Romania is teetering on the brink of a grave political crisis after the Social Democratic Party’s decisive victory in the December 11 general election. With a strong mandate, the PSD is expected to pick its leader Liviu Dragnea as prime minister, but President Klaus Iohannis, former leader of the National Liberal Party, has already said he will refuse to nominate Dragnea, who has a criminal conviction.

If neither side backs down, this could lead to a protracted period of political infighting that will result in uncertainty, deterring the investors that Bucharest hopes to attract and retain.

Both sides have indicated they do not intend to back down. The PSD and ALDE, which is expected to become its junior partner in the new government, turned down Iohannis’ invitation to consultations extended to all parties represented in the new parliament, which are due to start on December 14. 

On December 13, Iohannis reiterated that he would not nominate anyone convicted or indicted for corruption for the prime minister position. “I announced the integrity criteria before the electoral campaign and they are still valid,” the president said in his first comment on the issue since the election.

Throughout the campaign the PSD refused to say who its pick for prime minister would be, and this stance has continued post-election, but it is increasingly clear that the party wants its president Dragnea to lead the country. Several members of the party, including Bucharest mayor Gabriela Firea, have said that Dragnea is entitled to become Romania’s next prime minister. The party took over 45% of the vote in the December 11 election, and ALDE contributes just over 5%, pushing the two parties’ combined share of the vote over the 50% mark required to form a government.

Dragnea’s only comment on the issue was to say that he would “respect the constitution”.

Iohannis’s stance is based on a Romanian law that forbids citizens with criminal convictions from serving as members of the government, but this is not forbidden under the constitution. Dragnea’s comment therefore indicates his party is gearing up for a battle with Iohannis over his appointment.

Other actors also seem to be manoeuvring to secure the post for Dragnea. Ombudsman Victor Ciorbea told News.ro on December 13 that several Romanian citizens had sent requests for the legislation barring Dragnea from becoming prime minister to be referred to the Constitutional Court.

With neither side about to back down, the PSD seems ready to force through Dragnea’s nomination, and there is even speculation that the party could launch an attempt to impeach Iohannis.

At the very least Romania is heading for a highly acrimonious cohabitation between Iohannis and the new PSD-led government, reminiscent of the barbed exchanges and power plays between former prime minister Victor Ponta and former president Traian Basescu, during another PSD government under a centre-right president. This resulted in a failed referendum attempt by the PSD to have Basescu impeached in 2012, after which an uneasy truce was struck for the remainder of the two men’s terms in office.

Dragnea’s conviction concerns voter manipulation during the referendum. In April, Romania’s High Court of Cassation and Justice found Dragnea guilty and issued a two-year suspended sentence. The PSD leader was found to have used his position to inflate voter numbers with the help of dozens of polling station officials from four Romanian counties, who have been prosecuted for ballot stuffing. The referendum was declared invalid since less than 50% of the electorate voted. 

Tapped desires

By contrast, Iohannis has collaborated with the technocratic government installed in late 2015 after Ponta’s government stepped down following mass anti-corruption protests. Iohannis himself had benefitted from a separate scandal concerning polling stations for the diaspora in the presidential election, which caused an unexpected swing in his favour and against his rival Ponta.

But a year is a long time in politics, and outrage over the deadly Club Colectiv nightclub fire that sparked the protests has long since faded. Other scandals concerning the healthcare sector that broke in 2016 failed to bring more than a few thousand people out onto the streets.

The latest election showed that the PSD was better able to tap into the desires of the Romanian population - namely for a continuation of the ongoing rise in incomes and living standards. Romanians have benefitted from the ongoing consumer boom resulting from VAT cuts and public sector pay rises. A newly released European Bank for Reconstruction and Development (EBRD) survey showed that “life satisfaction” increased substantially in Romania, from 18% in 2010 to 45% in 2016 - well above the regional average. The PSD took advantage of this by promoting tax cuts and pay increases in the run-up to the election, and releasing details of their spending plans three days before the vote.

By contrast, the earnest strategising by Iohannis and the technocratic government on public administration reform and long-term development failed to enthuse voters. Romania’s current Prime Minister Dacian Ciolos refused to openly back the centre-right National Liberal Party (PNL) and Union Save Romania (USR), which wanted to keep him in office, until the final days of the campaign.

He also dealt a blow to his own hopes of remaining in his post when he sent legislation on public sector pay rises approved by the parliament to the constitutional court - clearly the public sector employees that are believed to have overwhelmingly backed the PSD were not impressed with the chance to sacrifice themselves in the interests of fiscal prudence.

Despite this, the newly formed USR performed relatively well, with its anti-corruption message striking a strong chord especially among urban educated voters. The party, which initially was just hoping to pass the 5% threshold to enter parliament, came away with almost 9% of the vote.

However, the PNL is now in disarray, having seen its share of the vote slump to just 20%. The party’s leader Alina Gorghiu has already resigned and will be replaced by the leader of its Sibiu branch Raluca Turcan until the 2017 party congress. Recriminations have started, with PNL members blaming the USR for taking their voters and Ciolos for not backing the party during the campaign.

Until now, it was all going so well for Romania, and it’s not clear how big an impact the political crisis will have. With among the fastest growth rates in Europe and advantages such as a large well-educated workforce, low costs and natural resources, Romania was becoming an emerging darling of emerging markets investors. A strong pipeline of privatisations, including infrastructure assets such as Bucharest Airports and Constanta Port, and the expected elevation of the local stock market from frontier to emerging market status could provide further impetus. Romania has become particularly attractive to companies in the auto components and IT and shared services sectors

Admittedly there are still problems. James Wilson of the EU-Romania Business Society pointed out in a recent comment for bne IntelliNews that FDI is declining and Bucharest has been on the losing side of a series of legal battles with international investors. Infrastructure investment is also a perennial problem cited by investors, and corruption remains high by EU standards despite the country’s highly effective anti-corruption drive in the last few years.

Adding political instability and a void at the heart of the government should Romania fail to appoint a new prime minister will not help matters. Investors in the Balkans are used to governments rising and falling, but this promises to be a fight of epic proportions.