Romanian Prime Minister Ilie Bolojan has appealed to the political class to adopt urgent fiscal measures packages, emphasizing that there is no alternative to avoid a worsening economic situation.

In a video address, Bolojan stressed that failing to adopt these measures or yielding on certain categories would return the country to "where it started." He affirmed his readiness to take personal responsibility and not worry about his public image if it serves Romania. He indicated that the coming period requires structural reforms and expressed confidence in the responsibility of the political forces.

Bolojan's appeal comes amid tensions within the ruling coalition, with the Social Democratic Party (PSD) absenting from a meeting due to disagreements over participation in a state funeral, setting conditions for future participation, including the swift elimination of privileges in the public system. The adoption of the second package of measures has been postponed due to PSD's opposition to the "Anghel Saligny" program.

Market Signals

Sector Impacts and Opportunities: Fiscal packages are putting pressure on the banking and gambling sectors, while companies able to pass on costs or benefiting from government infrastructure spending supported by EU funds may see resilience.
Price Movements and Volatility: The VAT increase and excise duty hikes are expected to cause a temporary spike in inflation, impacting consumer prices.
Competitor Positioning Changes: Companies previously benefiting from tax breaks, such as the IT sector, may face challenges to their competitiveness.

Winners & Losers

Winners: The Romanian State, expected to benefit from increased tax revenues and a narrowed budget deficit, potentially improving its creditworthiness and access to EU funds. The EU, which will see Romania make progress towards fiscal stability and compliance with EU fiscal rules. Losers: Consumers, who will face higher prices. Public sector employees, who will experience wage freezes and potential job cuts. Businesses, which may face reduced consumer demand and higher operating costs.

Action Timeline

Immediate (24-48h): Monitor political parties' reactions to the Prime Minister's appeal and assess the likelihood of a coalition meeting.
Short-term (1-2 weeks): Focus on coalition discussions regarding the second fiscal measures package and push for its adoption before the October EU evaluation deadline.
Long-term: Track the impact of reforms on economic growth, inflation rates, and Romania's creditworthiness and ability to absorb EU funds.

Risk Assessment

Regulatory Risks: Potential challenges to measures at the Constitutional Court or the submission of a no-confidence motion, which could lead to further delays.
Market Volatility: Growing concerns about inflation and slowing economic growth could negatively affect investor confidence.
Geopolitical Tensions: While not directly mentioned, internal political instability could hinder the implementation of structural reforms.

Key Indicators

Signals for the Market/Industry: The measures indicate the government's resolve to tackle the fiscal deficit but carry risks for economic growth.
Leading Indicators and Data Points: Inflation rates, economic growth data, and credit rating agency assessments will be closely watched.

Regional Perspective

Prime Minister Bolojan's public appeal underscores the urgent need for fiscal reforms in Romania, as the budget deficit reaches its highest level in the EU. His emphasis on readiness to take personal responsibility suggests an effort to build confidence and strengthen commitment to difficult reforms.

Immediate Implications

What happens next: Difficult negotiations within the ruling coalition are expected to continue, with pressure on the PSD to return to the negotiating table.
Time-sensitive opportunities or risks: The current opportunity is for investors to assess how these measures will impact various sectors, keeping in mind the October EU evaluation deadline.

What to Watch

Leading indicators to monitor: The EU evaluation in October, and credit rating reviews by Fitch and Moody's.
Expected next developments: The PSD's return to coalition meetings, or the possibility of the government pushing measures through by assuming responsibility.
Key decision points ahead: The government's ability to secure coalition approval for the second fiscal measures package.

Analysis

Prime Minister Ilie Bolojan's appeal highlights the critical need for fiscal reforms in Romania amidst a significant budget deficit. While these measures are essential for financial stability and meeting EU requirements, they carry risks of slowing economic growth and increasing inflation. The success of this package hinges on the government's ability to overcome internal political divisions and implement reforms effectively, within a tight timeframe before the crucial review by the European Commission in October.