Biggest party in Romanian coalition withdraws support for PM, political crisis looms
By Luiza Ilie
BUCHAREST, April 20 (Reuters) – Romania’s ruling Social Democrats voted on Monday to withdraw their support for Liberal Prime Minister Ilie Bolojan and called on him to resign. This will likely trigger months of instability, jeopardizing EU funds and the country’s credit rating.
After the vote at the party meeting, the leftists said that they would withdraw six of their ministers from the cabinet towards the end of this week and that the coalition would be deprived of a parliamentary majority.
Bolojan’s coalition government of four pro-European parties came together 10 months ago to prevent the rise of the far right following polarizing presidential elections.
They constantly clashed over reform measures. Bolojan has repeatedly said he will not resign.
REFORMS DUE TO EU FUNDS
The left-wing Social Democrats, the coalition’s largest party, have become increasingly alarmed by their loss of support from the far right in opinion polls and in recent parliamentary elections, even though Romania is not due to hold another national vote until 2028.
Ratings agencies kept Romania in the bottom rung of investment grade after Bolojan’s cabinet raised taxes and began cutting government spending to reduce the European Union’s biggest budget deficit, but warned political instability was a significant risk.
Failure to implement further reforms by August will mean Romania loses around 11 billion euros worth of EU recovery and resilience funding, around half of the total allocation it receives from Brussels. In addition, the EU must sign defense contracts worth 16.6 billion euros under its new rearmament initiative, SAFE.
Romania’s centrist President Nicusor Dan sought to reassure markets early on Monday, saying ruling parties had agreed on EU funds and budget deficit targets.
“Yes, we will have a political crisis, but we have predictability on basic issues,” Dan told reporters.
FRIGHT RIGHT THREATENES THE NO CONFIDENCE MOVEMENT
Spreads on Romanian dollar bonds due 2036 rose 28 basis points to 256 basis points in Monday trading, from 228 basis points on April 15.
There has been no comment yet from rating agencies Moody’s, S&P or Fitch regarding political developments.
Eoghan McDonagh, portfolio manager at Allianz Global Investors, said investors appreciated the Bolojan government’s efforts to stabilize the state’s finances.
“Any move away from this reformist path, i.e. Bolojan leaving his post, will be perceived negatively by the market, so the final move is wider (in spreads),” he said.
Bolojan, who opinion polls show is the coalition government’s most respected politician, said late Sunday he would appoint interim ministers from the current cabinet who could hold the redistributed portfolios for 45 days.
The opposition far-right Alliance to Unite Romanians, which leads all parties in opinion polls, said it would submit a vote of no confidence in May. The Social Democrats said they might also submit a motion of no confidence.
If the two parties support each other’s proposals, the government will fall and weeks of long negotiations will begin between the parties to form a new coalition.
A pro-European governing majority cannot exist without the Social Democrats, the largest party in parliament with 28% of seats.
Nominating the prime minister, the president said the four coalition parties had no choice but to continue the government. He rejected the appointment of a prime minister supported by the far right.
Romania has never held early parliamentary elections.
(Reporting by Luiza IlieAdditional reporting by Marc Jones in London and Gergely Szakacs in Budapest, Editing by Gareth Jones and Allison Williams)
