Internal Affairs

The final results (RO) of the European Parliament elections confirmed the early estimates. The main opposition parties registered very good electoral performances (PNL has won the elections for the first time in the last decades; USR-PLUS Alliance received its first electoral confirmation as a leading political force).

At the same time, governmental parties have had disappointing results (PSD – the lowest electoral score in the last 30 years; ALDE – lost its representation in the EP, not reaching the 5% threshold).

For PSD, the main governmental party, the shock of the outcome of the European Parliament elections was followed just one day later by the final conviction of Liviu Dragnea, the party leader and President of the Chamber of Deputies, to 3 years and 6 months of imprisonment (EN). The imprisonment of the PSD leader contributed to a quick shift in power within the party (which would have resulted anyway after the outcome of the European Parliament elections). The governing bodies of the party have promoted challengers of the former PSD leader in key positions and his supporters have been replaced or have stepped down (EN). The transfer of power was made extremely fast and in the absence of internal convulsions, the party remaining united by the mutual goal of its leaders: preserving the government.

The results of the Euro-parliamentary elections have affected the political legitimacy of the two government parties. Opposition formations announced they will file a censure motion by the end of June (EN) . The chances of such an endeavor are rather low at this moment, as it emerged this week when the PSD candidate, MP Marcel Ciolacu, was elected president of the Chamber of Deputies. The Government holds the parliamentary majority in the plenum of the two Chambers of Parliament and, individually, in the Senate of Romania. In the Chamber of Deputies, following the UDMR’s suspension of the parliamentary collaboration protocol, the PSD + ALDE coalition no longer has a formal majority. It has to negotiate punctually with different political / parliamentary groups in order to ensure the necessary votes. That is why, the victory of the PSD candidate in the race for the presidency of the Chamber of Deputies (EN), at a large margin from the joint candidate of the main opposition parties (172 votes against 100), shows that for the moment there is no alternative majority in this Chamber, and even less so in the joint plenum of the Parliament. Changes in Government formula may arise (including at the level of state secretaries), triggered by the redistribution of political power in the PSD.

 

International Affairs

This week, the EU27 heads of state and government met in an informal dinner of the European Council. It was the first meeting at this level held after the elections for the European Parliament. Discussions were devoted to launching procedures to nominate the new leader of the EC. Under the regulations in force, the European Council will have to nominate the new president of the European Commission and the majority of the new EMPs will have to approve the proposal. European Council President, Donald Tusk, announced he will begin political talks and negotiations in this regard, both within the European Council and with European Parliament leader (EN).

Following last week elections, the European People’s Party and the Progressist Alliance of Socialists and Democrats parliamentary groups will not hold in premiere the majority in the European Parliament. A broader political alliance will have to be formed. This will involve not only a longer duration of the negotiation period, but also the harmonization in the future European Commission of elements of vision specific to each of the political groups.

 

Economic & Fiscal Updates

The Government has amended this week the provisions of GEO 114/2018 which increased in late 2018 the financial burden for key industries. Under the new provisions, the capitalization requirements for mandatory private pension fund administrators operating under the 2nd Pillar of the local pension system have been significantly reduced (from 8% of the total assets under management to 8% of the contributions received last year) (EN),. The Government modified for the first time GEO 114/2018 in March, through GEO 19/2019. At that time, the main changes provided for the reduction of the tax on banks’ financial assets. The more accurate assessment of the potential impact of GEO 114/2018 made the Gov’t to amended it again so as to avoid seeing the mandatory private pension fund administrators leaving the Romanian market. More changes may occur, as in Parliament, not only the opposition parties but also the ALDE have backed the need either for a completely abolish of GEO 114/2018, respectively for its re-evaluation.

Following the electoral failure registered in the European Parliament elections, ALDE may reassert more clearly its liberal identity (by resuming a business message area, less present in recent years). Also in the context of the disappointing outcome of the European Parliamentary elections, the Government may be expected to avoid taking controversial measures in the upcoming period and to promote a greater openness to dialogue and consultation with the business environment.

It is also worth highlighting the PNL chairman’s statement, Ludovic Orban, on the need to remove the exemption from the payment of income tax for IT employees. The statement shows the unknowns associated with a future change of government, no matter when it will occur. It can bring uncertainty and impact the development plans on the local market of companies in the field.