It’s hard to see where Emil Boc’s government goes from here. It managed a stay of execution by whacking up VAT, so it should get another handout from the IMF and EU, but it comes at the cost of whatever credibility it still had.
Boc’s fragile and patched together coalition only just survived a no-confidence motion two weeks ago. If the opposition filed a fresh one in the wake of the rejection of Boc’s pension cuts, it would surely win – but then they’d have to take on the poison chalice and lose a load of votes, so presumably they will just heckle from the sidelines for a few months while the country goes to hell in a handcart.
Romania has to raise more money and spend less to get the IMF money, without which it has no credibility with foreign investors. But because Boc is effectively a lame duck, he now has no mandate to carry out more reforms (like sacking some of the public sector’s political appointments on huge salaries for not doing much at all). No savings there. Higher VAT will hit consumers’ wallets and less money being spent means no economic recovery. No income there.
While some wild optimists back in the heady days of late 2009 (remember those?) forecast GDP would grow two or three per cent this year, it now seems more likely it will be those numbers in the negative, or worse. Meanwhile higher VAT means inflation, which the central bank has to fight with higher interest rates at a time when it should be cutting to kick-start the economy. All this means the budget deficit will only grow and hence big problems meeting the conditions for the IMF money. And start again at the beginning of this vicious cycle.
Already the leu has hit its lowest ever level against the euro. Shares have plummeted and the country can’t find anyone who wants to buy its debt unless they get whopping great big interest on their loan. Unemployment hasn’t shot up yet but it’s surely only a matter of time. Some of this sounds worryingly like Greece. In some ways, it sounds worse.
So what are the options? President Traian Basescu can sack Boc or call elections. If he sacks Boc, it just sets up another lame duck. He won´t call elections because then his PDL would lose whatever power they still cling to. In any case, what difference would either make? We would surely still end up with a fragmented parliament and weak coalition government.
And one more thing. The judges of the constitutional court threw out Boc’s proposed pension cuts because it meant cutting magistrates’ – ie their own – pensions.
Answers on a postcard, please.
{ 3 comments… read them below or add one }
I hope the Euro hits 4.8 RON this year, otherwise I’m gonna have to run across Magheru half-naked on New Years Eve…
It’s a shame, judges saved their own pensions but instead they sacrificed the pensions of the military. The Constitutional Court decision was one of the most shameful moments in the history of Romania, special military pensions were awarded in this country since 1859.
Nobody, not even Gheorghiu-Dej or Ceausescu ever dared to touch the military pensions in this country, what just happened is unbelievable. I’m waiting for NATO to exclude Romania from the Treaty as soon as possible.
I was opposed to the pension’s cuts but the CC ruling is pretty absurd… and what it’s even more intriguing is that each time a CC judge opens his mouth it sounds like a half retarded tractor driver (tractorist) is speaking. I don’t know if is the old age or the school they where teaching in the 50s but these guys would not be able to land a cleaner job with their verbal and logical abilities… another ocasion that proves to me that until the old “cadre” (most of which had a stellar career just because of their low origins + kiss ass abilities)will join Ceausescu in the sky strange things will continue to happen in Romania. Which makes living here so interesting.
On the politics front I think not much will happen.. Boc will probably govern until next year because our politicians are opportunists and this is a good opportunity to stay on the side.
What is strange is that the government passed the VAT stuff without modifying the 25% decrease in pay for the state workers. I mean, these guys where already in a pretty bad spot, but now they will really be in an impossible situation. How the state expects these guys to survive when the vast majority had below average income anyway? I mean, cutting costs is one thing, cutting people lives is another. Smells very Ceausescu in the 80s to me.
Ceausescu didn’t know what he was doing, these ones do know…