The eurosceptic Simion decisively swept the first ballot on Sunday, triggering the resignation of leftist Prime Minister Marcel Ciolacu and the collapse of the pro-Western coalition government. A run-off vote will take place on May 18.
Romania, whose debt is still well below EU average levels, has been under the bloc’s fiscal surveillance procedure since 2020. The country held four elections last year, with its deficit rebounding to 9.3% of output, exceeding levels seen during the Covid-19 pandemic.
While Romania’s revenue as a percentage of output is among the lowest in the EU, politicians have repeatedly ruled out tax hikes with income levels languishing well below the EU average.
“Any tax hike means recession,” Simion told private television station Digi24 on Tuesday. “That is not the solution. I will advocate lower taxation for the minimum wage.”
He said he had a five-year plan to cut 500,000 administrative jobs in the public sector, excluding doctors, teachers and soldiers.
Simion was speaking after the political instability sparked a market sell-off, driving down the leu currency more than 2% on Tuesday, beyond the key level of five to the euro for the first time, while debt yields surged and shares tumbled.
On Wednesday, the currency steadied near the 5.1 mark versus the euro, but 10-year bond yields continued to climb, scaling 8.1%, up 60 basis points from the start of this week to their highest levels since January.
Debt managers plan to tap domestic markets again on Thursday after a Monday bond sale failed due to weak demand.
Romania’s shortfall widened further in the first quarter of the year and the lack of a functioning government will now create further delays in action to rein in the deficit.
“Given the fiscal situation and given that it’s crunch time for Romania to pass a very ambitious fiscal bill raising taxes, I think it’s a very vulnerable time for Romania right now,” said Nikola Apostolov, emerging markets strategist with Citi.
“It will be difficult to have a very stable political majority…So it’s not a great time to be passing unpopular reforms.”
Concern
Romania, whose €354 billion economy is central Europe’s second largest behind Poland, is rated on the lowest investment grade by all three main agencies with a negative outlook.
Simion said the former prime minister had fuelled the deficit. “I’ve been accused of being to blame for the leu depreciation, stocks falling, let’s be serious, who was in charge?” he said.
Simion vowed to work closely with the new prime minister, who will have to form a ruling majority in a highly fragmented parliament, where the far-right holds more than a third of seats.
Simion reiterated plans to, if elected, nominate as prime minister banned presidential contender Calin Georgescu, the far-right pro-Russian frontrunner in the last presidential election, banned in December on suspicion of Russian meddling, denied by Moscow.
On Tuesday Simion said he did not rule out snap elections if a parliamentary majority did not approve a Georgescu-led cabinet.
“I believe I will nominate Mr. Georgescu and we will find 50% plus one lawmakers to vote for him.”
Georgescu has repeatedly said he favoured nationalisations and preferential treatment for Romanian companies.
Simion will face Bucharest mayor Nicusor Dan, an independent centrist, in the May 18 run-off. On Tuesday, Dan tried to reassure markets.
“There is no reason for financial panic on Romania,” Dan said. “Together, we must project a message of calm and stability.”