Weekly Fiscal and Political Report, June 30 - July 7, 2023

Political Updates

INTERNAL AFFAIRS

Romania registers "significant progress" in the judicial system, but has serious gaps in terms of lobbying, media independence and intimidation of journalists, according to the 2023 Report on the Rule of Law, published by the European Commission. We remind you that until November 2022, the judicial and anti-corruption reforms in Romania were followed by the Commission under the Cooperation and Verification Mechanism (CVM) and the Rule of Law cycle, but since then, they were solely verified under the Rule of Law cycle. Specifically, the Commission notes that the authorities have undertaken a “comprehensive” reform of the judicial system, with the help of the new revised justice laws (Laws No. 303/2022, 304/2022, 305/2022), while the application of the new Anti-Corruption Strategy is “well on track”, maintaining a positive record in fighting corruption, including in high-level cases. Even so, no less than 7 recommendations were issued for Romania by the Commission, measures that the authorities should undertake until next year’s report. One of these recommendations concerns the lobbying activity.

Therefore, the European Executive notes the existence of some deficiencies in terms of lobbying activity. For example, it considers necessary to enforce the lobbying rules for Members of the Government, while, in the case of Members of Parliament, these regulations are completely missing, with no progress being made since 2022. Thus, about the implementation of the (1) lobbying rules for Members of the Government, the Commission observed that, although there is an Interest Groups’ Transparency Register for meetings with Members of Government since 2016, the General Secretariat of the Government replaced the legal basis of this group, through a Memorandum of Understanding (MoU), in late 2022. This new extends the range of dignitaries who can create an account in the platform to the local government level, but local level officials still don’t have the obligation to register an account of their meetings. Additionally, Members of Government also remain free to register meetings or not, and there is no verification of the completeness or accuracy of these records. Regarding (2) lobbying rules for Members of Parliament, the Report shows that there are still no rules on their engagement with lobbyists and other third parties trying to influence the legislative process, nor clear restrictions on gifts, hospitality, favours, and other things they may benefit from. Moreover, the Legislative Council of the Parliament reported to the Commission that there are no plans to address this soon, while the Commission draws attention to the fact that the introduction of lobbying rules must receive clear high-level political support. And thus, one of the recommendations received is for the authorities to introduce, “without further delay”, rules on lobbying for Members of Parliament.

Changing the register, PM Marcel Ciolacu appointed, at the PNL's proposal, Mircea Abrudean as Secretary General of the Government, after a delay of almost 2 weeks, the decision already being published in the Official Gazette. Previously head of the Chancellery of former Prime Minister Nicolae Ciuc? and Deputy Secretary General in the C??u Government, Mircea Abrudean was Prefect of Cluj County (2019-2021), President of the Board of Directors at TETAROM S.A. - Cluj Industrial Park (2017-2019), but also Administrator at the company SIAB DEVELOPMENT S.R.L (2008-2019). With a degree in international relations and European studies, Mircea Abrudean would have had problems with his appointment due to an alleged negative opinion at the security checks, according to some PSD sources published in the press. Even so, it seems that the liberals have also resolved this misunderstanding, managing to impose their colleague in the position of Secretary General of the Government. On the same day, Marcel Ciolacu appointed Alexandru-Mihai Ghigiu as head of the Prime Minister's Office. To honour the PM's request to occupy this position, Ghigiu left the National Institute of Administration, which he had been leading since January 2022. Alexandru-Mihai Ghigiu is a teacher at the National School of Political and Administrative Studies (SNSPA), starting from year 2018 holding the position of Vice-Rector of the university. Between 2012 and 2014 and in 2016, he was an advisor to the Minister of National Education. Also, between April and July 2017, he was Secretary of State within the General Secretariat of the Government. Since August 2019, Ghigiu is a member of the Board of Directors of the Romanian-U.S. Fulbright Commission.

EXTERNAL AFFAIRS

On July 1, Spain took over the Presidency of the Council of the European Union, for a 6-month term (until December 31, 2023). We remind you that, on a rotating basis and for six months, a Member State assumes the Presidency of the EU Council. Therefore, a first step for the Spanish Presidency was to establish its priorities, which it did, sketching no more than 4 measures for its semester: (1) Reindustrialise the EU and ensure its open strategic autonomy; (2) Advance in the green transition and the environmental adaptation; (3) Promoting greater social and economic justice; (4) Strengthening European unity. On this occasion, the President of the European Council, Charles Michel, praised Spain’s role in addressing problems and challenges, “seeking solutions and forging compromises”.

PM Marcel Ciolacu has also sent a letter to his Spanish counterpart, Pedro Sanchez, in the context of the Iberian presidency, claiming that Romania will support the four priorities?and work together with Spain to strengthen European unity At the same time, the head of the Romanian Government emphasized that a key point that requires the attention of the Spanish presidency is Romania's accession to the Schengen area. And thus, as a response for PM Marcel Ciolacu, the Spanish ambassador in Bucharest, José Antonio Hernández Pérez-Solórzano, stated that the priority of the Spanish presidency of the Council of the European Union is for Romania and Bulgaria to join the Schengen Area, even though he cannot give a deadline for this to become a reality.

Changing the register, PM Marcel Ciolacu had an official visit, these days, in Berlin, meeting with his German counterpart, Olaf Scholz. On this occasion, the two officials addressed the idea of a a bilateral action plan, at the level of the two executives, on subjects of strategic interest, and a permanent dialogue format that will allow the two parts to achieve the set objectives. Marcel Ciolacu added that the discussions also focused on the consolidation and development of bilateral economic cooperation, their support for the reconstruction process of Ukraine and for the development of the Republic of Moldova. “Raising our diplomatic relations to a strategic level represents an important moment for our bilateral cooperation,” PM Marcel Ciolacu underlined. Subsequently, Chancellor Olaf Scholz reaffirmed Germany's support for Romania's accession to the Schengen area - “Romania has already undertaken major efforts for accession to the Schengen area and these efforts must be appreciated. We are involved with all our strength for this.” And finally, after a meeting with the main German companies present in Romania, PM Marcel Ciolacu announced the organization, by the Romanian authorities, of a Romanian-German Economic Forum in Berlin, this year.

Fiscal and Economic Updates

OVERVIEW

As we remember, last week, both Marcel Ciolacu and the Minister of Finance, Marcel Bolo?, brought in the public space the subject of restructuring tax facilities for the construction, agriculture and IT sectors, adding that an analysis will be made on the restructuring of tax facilities announced by the Minister of Finance. This week, Marcel Ciolacu said that there was no discussion and there will be no discussion at the level of the governing coalition on the elimination of IT facilities, by adding that "there was no discussion and there will be no discussion of removing IT facilities. It is a lie and a misinformation that anyone has discussed removing it." However, regarding the facilities granted to those in the construction and agriculture sectors, Ciolacu hinted that "there we have facilities in terms of both income tax and CASS. CASS means health. We want health, but we don't collect it", while pointing out that the elimination of these facilities is also an objective included in the NRRP. In conclusion, Ciolacu said that any changes regarding the above will only take place following rounds of consultations with the main actors in the field, and that on Friday he will have a new discussion with ministers and Nicolae Ciuc? on possible tax measures, adding that they will start making decisions next week.

Still on the subject of Prime Minister Marcel Ciolacu, he had a few more statements on the budget deficit, the possible introduction of new taxes, but also on the idea of "economic patriotism", a concept he has repeated since taking office as Prime Minister. Thus, Ciolacu believes that Romania must keep to a budget deficit of 4.4%, as failure to respect the agreement with the European Commission on the budget deficit could influence any European funds for Romania and affect the implementation of the reforms in the NRRP. On taxes, he said that "I do not think it is appropriate to introduce new taxes", and that he would focus more on lowering inflation and providing aid schemes in the economic area. On the same note, Ciolacu also described the concept of "economic patriotism", which he said at the Romanian-French Business Forum was modelled on the actions taken by the French government in recent years.

Turning to the European level, as we already know from above, the beginning of July coincides with the start of the Spanish Presidency of the Council of the European Union, which will last for the next six months. Here we turn our attention more to the idea of economic justice, where we find concepts such as promoting a more competitive and fairer economy, establishment of minimum and common standards on corporate taxation in all Member States and the adequate reform of the fiscal rules to overcome austerity, increase transparency and combine the sustainability of public finances with the proper financing of the green and digital transitions. We recall that Spain holds the Presidency of the EU Council for the fifth time.

ON THE RECOVERY AND RESILIENCE PLAN

The Ministry of Research, Innovation and Digitisation announced yesterday the signing of the funding contract with the Romanian Digitisation Authority (ADR) for the implementation of the government cloud, namely the migration of the Romanian state's IT services. Thus, government representatives announce that state institutions will enter the process of modernizing the applications and information systems already in use, so that they are cloud ready, while developing new cloud-native applications for cloud migration. At the same time, we learn that the first stage of this migration process involves identifying institutions that have applications and IT systems serving digital government services and prioritising them. Subsequently, a minimum of 30 IT&C applications and systems, through which digital government services are provided, will be migrated to the cloud by June 2026.

On a final note, Energy Minister Sebastian Burduja announced that another step has been taken these days towards closing the last outstanding milestone related to payment request 2, Milestone 129, by signing the amicable cessation agreements of the current related financing contracts with the seven beneficiaries so far. Mnistry of Energy finally underlines the fact that due to the innovative nature of green hydrogen technologies and the European and national legislation that still needs some clarification, the actors in the field do not have a level of expertise similar to the investments implemented for years.