A realistic deadline for forming Romania’s new government is two weeks from now, President Nicușor Dan told a press conference in Vilnius on June 2. A fiscal consolidation plan agreed by the tentative ruling majority will be ready within a few days, he added, according to a transcript published by the Romanian presidency. 

Current scenarios for fiscal reform focus on reducing expenditures, with higher tax rates — including a potential VAT hike — retained as a (nearly unavoidable) last-resort measure. The June 5 deadline for the fiscal consolidation plan looks highly ambitious as the complex structure of public spending makes it difficult to identify and eliminate excessive spending quickly while avoiding legal challenges. 

Hiking the VAT rate remains the solution of last resort, as long as employers’ associations seem to be in a position to prevent any increase in corporate taxation.

Separately, all the options are back on the table for Romania's next prime minister – which marks a shift from the prior baseline assumption that interim National Liberal Party (PNL) leader Ilie Bolojan was the leading candidate for the post. Pragmatically speaking, Bolojan remains the main candidate for the post and a credible one for both creditors and the electorate.

Dan sets calendar for government formation

Dan explained that the working group to reduce the deficit began its activity on May 29 and it is hoped that a conclusion agreed by the four parties plus the minorities, supposed to form the ruling majority in parliament, regarding spending cuts will be presented on June 5. 

“I think a realistic deadline is two weeks from now for the formation of the government,” Dan told the press conference. Regarding the deficit working group, he added: “I hope … that by Thursday [June 5] afternoon they will come up with a conclusion agreed upon by the four parties plus the national minorities, on where to cut.”

The European Commission is expected to decide on whether to cut funds for Romania on June 4, but Finance Minister Tanczos Barna has said he hopes the Commission would give the country “days or weeks” to complete the task.

"In parallel, a political agreement is being discussed to stand behind the government," and the appointment of the prime minister will be made when "I know that there will be support in parliament. We are not in a situation where we can afford to play games," the president said.

PNL stays flexible but PSD undecided 

Speaking in Bucharest, Bolojan said on June 2 that his party will unconditionally support and will be part of a pro-EU ruling majority. The unconditional support is a sign that Bolojan admits the party’s responsibility in the past government that generated the fiscal slippage. The decision was supported by “a very large majority” of the party’s National Political Bureau, Bolojan explained according to Agerpres.

However, he insisted that the ruling coalition should first focus on cutting public expenditures and only afterwards consider hiking tax rates.

Bolojan confirmed that the PNL would accept a prime minister from the Social Democratic Party (PSD), the largest party in parliament.

However, PSD interim president Soren Grindeanu announced that the party leaders decided unanimously at a party meeting on June 2 that the decision on joining the ruling coalition should be made after consultations with all the party's elected officials, from the level of local councillors and mayors to parliamentarians. Grindeanu also stated recently that he wanted a "broad consultation" on entering the government, according to Monitorul.

Grindeanu did not set a date by which the PSD should decide on joining the ruling coalition. He said that the PSD needs to discuss programmes and projects before making a decision.

The "programmes and projects” are understood to mean the public investment projects carried out by the local administration with financing from the national budget.

While the PNL would accept a prime minister from the PSD, Grindeanu is unlikely to be accepted as a valid candidate as it would seriously damage the credibility of the executive due to his ties with the PSD’s hardliners.

The lack of reforms within the Social Democratic Party have resulted in the party struggling to find a credible prime minister candidate, keeping the negotiations in limbo. The reformist Union Save Romania (USR) in particular would find it hard to cooperate with an unreformed PSD. 

Both USR and the Democratic Alliance of Hungarians in Romania (UDMR) have expressed firm willingness to be part of the ruling coalition.