Romania Politics January 2018

Romania

Romania: Third prime minister in seven months is appointed amid anti-corruption protests

February 5, 2018

On 29 January Viorica Dancila was appointed Romania’s third prime minister in seven months; she is also the first woman to hold this position. The previous prime minister, Mihai Tudose, resigned on 15 January following a power struggle with Liviu Dragnea. Dragnea, the leader of the ruling Social Democratic Party (SDP), who cannot be appointed prime minister due to a criminal conviction, opted to maintain his grip on power by supporting a politically-loyal candidate. The recent government crisis comes amid ongoing anti-corruption protests. Protesters argue that government policies to overhaul the justice system will quell the fight against corruption. Persistent political noise, in part stemming from the government’s ongoing push to change the judiciary, could hit sentiment and deter investment.

The recent policies, which are supported by Dancila, and the political upheaval come against the backdrop of an economy that fired on all cylinders last year, supported by buoyant household spending and expansionary fiscal policies. Although growth is expected to moderate this year—FocusEconomics panelists expect GDP to expand 4.2% in 2018, after projected growth of 6.8% in 2017—on rising inflation and weaker employment growth, the pro-cyclical 2018 budget is expected to continue supporting growth at the expense of increased risks of economic overheating and a weakening fiscal position. As Viorica Dancila is a member of the SDP, it is unlikely that she will implement any drastic policy changes; Dragnea remains kingmaker.

In late December, Romania’s parliament approved three bills that modify the process of appointing chief prosecutors and create a special unit to investigate crimes committed by magistrates, which critics interpreted as a move to tighten political control over the justice system. This prompted a warning from the European Commission: On 24 January it urged lawmakers in Bucharest to reconsider judicial reforms that could undermine the rule of law and the independence of Romania's judicial system. Given recent statements by EU officials, that the amount of investment funds could be linked to the effective enforcement of the rule of law, tensions with the EU could intensify as the European Commission starts planning for its new post-2020 budget. This could weigh on investor confidence, representing a downside risk to the outlook.


Author: Massimo Bassetti, Economist

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