PM Grindeanu loses political support of the ruling coalition

Government reshuffle imminent

Updated  June 15, 2017

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     Romania’s ruling Social Democrat Party has withdrawn support for Prime Minister Sorin Grindeanu and his cabinet. The move is likely to bring down Grindeanu’s government, which has only been in power since January. Romania PM refuses to resign after party withdraws support.

I.    BACKGROUND

     For the last several weeks there have been constant rumours regarding a Government reshuffle, rumors that were fueled by press statements and other public comments on this topic. Several Important political figures of the PSD-ADLE coalition addressed critics to several of the ministers in office, most criticized being the Minister of Finance Viorel Stefan (PSD) and the Minister of Justice Tudorel Toader.
     Some of the most vocal figures in criticizing the Grindeanu cabinet are:
– ALDE leader and Chairman of the Senate Calin Popescu Tariceanu
– PSD Minister of Labour Lia Olguta Vasilescu
– Mayor of Bucharest (member of PSD) Gabriela Firea
– PSD Senator & Executive President of the PSD Niculae Badalau

II.    DECISION DAY

     PSD leader Liviu Dragnea announced that on June 14th the party will held a meeting of its Executive Committee in order to assess and to evaluate the performances of the Grindeanu cabinet in accordance to its objectives set out in the Governing Programme. The ExeC meeting was scheduled to begin at 4 PM at the Palace of the Parliament.

ALDE withdraws support

     Before the PSD ExeC meeting to begin, Chairman of the Alliance of Liberals and Democrats (ALDE) Calin Popescu-Tariceanu has announced that his formation has withdrawn political support for Prime Minister Sorin Grindeanu’s Government, mentioning ALDE ministers are ready to resign.
The ALDE chairman explained that on Wednesday’s meeting of the party’s Political Bureau, he introduced two documents regarding the fulfillment of the governing programme and argued that out of a total of over 390 measures that the Executive should have taken, 260 are still not implemented.
The ALDE chairman also stated that following an internal assessment on the activity of its ministers, he is satisfied about how they fulfilled their duties.
The ALDE ministers in the Grindeanu Cabinet are:
– Minister for Foreign Affairs Teodor Melescanu
– Minister of the Environment  & Vice Prime Minister Gratiela Gavrilescu
– Minister of Energy Toma Petcu
– Minister for the Relation with Parliament Viorel Ilie

PSD Executive Committee meeting

     Before the meeting began, information  circulated in the mass-media that not all the PSD ministers of the Grindeanu cabinet resigned from their offices, and that several important figures are supporting Mr. Grindeanu as Prime Minister.

Ministers whom are supporting Mr. Grindeanu
Minister of Defence Viorel Les
Minister of Public Finance Viorel Stefan
Minister of Justice Tudorel Toader
Minister of Business Environment Alexandru Petrescu
Minister of Culture Ioan Vulpescu
Minister of Communications Augustin Jianu

Ministers who resigned
Vice Prime Minister & Minister of Regional Development Sevil Shhaideh
Minister of Internal Affairs Carmen Dan
Minister of Agriculture Petre Daea
Minister of Education Pavel Nastase
Minister of Labour Lia Olguta Vasilescu
Minister of Economy Mihai Tudose
Minister of Transport Alexandru Cuc
Minister of Health Florian Bodog
Minister of Waters and Forests Adriana Petcu
Minister of R&I Serban Valeca
Minister of Youth and Sports Marius Dunca
Minister of Tourism Mircea Dobre

The ExeC Meeting – Outcome

    The party held a performance review on Wednesday night and found that Grindeanu’s government had failed to fulfill an ambitious governing and economic reform program. The performance review was presented to the PSD ExeC by the former minister of finance Darius Valcov (who has been indicted by the National Anti-corruption Directorate (DNA) for bribery and influence peddling in the file and he was placed under judicial control).
    According to the evaluation presented by Mr. Valcov more that 60% of the measures contained in the Governing Programme have not been fulfilled by the Grindeanu Cabinet and that only 13% of the measures in the ruling programme have been achieved
At the end of the National Executive Committee, PSD has voted to strip Grindeanu Cabinet of political support. At the same time, ALDE, the PSD’s ruling partner, also withdrew its support for the current gov’t.
All 68 of PSD’s executive committee members voted for this decision. Moreover, the PSD leaders also voted a decision saying that any PSD member that would accept to join a new cabinet led by Grindeanu would be excluded.
    According to sources quoted by News.ro, Sorin Grindeanu announced his colleagues in the National Executive Committee that he would not withdraw from the PM position, arguing that he had never had such an aggressive campaign from some party fellows in the past 20 years of his political activity like he has had in the past month.
    He stated that out in those 97 actions stipulated in the ruling programme for the two semesters, only nine are not achieved.
PM Grindeanu would have blamed the PSD leaders in the ExeC that by their intention to topple down the Cabinet would help President Iohannis: “There was the GEO 13 and you did nothing, you were the same in the ExeC. We woke Klaus Iohannis up with that emergency ordinance. Now you are giving him the Government. Why?” Grindeanu would have told his colleagues.
    Other sources claimed that Grindeanu had left the PSD meeting without making any statements and asked for Liviu Dragnea’s resignation, on the grounds that the PSD chairman would have chosen the ministers. He would have said he is willing to quit only if president Iohannis appoints a premier from PSD.
    According to Digi24, Sorin Grindeanu has been offered even the position of the Financial Supervisory Authority (ASF) in exchange for his resignation.

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Mr. Grindeanu’s reaction – press conference
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    Romanian Prime Minister Sorin Grindeanu has refused to step down despite his left-wing Social Democrat Party (PSD) voting unanimously on Wednesday to withdraw support for him and his cabinet.
    Grindeanu has rebuked calls for his resignation, saying the review showed that his cabinet had failed to introduce measures that were due by 2018 or later.
    During a one-hour press conference from the Government’s headquarters, which ended at midnight, Prime Minister Sorin Grindeanu dismantled the arguments brought for his cabinet’s dismissal. He challenged the evaluation of his cabinet’s activity and the party’s leaders, appealing to the hundreds of thousands of PSD members in what some would call a declaration of war to PSD leader Liviu Dragnea.
    During his speech, Grindeanu emphasized that he has been a PSD member for 21 years and that the executive committee that voted to withdraw political support for his cabinet was not the same as the whole party. He added that the hundreds of thousands of PSD members were what made the party so powerful.
    He also presented some of the accomplishments during his mandate, such as the fact that Romania had the highest economic growth in the EU in the first quarter, and also listed some of the projects in the Governing program that his cabinet had implemented. He said that 54 of the 97 projects that were supposed to be carried out in the first half of this year, according to the governing program, have been implemented and only 9 haven’t been started.
    Grindeanu said that he was in no way involved in this evaluation, which he does not find fair.
    The Prime Minister then stated that he would only resign after Romania’s center-right president, Klaus Iohannis, held parliamentary consultations and appointed a successor from the PSD. He also said that his resignation should be accompanied by that of Liviu Dragnea from PSD’s helm, as it was Dragnea who appointed all of the ministers in his cabinet and thus he should also share the responsibility of the failed objectives. He added that he would not accept the same conditions if he were proposed the PM seat again.
    One of the key points of Mr. Grindeanu’s press conference was his statement that among the things he was criticized for is the fact that his cabinet did not do enough to improve the relationship with the Russian Federation. This particular hot topic in the current geopolitical context remains to be clarified by those responsible.

III. ASSESSMENT

     Many believe that justice was the main reason why Liviu Dragnea and the    other PSD leaders insisted on changing the Government. After the scandal related to the changes to the Criminal Code, the Government has been more cautious in its approach and passed the responsibility to the Parliament.
     The recent change in Grindeanu’s relationship with PSD leader Liviu Dragnea won him many fans outside his own party. Some of the people who protested for over a month in front of the Government’s headquarters in Bucharest asking for his resignation after the ordinance 13 scandal went to the square on Wednesday evening to show their support for the PM.
     Former PSD member Alin Teodorescu told the France-Presse Agency news agency: “Liviu Dragnea only wants one thing – amendments to the anti-corruption laws.”
     The Romanian government collapsed Wednesday after the two coalition parties backing it withdrew their support, but Prime Minister Sorin Grindeanu refused to resign, throwing the country into another period of political instability months after it was rocked by anti-corruption protests.

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IV. SCENARIOS

   According to the Romanian Constitution, the Prime Minister is to remain in office despite the withdrawal of the political support.
   As Prime Minister, Mr. Grindeanu can be relieved from office either by his own resignation or by a parliamentary vote of censure against his Cabinet.
   Despite the resignation of several of his ministers, the respective resignations entry into force at the moment the Romanian President takes act of the resignations. This means that for now, not only the PM is in full force but so is his entire cabinet. Minister must report for duty and fulfill their duties.
   In order for the respective resignations to be in force, the Prime Minister must acknowledge them, have them sent to the Presidential Administration within 15 days, and only after the Romanian President takes act of them, the portfolios become vacant.

Scenario 1 –  Interim ministers

   After the resignations from the Cabinet are in full power, the PM may appoint interim ministers for the vacant offices. Even if the political structure of the interim cabinet is changed (meaning that the interim ministers are not party members of PSD or ALDE), the vote of the Parliament is not need.
   The Interim Cabinet shall be in power until the moment the President nominates a new PM, and the new cabinet is voted favorably by the Parliament.

Scenario 2 – PM appoints full minister

   In this case and according to the statements made by the leaders of the PSD-ADLE coalition, the newly appointed Cabinet must meet parliamentary approval. This scenario seems rather difficult to be accomplished by PM Grindeanu as he does not have enough parliamentary support, even if some PSD members are inclined at this moment to hand out their support to the PM and not to the PSD leader Mr. Dragnea.
   At this moment, the PSD-ALDE coalition (controlled tightly by Mr. Dragnea) enjoys a comfortable majority in the Parliament: 56% in the Senate and 52% in the Chamber of Deputies. If UDMR is to be invited to join the ruling coalition (rumors say that this is taken into serious consideration by Mr. Dragnea) it will mean an increase by 6-7% in the majority seats.

Scenario 3 – PSD – ALDE parliamentary vote of censure against their own Cabinet

   Even if such a measure is considered ridiculous by most of the political analysts and commentators and even if Mr. Dragnea ruled it out, such a measures seems to be the fastest possible way for the PSD-ALDE coalition to get rid of the Grindeanu cabinet and to allow the coalition to nominate a replacement.

Assessment

In all cases, the reaction from the Romanian President must be taken into serious consideration by all involved parties.
According to the Constitution, the investiture procedure of the Prime Minister includes four stages:
✱    the designation of the candidate for the office of prime
✱    minister;formation of the list of the Government and elaboration of the governing programme;
✱    the debate in Parliament of the programme and list of the Government, the granting of confidence to the Government;
✱    confirmation of the Government
The President of Romania designates a candidate for the office of prime minister, after the consultation of the party which has an absolute majority in Parliament, or, if there is no such majority, of the parties represented in Parliament.
The reason of these consultations derives from the necessity to ensure parliamentary support for the granting of the vote of confidence into the new Government. In other words, the President of Romania cannot act arbitrarily in designating the candidate to the office of prime minister; he is obliged by the Constitution to appoint a candidate with chances to obtain the confidence of Parliament. These chances are all the greater as they spring from the existence of a majority party which acts at the proposals of the President, or by the joining of several political parties to support the candidate proposed by the President of Romania.

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Politics and multinational companies: No, they shouldn’t be so worried!

Updated  March 02, 2017

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     The main governing party, PSD,  has worried multinational companies at the end of 2016 and the start of 2017 after a series of declarations, especially regarding “rumors” about their involvement in the street protests that have followed the adoption of controversial government decree 13.
     The PSD head of the parliamentary committee that supervises the activity of the Romanian Intelligence Service (SRI) had asked the Service to “investigate” the companies’ possible involvement in the demonstrations.
     Later, another declaration made by a PSD heavyweight, the party’s executive president, Senator Niculae Badalau, was seen by the media as offensive towards the multinational companies. Badalau said that the governing coalition PSD-ALDE will come very soon with a modification of the legislation that will allow the adequate taxation of the profits made by multinational companies.
     Is PSD heading for a confrontation with the multinationals?
     Short answer: Most probably not. Two issues should be outlined here:
1.       The taxation of profits made by multinationals in order to avoid the erosion of the tax base (BEPS) is not a PSD initiative but an European one. All the EU countries must adopt legislation in that area because of the EU Directive 1164/2016 that sets the framework for preventing tax-avoiding practices.
     It should be fully implemented until 31st December 2018 but each country must send to the European Commission all the information regarding the fight against BEPS.
The Government went further and drafted a legislative project to be introduced in the Parliament that will make Romania part of OECD’s Project BEPS.
     In other words, PSD is addressing a legitimate issue concerning European legislation that is going to be implemented, it does not come with a direct threat towards multinational companies. PSD’s executive president had just just communicated a state of fact.
2.       The leaders of the coalition have made conciliatory gestures towards multinationals.
     Prime Minister Sorin Grindeanu and dissident PSD former Vice-President Mihai Chirica (mayor of Iasi) have taken a different approach, saying that the multinational companies should be protected.
     Grindeanu even met with the representatives of powerful multinational oil companies OMV-Petrom and ExxonMobil in a clear demonstration that the Government will not take a confrontational path towards this type of companies.
     Dragnea himself sent a message later by praising another international company in Romania, Lidl supermarket chain in order to show that he does not have something specifically against this type of companies.
     In conclusion, it seems clear now that the leaders of the governing coalition are now more favorable to a dialogue with the multinational companies, not confrontation.
     With the political tension decreased significantly, PSD and the PSD-led Government seem to have reversed to their old position towards foreign investors: They are open to dialogue and cooperation and their actions are different from the rhetoric seen in complex political situations.

It’s not over: Political tension and unpredictable outcomes

Updated  February 14, 2017

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     The Government’s decision to abrogate Emergency Ordinance 13 that de-criminalized certain criminal offenses including abuse of office and the resignation of Justice Minister Florin Iordache failed to calm the protests and the political tensions, although both of them have been somewhat scaled down.
     The protesters continue to ask for the Government’s resignation because they say they cannot trust it anymore. Also, the fact that Emergency Ordinance 13 and Emergency Ordinance 14 that abrogates the former are still in the Parliament and their fate is uncertain (with the fear that EO 14’s rejection might make EO 13 valid again) is another factor keeping the demonstrators on the streets.
     About 60.000 people protested on February 12th in Bucharest with a total of 100.000 across Romania, one week after the Government had given up on EO 13. That is an important drop, about 500.000 less than a week before.

     What to expect
     The political situation is still difficult, but the Government will not resign in the current context, despite the street’s request. The Government has a very solid following in the Parliament and not even the only important PSD politician that dissented in this period, Iasi mayor Mihai Chirica, announced that he supports the Sorin Grindeau Executive.
     In Romania, only the Parliament could change the Prime Minister between the parliamentary elections as the President lost that power when the Constitution was modified in 2003.
     However, things could become “explosive” if the PSD-ALDE coalition finds a way to make EO 13 valid again in the Parliament. A situation like that would probably get more people on the streets than they were of February 5th when about 600.000 people demonstrated.
     Only in that situation the Government’s position is in danger, as people will feel cheated.
     Another aspect of the problem is President Klaus Iohannis’ referendum on the continuation of the anticorruption fight. It will probably be held on late March or early April (with March 26th the most probable date, according to political sources) and could lead to a further escalation of the political confrontation. If Iohannis manages to have the referendum validated he will score a political victory and consolidate his role as the main opposition to PSD.
     He will also prolong the debate on the modification of anti-corruption laws, so PSD will not be able to frame the debate on its socio-economic measures.
     In conclusion, this subject will continue to dominate the political scene for at least two months, channeling much of the Government, Presidency and Parliament’s energies.

Government scraps controversial decree, huge protests continue

Updated  February 6, 2017

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     The Romanian Government abrogated Emergency Ordinance 13 that would have decriminalized certain legal offenses, including abuse of office, on Sunday February 5th following massive street demonstrations involving hundreds of thousands of people.
     However, that didn’t stop the street protests and the same day new record demonstrations were held in most Romanian cities. The numbers reached 600.000 but we can reasonably say that the total was much bigger. 600.000 is the sum of the largest numbers in every city but it does not count the fact that many people were coming and leaving.
     The decree was later transformed into an almost identical draft bill to be voted by the Parliament, but there is a lot of confusion on this project. It was put on public debate but later the Ministry contradicted itself saying it will not send this bill to the Parliament.
     Prime Minister Sorin Grindeanu said he has no intention of resigning from his position.

What to expect?
     How it looks now, these measures will not stop the mass protests against the Government, as protesters expect the resignation of the cabinet.
     In the meanwhile, a small counter-manifestation of about 1000 people took place, asking for President Klaus Iohannis’ resignation. Similar ones might take place in parallel in the following days.
     Also, tensions grow within the Social Democrat Party. The mayor of Iasi, PSD vice-president Mihai Chirica, is leading the discontent chorus. He had asked a few days ago for the projects to be withdrawn and Justice Minister Florin Iordache to resign, as well as criticizing Liviu Dragnea. He continued to criticize the party’s action towards justice and said that PSD lost 23% in a few days because of it.
     Another important aspect is the National Anticorruption’s Department (DNA)’s case opened over the way the de-criminalizing project was drafted. At the moment no one is indicted but the situation could change in the future but the prosecutors have already called dignitaries in the Justice Minister to declarations.
     There is also an expected decision from the Constitutional Court on the EG 13 – the magistrates will decide if they should continue to analyze it now that it has been withdrawn by the Government. The decision could have an impact when its provisions will be discussed in another legislative project.

Possible scenarios for the Executive:
     There are 2 option for the Government at the moment:
1.  The Cabinet keeps its position
     This is the most likely scenario for the moment, despite the fact that the Executive’s departure has become the demonstrator’s main request.
     That will do little to calm the tensions and the demonstrations will most likely continue, maybe with higher numbers of participants. Justice Minister Florin Iordache will most probably go as he is seen as the main responsible for the project and his resignation (or dismissal) is a minimum to calm some of the tension in the society.

2.  The Cabinet resigns
     Prime Minister Sorin Grindeanu said explicitly that he wants to stay and he has the party’s support for that but weeks of protest might force him to step down.
     In this scenario, it is still not likely to have early elections. The procedure is very complicated and this point could only be reached if the Parliament itself “agrees” by rejecting two Prime Minister nominations, something that could allow President Klaus Iohannis to dissolve the Legislative.
     We will probably have another PSD-ALDE cabinet but led by someone more favorable to President Klaus Iohannis.

Dangerous development against multinationals
     The social democrats continue to blame multinational companies for the demonstrations. Social democrat senator Adrian Tutuianu, head of the parliamentary committee that verifies the Romanian Intelligence Service said he would ask the Service to investigate these companies’ involvement in the protests. Also the Social Democrats leader Liviu Dragnea himself suggested such an involvement. In the same time, the pro governing party media outlets are supporting this scenario. Business organisations are expected to react to these accusations.

Huge protests, high risk for instability

Updated  February 2, 2017

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     The PSD-ALDE Government’s decision to adopt an Emergency Ordinance to decriminalize certain criminal offenses, including the very important abuse of office, and to adopt a draft bill to pardon many categories of convicts, has led to a political and institutional crisis and to the largest street protests seen in democratic Romania.
     The Ordinance would close thousands of cases where the total prejudice is more than 1 billion EURO (according to National Anticorruption Department evaluation) and would not consider abuse of office the cases where the prejudice is under 200.000 LEI (about 45.000 EURO), among other provisions. That would see the cases of hundreds of important politicians closed by Justice.
Protests erupted all across Romania, with the largest held on 1st of February. About 150.000 people demonstrated in Bucharest and the total number reached 300.000 in Romania’s most important cities.
     The main governing party, PSD, announced that it will not back down and will not abrogate the ordinance.
     It held that position despite the fact that the pressure on it is huge: President Klaus Iohannis, the European Commission and the most important Western embassies in Romania, as well as labor unions, trade associations and many other entities asked it to withdraw the ordinance. Even PSD members either resigned from the party or asked the Government to withdraw this acts, the most powerful voice belonging to PSD vice-president and Iasi mayor Mihai Chirica.
     Business Environment minister Florin Jianu resigned as well from the Government.
     The ordinance should be enforced in 10 days since its adoption for its most important parts.

What could happen
     The protests will continue for sure in each day until the Government abrogates the ordinance and gives up on the pardon bill. The crowds will probably get bigger and the tension higher, with a high risk of instability, maybe even extended violence. There were already street fights at the last protest, but it seems that they were engineered by radical football fans.
     PSD’s attitude will be considered defying by the protesters.
     In the meantime, other state institutions got involved: The National Anticorruption Direction (DNA) started a case regarding the two normative acts and the General Prosecutor asked Supreme Council of Magistrates to withdraw the two prosecutors delegated at the Minister of Justice as state secretaries.
     This could lead to a real institutional war, especially as media information about the Government’s intention to dismantle DNA by merging it with anti-Mafia body DIICOT could deepen the rift.
     The Constitutional Court could stop all this as CSM (Supreme Magistrates’ Council) attacked the ordinance (something that the Romanian Ombudsman refused to do).

What is the impact on the business environment
     These tensions have an impact on the business environment and on the relation between the business environment and the authorities.
     First, tensions and uncertainty are certainly not helpful for doing business. The LEU, Romanian national currency, has started to weaken compared to foreign currencies, while some companies are reconsidering investments in Romania.
     Second, members of the Government and the Parliament are now under high pressure and less willing to engage with business on legislative or regulatory issues.
     A third possible consequence is the fact that the Government will take more generous measures to counter the loss of popularity, something that will increase the pressure on the budget that is already very stretched.
     Finally, the European Commission warned through the voice of its vice-President Frans Timmermans that this situation could lead to a “loss of access to European funds” for Romania.

Modification of anticorruption law: High risk of instability

Updated  January 20, 2017

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     The Government’s intention to modify the legislation through Emergency Ordinance that would result in the saving of hundreds of important politicians and other important figures, as well as a partial pardon for rapists and pedophiles from the justice’s arms represents an issue with the potential of bringing high levels of social and political instability.
     The draft bill was about to be adopted without being discussed, through an Emergency Ordinance, on Wednesday, according to media reports, but the intervention of President Klaus Iohannis, who unexpectedly went to the Government to chair the Executive’s meeting seems to have made Prime Minister Sorin Grindeanu to change his mind and postpone the adoption of the legislation.
     Almost all of its provisions are controversial: Suspended convictions are pardoned, those over 60 or with a small child in care are forgiven of half of their sentence, abuse of office is only considered a crime from 200.000 LEI prejudice onwards, a denounce is only valid if made within 6 months from the moment the crime was made and so on. Justice Minister Florin Iordache said that such an act is necessary because of the overcrowding in Romanian prisons who has an occupation rate of 150%.
     The reaction from the society was immediate. A protest in Bucharest attracted 3.500-4.000 people according to some estimations, while smaller others were organized in different large Romanian cities. That is remarkable considering that they were organized the same day that the existence of the draft bills was announced and that it was very cold in Romania at that time.
     A much larger protest is expected on Sunday in Bucharest and other cities.
     The Government’s activity might be affected if the protests will become bigger and especially if they will last for a longer period. It is not truly conceivable to believe that we would see early elections or a Government resignation like following the 2015 protests but we could see some shakeups, changes in key positions and maybe even a change in the power’s behavior.
     The conclusion: Romania has entered a period of political and social uncertainty and it is still too early to see what will follow.

Romania has a new Government after the Parliament voted on Wednesday for the PSD-ALDE cabinet led by Sorin Grindeanu.

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The Senators and Deputies approved the new Executive with a large majority as along PSD and ALDE, UDMR and the group of national minorities are also part of the parliamentary coalition and voted for.

The results of the votes:

·         295 votes for the new Government (out of a total of 463)
·         133 votes against the new Government.
·         1 vote annulled.
·         30 MPs were absent and 4 of them did not vote.

The new Prime Minister held a speech in which he promised a “normal” Romania, with focus on the economic development and state functioning. He also warned multinational companies working in Romania that he will keep “special attention” on them because they “export their profits” and warned that Romania does not want investors that only offer low wages as he seeks increased salaries for Romania workers as well.

He thanked his party leader and Chamber of Deputies Speaker Liviu Dragnea, saying he has acted as “a true statesman” in the last couple of weeks.

PSD leader Liviu Dragnea announced Tuesday night in a press declaration that the new PSD-led administration will keep the VAT reduced to 19%, the elimination of the tax on special constructions and of the excise duty for fuel.

They are all measures that were implemented through the Fiscal Code starting with January 1st 2017. On December 16th Dragnea requested Prime Minister Dacian Ciolos to eliminate these measures from the Fiscal Code through an Emergency Ordinance as he declared it would be better to be eliminated starting with 2018. Now he seems to have changed his mind again, surprisingly when considering that PSD has been very generous in the electoral campaign and even afterwards.
If PSD really keeps these measures (it has been confusing on this issue in the last weeks) it will become even more difficult for the new Government to maintain a budget deficit below the 3% threshold, at least without cutting money from investment and European projects co-financing.
Some political analysts have speculated that PSD offers this kind of “incentives” to the population in order to “cover” measures against justice that it wants to adopt soon as the new Justice Minister Florin Iordache suggested that an amnesty law could be discussed in the Parliament.

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Sorin Grindeanu named PM designate, set to quickly form cabinet

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President Klaus Iohannis accepted on Friday morning PSD’s proposal for the Prime Minister position, Sorin Grindeanu, giving the 43 years old politician a mandate to form the next Government after he had previously refused PSD’s first proposal, Sevil Shhaideh.
Now Grindeanu has 10 days to select his Cabinet and to go to the Parliament for a vote that is just a formality at the moment given the high support the majority coalition has in the Legislative.
However, given the very short time remaining until the end of the year, almost certainly the Grindeanu cabinet will receive the vote from the Parliament in the first days of 2017. The PSD MP’s were called to work in the 2-7th of January week, in a special session. This delay means that the years starts with the VAT reduced to 19%, with the infrastructure tax and excise duty for fuel eliminated, but PSD might reverse the measures contained in the Fiscal Code in order to have a balanced budget.
Grindeanu is expected to be voted not only by PSD but also by ALDE and UDMR, so he will have no problem in becoming Prime Minister.

PSD leader Liviu Dragnea announced on Wednesday Sorin Grindeanu as the PSD and ALDE proposal for the Prime Minister position.

43-years old Grindeanu has been a member of the Social Democrat Party for 20 years and has occupied various positions (Timisoara city deputy mayor in 2008-2012, Member of the Romanian Parliament in 2012-2016) and is now Timis county president).
From December 2014 until October 2015 he was also the minister of Communications (Information Society) in the last PSD-led Government.
He previously worked as an university assistant and as a CEO and deputy CEO in the private environment.
Grindeanu studied Computer Science at the Mathematics School, West University in Timisoara. He also completed a training at the National Information Academy of SRI (Romanian Internal Intelligence Service) and while an MP he was a member of the Committee for the Control of SRI.

Position inside PSD and his role as Prime Minister
Sorin Grindeanu is not a well known figure inside PSD or on the Romania political scene. He is considered a politician from the second echelon without a very strong power base. He was only elected president of PSD branch in Timis county a few days ago.
Liviu Dragnea said Grindeanu will be “a PM for 4 years”, although adding later that he has not given up on the idea of being Prime Minister himself.
Grindeanu was chosen for his good image, not being tainted by any corruption scandal or controversy, but also because at the moment he couldn’t threaten Dragnea’s position as PSD president. His activity will be supervised by a PSD committee led by Dragnea himself. Grindeanu also admitted that he will be “subordinated” to Liviu Dragnea because the latter is his party’s president.
The fact that he was proposed as a PM shows that Liviu Dragnea was left without alternatives.

What’s next?
Now President Klaus Iohannis has to decide if he accepts Grindeanu or not. Most probably he will, as there is no obvious reason to reject him. PSD and ALDE have threatened Iohannis with impeachment although it is something very unlikely to happen.
Grindeanu will then present a Cabinet to the Parliament and will be voted as a Prime Minister for sure.
Dragnea said that we will probably not have the next Government in place until the end of the year because of the very short time left but in the first days of January. That means that important measures like the VAT reduced to 19%, the elimination of the excise duty for fuel and the pole tax (infrastructure or special constructions tax) will remain eliminated and the minimum wage will be kept at 1.250 LEI.
PSD can however reverse those decision in the first part of January.

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Elections aftermath: The battle for a new Prime Minister and major developments regarding fiscal measures

The parliamentary elections were held on Sunday 11th of December and the results are still not validated but we already have some very important developments regarding on one side the nomination of a new Prime Minister and on the other the request to delay the implementation of some major decisions from the Fiscal Code, also considering that the wages increases in Education and Health public systems are ruled as being constitutional.
The stakes are high because there is the danger that both the inauguration of the new Government and the adoption of a new state budget by the Parliament could be delayed, as well that the budget deficit will swell considerably.
All these factors are interconnected and the results of the moves for each of them will influence the others, as you can see in the analysis below.
First, the facts:

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President Klaus Iohannis said once again that he will not nominate PSD leader Liviu Dragnea as Prime Minister.
The head of state has reiterated his intention not to nominate a person who is convicted as Prime Minister, a direct reference to PSD president Liviu Dragnea after this party won a massive victory in Sunday’s parliamentary election. Iohannis added that it is not just the law that bans convicted people from occupying the position but also it is a matter of principles.
Dragnea has not been officially presented as PSD’s nomination but most of the Social-Democrat leaders have expressed their support for Dragnea to occupy this position. Even Dragnea himself hinted that he want to be Prime Minister but without saying it directly.
A local PSD leader, Ioan Dirzu, threatened President Iohannis with impeachment if he refuses to nominate Dragnea.

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PSD refused President Iohannis’ invitation to consultations
Klaus Iohannis invited the parties elected in the new Parliament to consultations on Tuesday, in order to nominate the Prime Minister.
PSD refused to come, saying they were not called according to the Constitution because “PMP and USR are not yet parliamentary parties as the new Parliament has not convened”. ALDE soon followed his example.

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Ombudsman intervention: A chance for Liviu Dragnea
Romanian Ombudsman Victor Ciorbea has offered some help to PSD by saying it wants to attack at the Constitutional Court the 2001 law that bans convicted people from becoming Prime Ministers.
Ciorbea said that he analyzes that option after “seeing debates about the issue on televisions”.
If the law is declared unconstitutional, PSD could have a major reason to claim the Prime Minister position for Liviu Dragnea.

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PSD wants to keep 20% VAT, tax on special constructions, excise duty on fuel and to increase the minimum wage/The Constitutional Court rules that the huge salary increases are constitutional

In a surprise move, PSD leader Liviu Dragnea asked Prime Minister Dacian Ciolos to adopt an Emergency Ordinance to modify the Fiscal Code in order to postpone the VAT reduction from 20% to 19%, the elimination of the tax on special constructions and the 7 eurocents excise tax for fuel.
Dragnea has given few reasons for this request, saying just that the PSD government will reduce the VAT and eliminate the tax on special constructions starting with 2018, otherwise it will not have such a big impact.
Prime Minister Dacian Ciolos, after an initial hesitation, refused to accept Dragnea’s request, saying that it is PSD’s job to keep its promises.

The Constitutional Court ruled as constitutional that the PSD-ALDE law to increase the salaries of some personnel categories in the Health and Education systems by up to 25% is constitutional
The law was adopted by the PSD-dominated Parliament prior to the electoral campaign but was attacked at the Constitutional Court by the Ciolos Government. Now President Klaus Iohannis can resend it to the Parliament or directly sign it into law.

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PSD has to pas two challenges: 1. Iohannis blocks Dragnea’s appointment as Prime Minister 2. It will have major difficulties in constructing the budget for next year.
One determines each other. If the battle for a new Prime Minister will prolong, PSD will not be able to have a Government able to modify the Fiscal Code through an Emergency Ordinance and a new state budget constructed on its own terms as well as other measures meant to prevent budgetary unbalances.
The political situation is further complicated by the fact that the Constitutional Court has ruled that the law to increase salaries in Education and Health systems by up to 25% is constitutional. The next Government has to find resources to cover these “holes” as well as to keep a least a part of the PSD promises made in the electoral campaign.

This is why Dragnea asked Ciolos to adopt an Emergency Ordinance – because he knew that the fight to become a Prime Minister might be long and that the PSD Government might not have time to adopt it on its own in 2016.

It is also a clear sign that PSD will drag the issue of the next Prime Minister for as long as it can to obtain a good deal. This could be the reason why it refused to accept President Iohannis’ invitation to consultations.
First of all, it needs to make sure that it really has over 50% of the parliamentary mandates. The vote has not been yet validated and it is not 100% clear if PSD will reach that score, it seems that it is just below. If not, it will probably try to bring in its camp MPs elected on other party lists so that it will really have over 50% in order to force the interpretation of the Constitution that says that after the parliamentary elections the President gives the Prime Minister mandate after consultation with the party that has over 50% of the mandates. If no party has over 50%, the President will consult all the parliamentary parties.
The second obstacle is the law that bans Liviu Dragnea from becoming Prime Minister because of his 2015 suspended conviction for electoral fraud. The help will probably come from the Romanian Ombudsman, the only one who can attack it at the Constitutional Court in this stage. The procedure will take time as well.
Also, with all these obstacles cleared, President Klaus Iohannis will probably still not nominate Liviu Dragnea as Head of the Executive.
From that point, PSD has two choices: 1. It comes with another proposal for the PM job (Senator Mihai Fifor, Ambassador to the US George Maior, Bucharest mayor Gabriela Firea or another), but with risks for Liviu Dragnea whose power will decrease. 2. Continues the fight by going once again to the Constitutional Court for a decision to force Klaus Iohannis to accept Liviu Dragnea.
That means more time spent.
Meanwhile, the other issue of the last days, the need to modify legislation (especially the Fiscal Code) in order to have a balanced budget for 2017, will also press PSD. It might want the Prime Minister position but it also wants to be able to govern well next year, without economic shocks.
At this point, Ciolos’ refusal to emit the Emergency Ordinance that would have modified the Fiscal Code puts PSD in a delicate position, adding pressure to them to have a government in place as soon as possible, although it comes into conflict with the desire to impose Liviu Dragnea as Prime Minister.
Which one of these imperatives will prevail? It is still hard to know. What we can predict is that the situation will not be resolved very soon. First PSD will wait for the new Parliament to convene, something that could not happen earlier than 19th of December. Then it could have the upper hand in the negotiations as well as, maybe, an eventual decision of the Constitutional Court that would rule that the law that interdicts a convicted person like Dragnea to become PM is unconstitutional.

In conclusion, the political uncertainty will last for a while as PSD will not move until it doesn’t have all the cards in its hands. That will surely translate into political uncertainty as the new Government will take its mandate much later. Political uncertainty will create economic uncertainty, as we will still not know what taxes will the Fiscal Code include for 2017, what will be the level of the minimum wage and when will a new state budget be adopted. These are all open questions and we will have to wait for the answer more than usual.

Results of the elections

Senate

  • PSD (45,67%)
  • PNL (20,41%)
  • USR (8,92%)
  • UDMR (6,24%)
  • ALDE (6%)
  • PMP (5,65%)
  • Others

Chamber of Deputies

  • PSD (45,47%)
  • PNL (20,04%)
  • USR (8,87%)
  • UDMR (6,18%)
  • ALDE (5,62%)
  • PMP (5,34%)
  • Others

Only the parties that have passed the 5% threshold will enter the Parliament. The votes for the parties below the electoral threshold will be redistributed proportionally to the parliamentary parties.

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PSD decisively won the December 11th parliamentary elections, beating even the most optimistic opinion polls. The Social Democrats have 46% of the votes, followed by PNL with just 20%, USR with 9%, Hungarian ethnic party UDMR with 6.5%, ALDE with 6% and PMP just barely above the electoral threshold with 5.5%.
With this score, PSD can form the new government without the help of any other party as it will have above 50% of the parliamentary mandates after the redistribution of the votes for the parties that have failed to pass the electoral threshold.
PSD won the vote in almost all of Romania’s counties, except for 7 of them (4 wonby UDMR: Satu Mare, Mureș, Harghita, Covasna; and 3 by PNL: Cluj, Alba, Sibiu).
Other political parties were left outside the Parliament, including extremist United Romania Party, supported by Sebastian Ghita.
About 7.3 million Romanians voted in these elections, just below 40% of the voting-age citizens.

1. PSD leader Liviu Dragnea announced that they want to form a government with ALDE and maybe even with UDMR.
2. Dragnea refused to give a clear answer about the person supported by PSD to be Prime Minister but said that deputy Prime Minister Vasile Dincu “is not a Prime Minister option”. He even said that he doesn’t rule out himself for this position, despite the fact that the law doesn’t allow him this because he was convicted for electoral fraud in 2015. PSD also sent a message to President Klaus Iohannis: It must nominate a Prime Minister resulted from the “people’s will”.
3. PNL president Alina Gorghiu resigned after the results were announced. The entire party leadership is expected to resign as well and call for a party congress early next year.
4. USR leader Nicusor Dan said that Prime Minister Dacian Ciolos has an “open door” to join the party.

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Soon after the results will be confirmed by the Central Electoral Bureau, three major events are expected:
A new Parliament will be invested
The formation of the new Legislative will happen after the mandate of the current one expires (on December 19th). President Klaus Iohannis has 20 days to convene a new Parliament but he will most likely move faster so that the formation of the new Government and the adoption of the 2017 state budget will be speed. It could even convene the next Parliament on December 19th to gain time.

President Klaus Iohannis will nominate a new Prime Minister and the Parliament will vote it
Klaus Iohannis could convene the Parliament before or after calling the consultations with the parties (or probably just with PSD if it has gained the absolute majority in the Parliament).
After the previous parliamentary elections in 2012, then-President Traian Basescu called the parties to consultations 8 days after the vote and convened the new Parliament 2 days later.
If the same schedule is respected, the Parliament will vote for a new Prime Minister on December 23rd.
Even if that is not the case, almost certain Romania will have a new Government before the end of the year.

The state budget will be adopted
There is no limit date on the adoption of the new state budget as the country could function with the budget in place even after the year ends.
However, the adoption of a new state budget will probably not be delayed very much.
The current Government already has a draft state budget and PSD also has one, presented just before the elections.
The new budget could be adopted by the Parliament after Christmas if everything goes very fast or maybe even in early January, in a special parliamentary session.

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PSD won the elections primarily with an economic message, especially after it set the frame by adopting wages increases and eliminating over 100 taxes in the Parliament, with both measures contested at the Constitutional Court and with the verdict still not announced.
✱    Minimum wage growing to 1,400 LEI in 2017 and 1,750 LEI in 2020.
✱    Health contributions (CASS) eliminated for pensioners, dropped to 10% for employees in 2018.
✱   Social contributions (CAS) to be reduced to 25% starting with 2018.
✱    Income tax for pensions, salaries and independent activities who earn below 2,000 LEI to be eliminated, dropped to 10% for others.
✱    18% general VAT, 9% for publicity and zero for house selling.
✱    No income tax for independent liberal activities with incomes below 24,000 LEI.
✱    Pension point to be at 1,000 in 2017, 1,400 in 2020.
✱    Elimination of over 100 non-fiscal taxes.
✱    Creation of a Sovereign Fund responsible with Romania’s development that should administer Romania’s state-owned companies and invest in strategic areas like hospitals, roads or agriculture.
✱    Adoption of an Economic Code, which would unite the Fiscal Code, the Fiscal Procedure Code, the Law of tax evasion, the Law of companies.
✱    Re-creation of a Minister for Small and Medium Enterprises, Entrepreneurship and Tourism.
✱    All fiscal obligations to be paid by Internet.
✱    Interconnection of all public administration systems.
✱    Cutting tax numbers in half.
✱    The state to pay interests for its debts.
✱    Lowest fiscal burden in the European Union in maximum 5 years.
✱    Balance in control activity to reduce abuses.
✱    Extending the commercial courts network.

You can find all the PSD promised measures for the business environment following this link.

NOTE: Generally speaking, PSD is a pro-business party, rather centrist than left-wing, even with liberal accents. However, PSD also draws its power from a form of “nativism”, including a sometimes tough attitude towards the big corporations.
Immediately after PSD’s victory was announced, Dragnea said: “We have to ask ourselves where do we consume water, gas, electricity from? From the foreign companies who take profits outside the country”.
He added that it is not normal that Romania, with all its resources, to import so many products.
It is a message that PSD has used before as it connects well with its electorate, but this does not mean that PSD will automatically treat the business environment as an enemy, but from time to time this kind of attitudes can be expected, especially when it wants to score some political points.

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