Romania’s Crisis Deepens as Key Party Quits Coalition Talks
(Bloomberg) -- Romania’s political crisis deepened after the largest pro-European party abruptly withdrew from negotiations to form a coalition, opening the prospect of a weaker government to tackle the European Union’s widest budget deficit. The country’s stocks plunged.
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Social Democratic leader Marcel Ciolacu, the country’s outgoing prime minister, said he’s prepared to back a minority cabinet that may emerge from talks between the right-leaning Liberals, the opposition Save Romania Union and a party of ethnic Hungarians. But his own party won’t join it.
President Klaus Iohannis urged all parties to return to the negotiating table, saying that a minority government is not a good solution. The Liberals vowed to continue talks and said they’re ready to form a government.
“We are not running away from responsibility — and we are aware of how difficult the situation is, but unfortunately you cannot build anything lasting with partners who are incapable of setting aside their own ego,” Ciolacu said on Facebook.
The latest turmoil risks increasing Romanian citizens’ distrust toward the authorities. That trend could work in the favor of the far-right ahead of next year’s re-run of the presidential elections. The purpose of the pro-European coalition was to keep the extremists, who secured a third of the votes in the upcoming parliament, away from power and to end Romania’s biggest political crisis since the fall of communism.
Instead, the Social Democrats’ announcement fueled a selloff in Romanian financial markets. The yield on the 10-year domestic government notes jumped 12 basis points on Thursday, rising for a seventh day to 7.47%.
Romanian state bonds are seen as the riskiest in the EU, with investors demanding the biggest premium over comparable German securities among the bloc’s peers. The Bucharest stock index fell as much as 2.4% on Thursday, extending this week’s decline to 6%.
The Black Sea nation, which benefited from a period of relative political stability in the past three years, shocked its Western allies and investors after a pro-Russian candidate emerged from obscurity to win the first round of a now canceled presidential election.
Romania’s top court annulled the presidential ballot following accusations of Russian meddling, but the result also revealed deep divisions and dissatisfaction with the lack of responsibility of mainstream parties, who heavily attacked each other during the electoral campaign.
The parties tried to save face and assemble an alliance of parties who favor Romania’s European integration, which would then carry out difficult reforms to correct the pre-election budget slippages. But after days of negotiations and an initial agreement on key measures, the difference sparked new tensions, with the Save Romania Union party coming out as the first to say it may not be part of the government.
The unpopular decisions needed to tackle the delicate economic situation are likely a point of tension between the parties, said Oana Popescu-Zamfir, an analyst at the Global Focus Center think tank in Bucharest.
“I assume it’s about who will take the responsibility and how,” she said, adding that a brief spell in opposition could help Ciolacu’s chances should he run in next year’s presidential election.
Iohannis said he plans to have talks with the parties in the coming days. Hunor Kelemen, the leader of the ethnic Hungarian party, urged his partners to resume talks and said a minority government cannot be stable.
“We need a parliamentary majority for the government, there’s no other solution here,” Kelemen said in an interview. He rejected the prospect of the ethnic Hungarian party serving in a minority government, but said it could support an alliance formed of pro-European parties.
The lack of clarity over a new government prompted Fitch Ratings to send a warning sign this week by unexpectedly cutting the country’s credit outlook to negative, saying this complicates the efforts to rein in a budget deficit on course to widen to 8.6% of output this year.
That’s also the main point of contention between the parties, even though Romania managed to convince the European Commission to allow it seven years to bring the shortfall toward the bloc’s 3% limit.
“We are willing to vote on a minority cabinet without any conditions, because Romania needs stability,” Ciolacu told reporters on Thursday. “But we as Social Democrats won’t accept any more attacks from those who are supposed to be our partners.”
--With assistance from Peter Laca.
(Updates with comments from president, analyst, Hungarian party from third paragraph.)
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