Romanian Social Democrats Secure Mandate to Form New Cabinet

  • President accepts Grindeanu, party’s second premier nomination
  • Grindeanu has 10 days to form cabinet and win confidence vote

Romanian President Klaus Iohannis granted Social Democrat Sorin Grindeanu a mandate to create and lead a new government, ending a standoff after blocking a member of the party from becoming the first woman Muslim premier in the European Union.

Grindeanu, 43, was communication minister under former Prime Minister Victor Ponta and is a long-time member of the Social Democrats, who won Dec. 11 elections. The parliament is scheduled to vote on the new government on Jan. 4, Liviu Dragnea, parliament speaker and Social Democratic leader, said on Friday. Grindeanu is sure to win the vote, given his party’s majority in the assembly with their junior ally ALDE. This paves the way for the Social Democrats to move ahead with planned tax cuts and wage increases, which the EU’s executive arm has warned may push the budget deficit above the bloc’s limit.

“I will guide my mandate based on two principles: responsibility and modesty,” Grindeanu told reporters during a joint statement with Dragnea. “I will have a very close cooperation with the party leader because he knows the governing program best and he would’ve deserved to be prime minister.” Dragnea couldn’t seek premiership because of a two-year suspended sentence for electoral fraud.

First Task

Once his cabinet is approved, Grindeanu’s first task will be to design a 2017 budget that will accommodate already-approved increases in state wages, a cut in the sales tax from January and other fiscal loosening measures. Economists at the European Commission have voiced concern over the fiscal shortfall and estimate it will surpass the prescribed ceiling of 3 percent of gross domestic product next year, which may force Romania into a special monitoring regime.

“The president’s decision should be positive for leu assets, which should price out the political risk to some extent,” Ciprian Dascalu, a Bucharest-based economist at ING Bank Romania SA, said in an e-mail. “Still, uncertainties remain related to the 2017 budget program.”

The leu fell 0.1 percent to 4.5390 per euro at 3:08 p.m. in Bucharest, rebounding from its weakest level since January. The currency has lost 0.2 percent against the euro this year.

The EU’s second-poorest member is waiting for a new government to replace the country’s first technocratic cabinet since the fall of Communism. The Social Democrats recovered from a drop in support to win the ballot a year after public outrage over corruption pushed Ponta out. Iohannis called on the coalition on Wednesday to choose another candidate after he rejected Sevil Shhaideh, a former development minister with little previous political influence.

While the expansionary fiscal measures helped propel economic growth to 4.4 percent in the third quarter from a year earlier, one of the fastest rates in the EU, the more precarious deficit outlook has prompted a jump in bond yields. That has prevented the Finance Ministry from selling planned amounts of local debt in the past two months.

Adding to those concerns, budget-revenue collection is the lowest in the EU. That conflicts with Romanians’ expectations of improvements in road infrastructure, health care and education, all important for raising living standards that stood at 57 percent of the EU average last year in GDP-per-capita terms.

Grindeanu, who’s been a member of the Social Democratic Party for 20 years, said he won’t make any moves in his cabinet without first consulting his party. He has asked Dragnea to help him implement the ruling program, which includes zero income tax for low earners, a sovereign investment fund for health-care and education, and an increase in minimum wage.

    Before it's here, it's on the Bloomberg Terminal.