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Romania-Insider Monthly Wrap-up for September: Double crisis

01 October 2021

Andrei Chirileasa

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Our monthly overview for Romania Insider members brings you the main topics of the month, to make sure you don't miss the bigger picture, no matter how often you choose to read the news. If you choose to stay away from much of the media frenzy, this monthly bulletin brings the essentials without wasting a lot of time, in a basic visual version, so you can focus on the text alone.

Opening photo: Prime minister Florin Citu salutes the members of the National Liberal Party (PNL) who elected him as their leader at the party congress on September 25 - Photo source: Inquam Photos / Octav Ganea

A double crisis hit Romania in September: a political crisis and a health crisis. As a result, the country now has a weak Government hanging by a thread, which has to deal with the fourth wave of the COVID-19 pandemic – one that seems more serious than the ones that have passed. Luckily, the economy is still doing good for the moment and the business sector has ignored the political turmoil so far. Still, without a stable Government and a parliamentary majority to support reforms, Romania risks wasting yet another chance to catch up with its EU peers – the EUR 29 bln National Recovery and Resilience Plan.

September started with a quarrel in the ruling coalition, related to a EUR 10 bln local development plan promoted by Liberal prime minister Florin Citu and opposed by the reformist USR-PLUS party due to lack of accountability. The quarrel turned into a political crisis when Citu singlehandedly decided to dismiss justice minister Stelian Ion (USR-PLUS) for not endorsing the program. USR-PLUS reacted by pulling out its ministers from the Citu Government and initiating a no-confidence motion against the PM. The reformists say they want to continue as part of the center-right coalition with the liberals and the ethnic Hungarians’ party (UDMR), but only if Citu leaves.

Once started, the political crisis unfolded rather slowly as Citu managed to buy time, with some unofficial support from the Social Democrats (PSD), the biggest opposition party. PSD delayed the vote on a no-confidence motion against the Government until after the Liberals elected their new president – PM Florin Citu himself. President Klaus Iohannis once again abandoned his political neutrality as head of state and directly supported Citu in his internal party battle with Chamber of Deputies speaker Ludovic Orban.

While Citu managed to secure the PNL leadership, his Government has very weak support in Parliament, where PNL holds only about 20% of the seats, and some Liberal MPs are unhappy with the outcome of the internal elections. In these conditions, only a miracle can prevent the Government’s dismissal through no-confidence motion. Such “miracle” would be lots of Social Democrat MPs suddenly falling ill on the day of the vote, which would signal unofficial PSD support for the Citu cabinet. The Social Democrats have no real interest in taking over right now, when they would have a difficult situation to manage and would prefer Citu to continue leading a weak Government which would further weaken his party’s score. However, even if the Government falls, Citu may still continue as PM for several months, as the process of forming a new Government will not be easy. Early elections, a scenario that would play in PSD’s favor, are not likely given the epidemiological situation.

On the bright side, the European Commission greenlighted Romania’s National Recovery and Resilience Plan (PNRR) in September. Under this scheme, Romania will get EUR 29 bln worth of EU money, half through grants and half through EU-backed loans. The plan will finance investments in digitization, green energy, and infrastructure. However, Romania has also committed to pursuing significant reforms, which are impossible without a stable Government and parliamentary majority. Thus, many are concerned that Romania could waste another chance to develop because of its weak politicians.

However, the Government’s biggest problem right now is the fourth wave of the COVID-19 pandemic. The number of new infection cases in Romania exploded from under 1,500 per day at the beginning of September to 12,000 on the last day of the month, which is also a record since the start of the pandemic. And the situation is only going to get worse in October, when health experts expect over 20,000 new cases per day. The number of serious cases and deaths has also followed the same trend.

However, despite the health situation, which is worse than it has ever been in Romania since the COVID-19 pandemic started, the Government wants to avoid imposing tough restrictions and tries to keep the economy open. The authorities have also changed their mind about closing schools when the incidence rate passes 6 new cases per 1,000 inhabitants and has relaxed the regulations in this sense. Restaurants, hotels, cinemas and other indoor venues remain open and both private and public events will continue but will be open only to vaccinated people or to those who have had the disease.

Romania has the second-lowest vaccination rate in the EU, with little over a third of the population immunized. The vaccination numbers increased a bit at the end of September, but only because Romania started administering the third dose to those already vaccinated.

Besides the health crisis, Romania also faces an energy crisis as energy prices have increased to record levels and more increases are likely as the country’s gas and power production doesn’t cover domestic consumption. The Government wants to subsidize vulnerable energy consumers this winter.

So far, the economy has been in recovery mode and has maintained the positive momentum. However, it remains to be seen how much this will last, as there are multiple warning lights blinking right now. One of them is the rising inflation, which will likely trigger an interest rate hike before the end of this year.

In business, the fall of Romania’s biggest insurer – City Insurance – was the main event in September. City’s business was close to EUR 500 mln in 2020. However, the Financial Supervisory Authority (ASF) found that the company apparently lied about a reserve account it had at a bank in Switzerland, which was used at calculating its legal reserves. This means that the company overstated its solvency ratios. This case also has political ramifications as the company’s majority shareholder is the brother-in-law of former Romanian PM Adrian Nastase. There are suspicions that the financial regulator’s politically appointed members may have closed their eyes to the irregularities in City’s reports.

The energy sector remains hot, with the Black Sea gas and renewables taking the spotlight. Company financing through the stock exchange and equity crowdfunding is also gaining traction and the real estate sector continues to draw significant investments.

In other news, September’s highlight was Emma Raducanu’s victory at the US Open. Raducanu has British citizenship, but her father is Romanian and her mother is Chinese, which is why her result was also widely celebrated in Romania.

Below, you can browse through the most important topics in September, grouped by relevance. By clicking on a title, you can read the whole article on the Romania-Insider.com website.