Liberal leader Ilie Bolojan on Monday secured a parliamentary vote of confidence to become Romania‘s Prime Minister, bringing an end to months of political uncertainty and forming a coalition government committed to reducing the European Union’s highest budget deficit to safeguard the country’s investment-grade credit rating.
The European Union and NATO states have been rocked by political instability in the wake of a presidential election which was cancelled in December and re-run in May, with market turmoil boosting borrowing costs and crashing the leu currency.
Bolojan’s nomination to head a broad pro-European coalition government by centrist President Nicusor Dan, who ultimately won the divisive election at the detriment of the far right, comes after a month of political wrangling over the fiscal measures needed to lower the deficit.
Unpopular Decisions
While the coalition will have broad support – around 67% of parliament, all but three hard-right groupings – its endurance will depend on unpopular tax hikes and whether the four parties enforce agreed cuts to state spending.
“Some of these decisions will not be popular,” Bolojan told lawmakers before the vote.
“But we must take into account that without the measures, Romania would enter decisively into an area of fiscal uncertainty and risk losing touch with European development and higher costs for people and companies.”
Restructuring Taxes
Finance Minister Alexandru Lazare said the government will discuss all proposed measures with the European Commission before approving them from August, adding a mix of spending cuts and tax hikes was needed to restore credibility.
The government plans to keep the main value-added tax – which Brussels, ratings agencies and analysts said should be raised to lower the deficit – at 19% for now, while two lower 5% and 9% rates will be consolidated into a single 9% one.
The government aims to introduce a temporary tax on banks’ “excessive profit” from 2026, and introduce new levies on gains from cryptocurrencies and social media platforms. About a fifth of public sector jobs will be cut.
Higher excise duties and property taxes, an increased dividend tax, taxing pensions higher than 4000 lei ($915) monthly and listing minority stakes in state companies on the bourse are among the proposed measures.
Rotating PM
The government includes Bolojan’s Liberal Party, centre-left Social Democrats, centre-right Save Romania Union and ethnic Hungarian party UDMR, with the four parties also backed by national minorities in parliament.
The leaders of the four parties agreed to rotate prime ministers before a 2028 parliamentary election, with Bolojan swapping with a leftist Social Democrat in April 2027.
The Social Democrats are Romania’s largest party, and a ruling majority cannot be achieved without them, but the PM rotation could be a destabilising step as policies and positions are reassessed.
($1 = 4.3738 lei)
(With inputs from Reuters)
