Election gives Romania a shot at stability

Election gives Romania a shot at stability
PM Ludovic Orban, the leader of the centre-right National Liberal Party (PNL), is seen as likely to secure re-election.
By bne IntelliNews December 4, 2020

Romanians will vote in the general election on December 6, after a nearly non-existent electoral campaign, other than the debates related to the coronavirus (COVID-19) crisis.

Investors are hoping the vote will deliver a parliament capable of appointing a more stable government than those of the last four years, which have seen no less than four prime ministers — three from the Social Democratic Party (PSD) which won the last election in 2016 but whose time in office was rendered turbulent by internal party tensions and mass protests, followed by the current Prime Minster Ludovic Orban who took over when the last PSD government was overthrown in a no-confidence vote.

Since he took over as prime minister, Orban has faced a fragmented parliament where the PSD has managed to cobble together a fragile majority sufficient to push through some pieces of legislation, including on a prohibitively expensive 40% pension hike.

Orban, the leader of the centre-right National Liberal Party (PNL), is seen as likely to secure re-election. If the PNL and its junior partner, the reformist block USR-Plus, secure enough votes on Sunday, that could see Orban at the helm of a secure parliamentary majority and finally able to tackle some of the issues that have built up over the last four years. 

The latest polls show that the PNL is still in the lead, though its support has waned since the early autumn. The last monthly poll conducted by IMAS agency for Europa FM ahead of the vote shows the PNL lost nearly four percentage points of voters’ support, plunging to 28.5% of the intended vote from 32.6% one month earlier and 34.7% in September. Meanwhile, USR-Plus, lost 2.4 pp in November to 18%.

In contrast, the PSD gained nearly 2 pp and reached 23.6% electoral support in November. The gain came amid a visible upward trend after in September the PSD scored the weakest performance in recent months, 19.6%.

The score of Pro Romania, the party led by former PM Victor Ponta, went up to 9.5% in November, but is still under the scores of over 11% seen in June-July. Two other parties could meet the 5% threshold required to receive seats in parliament: the Democratic Alliance of Hungarians in Romania (UDMR) which was on 5.1% in November, up from 4.7% in October, and the party of former president Traian Basescu, the People’s Movement Party, PMP (4.6%, down from 4.8% in October).

With 46.5% of the votes, a potential coalition between the PNL and USR-Plus would get the majority of seats in parliament after the redistribution of the votes from the small parties not meeting the 5% threshold. The balance between the two partners will be important, since the higher the score USR-Plus receives, the more they will argue for radical reforms in contrast to the Liberals’ more gradual approach.

Ahead of the election, while pledging to pursue sustainable economic policies, the government has not unveiled any specific plan other than marginal improvements within the existing structure. Their refusal to explore alternative scenarios proposed by the reformist USR-Plus could result in sluggish and partial reforms with the ultimate result of insufficient fiscal consolidation and insufficient absorption of European Union funds. The risks faced by a PNL-dominated government stem from the same causes leading to its strength in the general elections: a strong structure of regional organisations that is extremely efficient in bringing in votes but resistant to change.

The PNL has strong backing from President Klaus Iohannis, who has talked of preparing to install “his government” with a robust majority in parliament. Iohannis has been one of the few voices in an otherwise lacklustre electoral campaign. 

USR-Plus has repeatedly expressed its own views, including plans to nominate its own prime minister candidate. Such ambitions can be backed only by a very strong score in the general elections. And its chances have just declined after USR founder and Bucharest mayor Nicusor Dan, the public servant elected with the second largest number of votes after the president, declared that he would vote for the Liberals.

Handling the pandemic and trying to put Romania’s public financing on a more secure footing will naturally be among the priorities for the government post-election. 

Romania is still reporting several thousand new coronavirus cases a day, though numbers have dwindled from the more than 10,000 daily cases reported in early November. The pandemic has put heavy pressure on Romania’s healthcare system — already the subject of scandals in recent years — as well as forcing the government, like others around the world, to make tough choices between protecting public health and the economy. Orban has already told Romanians that there will be no post-election lockdown as the country “can’t afford it”, he said on Romania TV on December 2. 

A deadly fire that swept through an intensive care ward for COVID-19 patients at a hospital in Piatra Neamt, raised further questions about the management of Romania’s healthcare system and brought back memories of the fire at the Collectiv nightclub in Bucharest that resulted in dozens of deaths five years ago. 

Just over a month after the election, Romania's Constitutional Court is due to rule on the planned 40% pension hike on January 13. The ruling was postponed for the third time on November 25, a move that gives the Liberals a chance to go ahead with their plans for a gradual pension increase should they form a robust majority in parliament before January 13.

The 40% pension hike was approved by lawmakers and promulgated by Iohannis last year, before the coronavirus crisis. In August this year, the government decided to replace the visibly unsustainable 40% hike with a gradual increase and included this in the budget revision. However, this was blocked by the parliament n September, when MPs voted in favour of an amendment to the budget revision law. 

The pension hike topic is of high importance for public finance sustainability. Rating agencies have already assigned negative outlooks to the country's sovereign rating that is already the weakest in the investment area. Scaling back the pension hike is a prerequisite for avoiding a sovereign downgrade to junk.