in the investment laws. That is because in Romania, business as usual means high margins from a consumer market with a fabulous appetite, which is being fed by banks cashing on fees and interest rates much higher than those in Western Europe. Such good business tends to last to the very last minute until a government collapses.

What's really hurting Romania is the lack of political clarity and predictability in the medium term. The country is failing to attract greenfield foreign direct investment (FDI) because potential investors find it hard to spot reliable and secure government partners for talks and planning at a time of political turmoil. As a result, these investors tend to wait or go elsewhere. This is leaving Romania with less cash to finance its record current-account gap, which is growing from the wider-than-ever trade deficits. At the same time, without enough money coming in from FDI, money pouring in primarily for consumption threatens to hit the central bank's lower inflation target and, thus, its Eurozone convergence plan. If that happens, one only has to look as far as neighbouring Hungary to see the results.

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