Weekly Fiscal & Political Report (February 16-23, 2024)

Prepared by Ana-Maria Anghel & Cezar Petrescu

Political Updates

Internal Affairs

LOCAL AND EUROPEAN ELECTIONS – MERGED. Romania will vote in the local and European elections on June 9 this year, after the PSD-PNL Coalition finally decided to merge these two electoral races. Instead, while the parliamentary elections will be organized on December 8, the presidential ones, which should have been in November, will now take place in September (most probably on 8 and 22 of September). If this news was not enough of a big change, the two political leaders, Marcel Ciolacu (PSD) and Nicolae Ciuc? (PNL), have also announced an electoral alliance for the European Parliament elections – this means that they will run in this electoral race on common lists. As we anticipated in our previous reports, the two parties could not agree to run together in the local elections as well, their presence in the territory being an important element of their political identity. Even so, they both claim that this decision was not for their parties’ sake, but rather “a political decision aimed at the country’s stability”, as Nicolae Ciuc? declared. PM Marcel Ciolacu reinforced this idea, claiming that their joint candidacy in the European elections is given by the fact that “only the two big parties can unite and face an extremist wave”, most probably talking about AUR and their alarming political rise. This is indeed a solid reason, but political leaders should be aware that the Romanian electorate knows that the political interests of the national parties have always taken precedence, in the past, over those of the Romanian society.

OPPOSITION’S REACTIONS. The Coalition’s decision to merge these elections did not go unnoticed, the opposition cramming to threaten to stop this political move from taking place. USR leader C?t?lin Drul? described this decision as “a crime against democracy”, as he considers that both PNL and PSD want the establishment of a “unique party” in Romania. Additionally, former liberal and the president of the Force of the Right party, Ludovic Orban, considers that the Coalition is making “an abuse of power”, claiming that the legislation that would make this merging possible (the Administrative Code) is expected to be amended by PSD-PNL through an emergency ordinance and not a Law approved by the Parliament. Thus, the three parties from the United Right Alliance (USR, Force of the Right, PMP) announced that they will run together in all of this year’s electoral races, not only in the European ones. Additionally, they intend to notify the Constitutional Court (CCR) of the future normative act for merging local and European elections. The same announcement came from AUR as well, even though the party’s vice president, Marius Lulea, considers that CCR will be on the Coalition’s side.

WHAT ARE THE IMPLICATIONS? First of all, let’s talk a little bit about the main winner of merging these two elections. No, it’s not the citizens who will benefit from this political move, but PSD and PNL themselves. The reason is a simple one – the European election does not represent a great interest for local authorities, which usually do not push local communities to go and vote for the election of future MEPs. This means that the mayors will not have to mobilize their communities to also vote for Romania’s representatives in the European Parliament, given that this race will be on the same day as the most important race for themselves – the local elections. Additionally, we can go further and say that Marcel Ciolacu and Nicolae Ciuc? will gain more than their parties from this merging – they have higher chances to gain at least half of the seats in the EP and, thus, strengthen their legitimacy as the leaders of the party. This translates into the parties’ willingness to propose them as their candidates for the presidential election. The biggest problem for them will be the constitutionality of the future legislation that would enable these elections to be merged – whether it is an ordinance, a law passed through parliament, or a subsequent government decision. Let’s remember when, in 2012, the government led by former PM Emil Boc assumed its responsibility in the Parliament on a Law that merged two elections from that year. The Law was attacked at the Constitutional Court, which decided that the normative act was unconstitutional because it did not comply with the Code of Good Practices in Electoral Matters developed by the Venice Commission. CCR further found that the simultaneous organization of two categories of elections caused a violation of the right to be elected (Article 37 of the Constitution) since it created a situation in which a candidate who did not win a local elected mandate would not be able to run for a function in the Parliament, something possible if the two elections were organized on different dates. Therefore, if CCR is notified by the opposition of this future normative act if the Court chooses to be on the Coalition’s side, it will be very hard for the judges to find a truthful and solid motivation for this decision, which does not create a precedent regarding the legitimacy of the Court's former decisions.

External Affairs

KLAUS IOHANNIS, IN THE RACE FOR NATO LEADERSHIP. The political stability invoked by the Governing Coalition will also benefit President Klaus Iohannis. The Romanian authorities officially announced to its NATO allies that they propose Klaus Iohannis in the position of Secretary General of the Alliance, as political sources claim. The election of the future NATO leader will have to be unanimously approved by all 31 Allies, and this is why the chances of President Klaus Iohannis winning this position are smaller each day. The United Kingdom, the U.S., and France already announced their support for Mark Rutte, the longest-serving prime minister in the history of the Netherlands, for the position of Secretary General of NATO. With three of the greatest NATO Allies supporting Rutte, we do not expect Klaus Iohannis to be able to win this position – but he could replace Romanian Mircea Geoan? as Deputy Secretary General of the Alliance, or maybe win a leading position in the European Union. The term of the current NATO Secretary General, Jans Stoltenberg, ends on October 1, 2024.

RO – ESP COOPERATION. Following its meeting with his Spanish counterpart Pedro Rollan Ojeda, Romanian President of the Senate Nicolae Ciuc? announced the bilateral decision that would enable Romanians from Spain to gain Spanish citizenship without giving up the Romanian one (and, thus, have a double citizenship). This means that, as Spanish citizens, they will have access to better-paid jobs in administration and education and will also be able to travel without visas to most of the states of the globe.

Fiscal and Economic Updates

Overview

RO E-INVOICE IMPROVEMENTS. The National Agency for Fiscal Administration published the updated guide for the use of the national electronic invoicing system, also known as RO e-Invoice. In a press conference, Finance Minister Marcel Bolo? presented the main improvements that the RO e-Factura system has implemented recently, following the many problems that the system has experienced since its inauguration. We will start with the fact that the system can now be used directly from the NAFA website, as long as the user has an account in the SPV, where he has registered using the digital certificate.?In addition to this, the self-billing and filtering function based on specific criteria has been introduced, invoices can be downloaded directly in PDF format and the decimal issue has been resolved. Another new feature announced by the Finance Minister was the launch of a simplified application for small businesses that do not have a large volume of invoices, which will be released in early March.

NEW UPCOMING TAXES? Staying with Marcel Bolo?, he discussed, in an interview for Bloomberg, the budgetary and fiscal challenges facing the Romanian government in the forthcoming period. The minister believes that meeting the EU's new fiscal rules, which require the budget deficit to fall by 0.5% annually until a 3% budget deficit is reached, would be a "difficult challenge" and would take Romania around 7 years. Romania's budget deficit reached 5.7% last year, largely due to low revenue collection. In addition, Bolos says that "spending cuts are a sensitive issue", blaming public pressure on the government in an election year. As we know, the deficit problem can be solved in either of two ways: either cut spending, raise taxes, or introduce some new ones. It is worth pointing out that in recent years the government has tended to choose the second option. Government Ordinance 16/2022 and Law 296/2023 are the main examples confirming this approach. Thus, given that 2024 is an election year and cutting spending or increasing taxes "is a sensitive issue", it is very likely that at the end of this year or early next year, we will see new tax increases to cover the "hole" made by the government in recent years.

On the Recovery and Resilience Plan

TECHNOLOGY IN PUBLIC ADMINISTRATION. The Authority for the Digitalization of Romania has announced the opening of the project "Automation of work processes in public administration" funded by the National Recovery and Resilience Plan. Among the main objectives, we find the implementation of solutions to support robotic work process automation and artificial intelligence for 18 central government public institutions, which will lead to a reduction of errors and processing time of citizens' requests.