Fiscal & Political Report (March 29 - April 05, 2024)

Prepared by Emilian Aign?toaei & Cezar Petrescu

Political Updates

Internal Affairs

2024 ELECTIONS. If the negotiations for the European parliamentary elections have already been finalized, and in the following days the parties will submit their lists of candidates to the Central Electoral Office, regarding the presidential elections in September, all kinds of scenarios are still circulating, most likely a decision will be taken after June 10. On behalf of the PNL, the first vice-president of the party, Rare? Bogdan, claims that PNL must have its own candidate in the person of the party president, Nicolae Ciuc?, whom he credits with the best chances of winning Romania's presidency, being the most suitable for this position. Related to this aspect, Nicolae Ciuc? declared that the decision belongs to the party, and he will act accordingly if he is asked to run. On the other hand, the president of the PSD National Council, Vasile D?ncu, believes that the best option is for PSD and PNL to have a common candidate in the presidential run because individually each party will have a difficulty in winning the elections.

However, recent research regarding the preferences of the electorate still gives Mircea Geoan? as the favorite for the presidential elections, with the voters preferring a candidate from outside the political parties. As for PSD and PNL leaders, Marcel Ciolacu and Nicolae Ciuc?, they would rather benefit from reduced credibility, USR president C?t?lin Drul? faces a lack of notoriety, and extremist leaders like George Simion or Diana ?o?oac? have an image mostly negative. An interesting result of a survey on the voting preferences of young people between 18 and 35 years old shows that they would vote in a proportion of 16% with the AUR party, followed by PSD and PNL with 14% each and SOS Romania with 5% for the parliamentary elections, and for the European Parliament elections, 18% of those surveyed would vote with the PSD-PNL coalition, in second place is AUR with 16% of voting intentions, followed by the United Right Alliance with 14%. In the context of the recent political and economic crises, we can observe an increase in the electorate's preferences for extreme parties, just like in other European countries, however the PSD-PNL alliance would still benefit from the majority. If these two big parties will form a political alliance for the parliamentary elections, we will see after the European and local elections on June 10, according to which a decision will be made.

External Affairs

SCHENGEN. After Romania's accession to Schengen starting from March 31 for air and maritime borders, the Minister of Internal Affairs, C?t?lin Predoiu, had a meeting in Vienna with his Austrian counterpart, Gerhard Karner. If the Austrian minister stated that the Schengen system still needs to be improved due to illegal migration in Europe and that he cannot yet estimate a concrete date for the entry of Romania with the land borders into the Schengen space, Minister Predoiu is rather optimistic and declared that full integration in Schengen it is safe, but without advancing a deadline. Moreover, the president of the European Council, Charles Michel, reiterated his support for Romania during a visit this week to Bucharest.?

Also, the European Commissioner for Transport Adina V?lean puts forward two possible scenarios regarding Romania's full accession to Schengen, either it will join by the end of this year, or it will wait a very long time. Moreover, Adina V?lean says that she does not know if there is a calendar for full accession to Schengen, even if there is ambition on the part of the Romanian authorities. On the other hand, Prime Minister Marcel Ciolacu claims that there is a concrete government plan for terrestrial accession to the Schengen area by the end of 2024. Even if the Romanian authorities are certainly continuing the steps towards this goal, the matter is politically linked to this year's elections, both from Romania and from Austria which still opposes, so we will be able to see a course and a concrete outcome towards the end of the year.

Fiscal and Economic Updates

Overview

MONETARY POLICY RATE REMAINS THE SAME. The National Bank of Romania has decided to maintain the monetary policy interest rate at 7% per year, a level at which it has been maintained since February 2023. The reason why the NBR chose to keep the same monetary policy interest rate is closely linked to the fact that Romania currently has the highest inflation in the EU, at over 7%. However, there is reason to believe that the next monetary policy meeting scheduled for May 13 will most likely see a decrease in interest rates, which is likely to happen if inflation also falls considerably. In this regard, the NBR expects the annual inflation rate to continue to decline in the coming months on a slightly higher rate compared to the medium-term forecast of February 2024.

NO NEW TAXES IN 2025 - MARCEL CIOLACU. The Romanian Prime Minister Marcel Ciolacu has dismissed claims according to which 2025 will bring a new series of tax increases, a fact speculated lately by Marcel Bolo?, Minister of Finance. Ciolacu also declared himself a supporter of the progressive tax, although he doesn't exclude keeping the single rate. However, the Prime Minister believes that the current Romanian tax system, although it follows the single rate model, still retains a number of exceptions, which led him to declare that "the truth is that we no longer know which tax system applies to us, we are in the single rate, we are in the progressive system." As for future changes, the Prime Minister stressed the need for digitization of the Ministry of Finance and local administration to combat tax evasion.

THE EUROPEAN MINIMUM WAGE. PSD revived the subject of the implementation of the European minimum wage within the context of the four rounds of elections to be held this year. Thus, the social democrats declared that the implementation of the European minimum wage in Romania by the end of 2024 is a major political objective, which will be carried out in collaboration with Labour Minister Simona Bucura-Oprescu. At the same time, it seems that "PSD specialists are already working on drafting a regulatory proposal" to transpose the European Directive on adequate minimum wages in the European Union into national legislation. It should be recalled that Prime Minister Marcel Ciolacu announced that the gross minimum wage will be increased to RON 3700 on July 1, 2024.

On the Recovery Plan

THE THIRD NRRP PAYMENT. Prime Minister Marcel Ciolacu said that Romania has spent around 20% of the first and second tranches of the National Recovery and Resilience Plan. Regarding the third instalment, the Romanian head of government is waiting for the last report after the visit of the European official for the NRRP, Celine Gauer, and then he will take the next step, adding that this year the funds will be received, and it is important to receive the full amount. The Prime Minister also said that he has no reason to be disappointed about the relationship with the European Commission, because there are some things included in the NRRP that were not laid down by them, but by former Prime Minister C??u and Cristian Ghinea.

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