Internal Affairs

President Klaus Iohannis refused this week to appoint the interim ministers to the positions that have become vacant in the Government after the resignation of three ALDE ministers (for Energy, for the Relation with the Parliament and for Environment portfolios) (EN). In return, Prime Minister Viorica Dancila announced that she asked the Constitutional Court to verify the existence of a constitutional conflict between the Government and the Presidency on this topic (EN).

Currently, in the Government of Romania, along with the vacant ministerial positions that were held by the ALDE ministers, there are another two more portfolios (at Education and Home Affairs) where the interim period ensured by two members of the Cabinet is close to reach the legal deadline (of 45 days). The position of vice premier on economic issues is also not represented since August 15. In these cases (Education & Internal Affairs) if the interim terms will reach the end, the state secretaries will receive delegation of powers in advance from the interim ministers, and the ministries functioning will not be impacted.

In the case of the portfolios that were held by the three ministers of ALDE, before submitting their resignations, they did not delegate their powers to state secretaries from the respective ministries. This led to the emergence of a blocking situation at the Government level – all bills and emergency ordinances adopted by the Gov’t have to be signed for example by the Minister for relations with the parliament. Not surprising, no government meeting was held this week.

A government decision issued on Monday allow the Government to issue emergency ordinances without the signature of Minister for Liaison with Parliament. The settlement by the Constitutional Court of the conflict between the Government and the President will last at least a few weeks.

The refusal of President Klaus Iohannis to appoint interim ministers is a form of pressure on the prime minister to speed up the demand for a parliamentary vote to appoint new full ministers. The government has about 30 days from now to complete the procedure, but it does not seem to be in a hurry to proceed. At the same time, the opposition has not advanced significantly in order to submit and vote on the censorship motion.

The current political status quo is advantageous for the opposition formations, allowing their candidates to enter the electoral race for the Romanian presidency with an anti-government speech. We anticipate therefore that in the course of next week neither of the two procedures will be finalized, but it is likely that their timetable for debate will become clearer.

International Affairs

The Finnish Presidency of the Council of the European Union has presented the priorities of the mandate in debates organized this week in the European Parliament. ECOFIN Chair and Finance Minister Mika Lintilä announced plans to make progress on the capital markets union and the banking union, including tackling banks’ non-performing loans as well as work on the European deposit insurance scheme (EDIS). Also high on the priority list is the fight against tax fraud and profit shifting, together with harmonized digital taxation in the EU and a financial transaction tax. The digital economy, including digital services, implementing consumer protection laws efficiently and the MFF files related to the single market and customs are also high on the Presidency’s programme according to the Employment Minister Timo Harakka. Economic Affairs Minister Katri Kulmuni also presented the priorities in the field of regional development, which include making EU cohesion policy more result-oriented, efficient and thematically focused. More info EN.

The two Chambers of the British Parliament have adopted this week a bill that aims to force the British PM to ask for a new extension of the Brexit date, if no deal would be approved until October 19th by the Parliament. After this date he would have to ask the EU leaders for a three-month extension of the Brexit date (from October 31 to January 31, 2020) (EN). The PM announced he refuses to ask for a new extension, and it is difficult to predict what will be in the final the approach he will adopt. The PM tried to call early elections in Mid October, but his proposal was rejected in Parliament (where the conservative party lost this week the majority, due to departures and dismissals from the party triggered by the internal differences on Brexit).

Economic & Fiscal Updates

Romania had an economic growth of 4.6% of GDP in Q2 2019 compared to Q2 2018 (EN). The economic growth continues to be sustained especially by the consumption of households.
At the same time, two large international rating agencies have attracted the vulnerabilities of the Romanian economy this week. According to Fitch, political uncertainty complicates economic policy at a time when fiscal and external metrics have weakened. Fitch experts consider that the corrective measures in the budget revision adopted by the government in early August are insufficient to bring down the deficit to the budget target of 2.76% of GDP, forecasting the deficit will widen to 3.4% of GDP in 2019 and considering the government’s projections rely on optimistic revenue assumptions (EN). Standard & Poor’s apreciaza ca ritmul de crestere al economiei romanesti va fi de sub 4% in acest an si ca el se va diminua in 2020  – 2021 due to a slowdown in external demand, the reduction of the wage growth rate and a more neutral fiscal environment The agency reconfirmed the country rating of Romania at BBB- with a stable outlook (EN).

Another alarm signal came from the IMF representatives who announced this week that according to its models the Romanian currency is overvalued by up to 10% The IMF outlined the need for NBR (National Bank of Romania) to ensure a greater flexibility in the currency exchange (EN).