Romania’s finances quake before historic vote

George Simion is riding a wave of discontent created by slowing growth, high inflation, and entrenched inequality that may carry him into Romania’s presidential palace in Sunday’s vote.

But the hard-right ultranationalist's disruptive — and sometimes contradictory — agenda is already freaking out investors, who fear he will plunge the country into further economic and financial chaos.

“We’ve reached the limit,” said Valentin Tataru, an economist at ING in Bucharest. “There’s no way of continuing.”

Romanian politics plunged into turmoil late last year when the two main establishment parties — the center-left Social Democratic Party (PSD) and the center-right National Liberal Party (PNL) — were eclipsed by the stunning rise of far-right ultranationalist Călin Georgescu, who won the first round of the presidential election.

Georgescu was later banned over undeclared election funding and allegations of Russian interference.

Since Simion’s first round victory in the election re-run on May 4, investors have dumped Romania’s bonds and bet heavily against its currency, the leu. Dutch bank ING estimates that the central bank had to spend nearly 10 percent of its foreign reserves over the last two weeks to keep its losses against the euro down to a manageable level.

After a decade of solid growth was derailed by the Covid-19 pandemic, Romania's budget deficit closed in on 9 percent of gross domestic product (GDP) last year, while its trade deficit was an even larger 10 percent.

Those twin deficits mean Bucharest requires a steady inflow of foreign cash to fund the purchases. If that stops, then the leu — and living standards — will crumble. They are already under pressure from inflation, which peaked at 15 percent in 2022 and is still running at nearly 5 percent. Growth, meanwhile, has been lackluster, coming in at only 0.8 percent in 2024.

Ratings agency S&P has warned that the country’s debt could revert to junk status if its already-parlous financial state gets any worse. S&P and the other two big ratings companies, Moody’s and Fitch, all currently give Romania the very lowest investment grade rating, meaning the next downgrade would lead to an immediate jump in its borrowing costs.

Romania, and the next president, will have to find a better balance of import and exports. To stay within EU rules and ensure the steady flow of funds from Brussels that allows it to invest in badly-needed infrastructure, it needs to slash its deficit.

Instead, Simion’s populist economic agenda now threatens to set the match to all this financial tinder. Earlier in the campaign, he promised to build one million new homes for only €35,000 each. He later backtracked on the pledge, admitting it wasn't possible.

Simion also said he found inspiration in Argentina’s chain-saw wielding, radically small-government, libertarian leader Javier Milei. But, in an interview with POLITICO, Simion said he wanted the state to take over energy interests owned by Austria’s OMV.

“The privatizations went very badly and people are frustrated,” he said. “We will negotiate with OMV.”

The AUR candidate has pledged to appoint banned presidential candidate Georgescu as prime minister should he win.

Getting back at the establishment

POLITICO's Poll of Polls puts Simion, who leads the far-right Alliance for the Union of Romanians (AUR), ahead of Bucharest's centrist mayor Nicușor Dan.

Experts say that large swathes of the public have lost confidence in an entrenched political establishment that is seen as having mismanaged the nation while taking care of its own private interests.

“This situation is hard for ordinary people. They’re very upset at the political class,” said Anton Pisaroglu, a political consultant who also ran as a candidate in the election before dropping out. He described the prevailing mood in the campaign as “anti-system.”

One reason for that is the sharp regional inequality created by the earlier boom, in which Romania played catch-up after 50 years behind the Iron Curtain.

According to EU statistics, in 2023 the Bucharest region was the sixth-richest in the EU in terms of GDP per capita when adjusting for purchasing power, coming ahead of Hamburg or Berlin. The northeast of Romania was among the poorest.

That inequality, and the resentment it engendered, is fertile ground for AUR’s nationalist, anti-establishment message, said Sorina Cristina Soare, a political scientist at the University of Florence who has been conducting interviews with Romanian voters as part of her research.

“The more you distance yourself from the rich neighborhoods in the big cities, the more you have votes for Simion and protest votes,” Soare said. An analysis of the first round of voting found that, on average, constituencies won by Simion had 1,931 patients per doctor, whereas the ratio in seats won by Dan was only 725.

For Sunday's winner, putting the country back on a halfway stable economic footing will be a daunting challenge — one that election manifesto promises are unlikely to survive.

Simion, if victorious, “will probably be forced by necessity to do what is needed,” said Tim Ash, a sovereign credit strategist for BlueBay Asset Management.