Romania - in Schengen, by air and by water

The government was focused in the 4th financial quarter to reduce the budget deficit that it faced in the middle of the year and in the 3rd quarter, so that the officials in Brussels do not block the allocation of funds for our country from the National Recovery and Resilience Plan and from the European multiannual financial framework 2021-2027. Following the fiscal measures taken at the end of the third quarter and validated during October by the Constitutional Court, the European Commission declared itself satisfied and did not block any euro from the allocated amounts, moreover it approved the plan of the Bucharest authorities regarding the projects that will be financed from the RePower EU Mechanism, which is introduced in the PNRR of each member state.

Once freed from the problems in Brussels, the Ciolacu Cabinet focused on the consolidation of the state budget and the state social insurance budget for the year 2024. The two draft laws were difficult to draw up, in light of the budget cuts and reorganizations provided for in both law 296/ 2023 as well as in the emergency ordinances that completed it, but in mid-December the Government approved the normative acts and sent them for debate and vote in Parliament. The laws passed quickly, on the fast-forward procedure, through the Legislature, despite the thousands of amendments submitted by the parliamentary opposition, just as happened with the hearing and voting procedure of the new leadership at ASF.

Regarding the latter, after four years of the catastrophic mandate of the Nicu Marcu team, which resulted in two resounding bankruptcies in the insurance market - City Insurance and Euroins -, the Financial Supervisory Authority is now led by the president Alexandru Petrescu, seconded by the first vice-president Gabriel Avrămescu and the vice-presidents Gabriela Horga, Daniel Armeanu and Sorin Mititelu, who have already initiated a package of measures aimed at restoring things to their natural motherland in the RCA market.

On a macroeconomic level, since the purchasing power of citizens has decreased due to inflation, the Government has decided to extend by another 90 days the capping of the commercial addition for 14 basic foods - a measure that it initially took in July starting on August 1 - , to which he added 7 more products, including the cozonac, capping that entered into force on October 27, 2023 and which, although it should end on January 31, 2024, it seems that it will be extended by another 90 days.

The only good news from a macroeconomic point of view came from the National Bank of Romania, which decided throughout this period to maintain the reference interest rate at 7% per year and predicted that inflation would reach 7.5% at the end of the year.

When everyone was waiting for the end of the year, especially since the good news was looming in Brussels about the reception of Romania in Schengen with maritime and air borders on March 31, 2024, the tragedy occurred at Ferma Dacilor, where, due to corruption among the authorities public, eight people, mostly children and young people, died in a fire the day after Christmas. The fire at Ferma Dacilor showed once again that the authorities failed to fulfill their duties even after the fire at the end of the third quarter, in August, in the town of Crevedia.

As for the good news from the last quarter of last year, we also mention the qualification of the men's national football team to the final Euro 2024 tournament, which will take place in Germany. The players under the baton of the selector Edward Iordănescu managed in four days of November to defeat Israel and Switzerland and to qualify from the first place in the group to the final tournament of the European Championship. The national football team's last qualification for a final European tournament was eight years ago, for Euro 2016, which was held in France.

• The budget deficit, difficult for the Government to control

In all this macroeconomic and financial context, in order to keep under control the increase in the budget deficit, President Klaus Iohannis promulgated, on September 26, Law 296/2023, after the fiscal measures and the reform of budget expenditures provided for in that normative act had previously received, in October 18, the ruling of the Constitutional Court of Romania which rejected the objections of unconstitutionality raised by some of the members of the parliamentary opposition. With the exception of the reduction in fiscal facilities given to employees in the IT, construction, agriculture and food industry sectors, most of the provisions entered into force on January 1, 2024. The most important of them are the 2% taxation of bank turnover for the years 2024 and 2025, the minimum tax of 1% on the turnover of companies that register turnovers exceeding 50 million euros, the change in the taxation of micro-enterprises according to the level of income achieved and the CAEN code, the taxation with 10% - CASS contribution - of meal vouchers and holiday vouchers, the increase VAT for some goods and services, which will have VAT between 9% and 19%, special tax of 0.3% for people who own buildings with the taxable value of the building over 2.5 million lei and for individuals and legal entities that own cars registered/registered in Romania whose individual purchase value exceeds 375,000 lei.

We remind you that the Government decided to adopt this law in order to reduce the budget deficit of our country, which was estimated to reach over 5% of the Gross Domestic Product at the end of last year, i.e. above the target set in the spring of 2020 with the European Commission for the end of 2023 namely 4.4%.

Unfortunately for the Ciolacu Cabinet, the financial situation for the third quarter published by the Ministry of Finance in the first month of the last quarter of last year showed a deficit of 56.46 billion lei, respectively 3.55% of GDP, higher by 0.6% from GDP compared to the deficit of 41.70 billion lei, respectively 2.96% of GDP for the first nine months of 2022.

In the document drawn up by the Ministry of Finance, it was stated that the total revenues amounted to 368.03 billion lei in the first nine months of the current year, increasing by 11% (year/year), while the expenses of the general consolidated budget in the amount of 424.49 billion lei increased in nominal terms by 13.7% compared to the same period of the previous year.

However, the Government decided in the meeting on October 27 to set up the Interministerial Coordination Committee to support Romania's candidacy, the preparation and holding in Bucharest of the UEFA Europa League Final in 2026 or 2027, and on October 31 the increase of the gross minimum basic salary per country guaranteed payment for the fields of construction, agriculture and the food industry.

In these macroeconomic conditions, the Board of Directors of the National Bank of Romania decided to maintain the reference interest rate at 7% per year, the interest rate for the credit facility (Lombard) at 8% and the interest rate related to the deposit facility at 6% .

Turning to future developments, Council members indicated that, according to the new assessments, the annual rate of inflation will continue to decline until the end of 2023 in line with the medium-term forecast published in the August Inflation Report, which anticipated its decline to 7.5% in December 2023, to 4.4% in December 2024 and to 3.8% at the end of the projection horizon.

• War in Israel, Zelensky - run into Parliament by Soşoacă

The first month of the fourth quarter was marked by the terrorist attacks that took place on October 7 in Israel, followed by the bombing of Gaza by the armed forces led from Tel Aviv, the terrorist attack in Brussels and the return of terrorist threats in the western states Europe. Members of the Palestinian terrorist group Hamas launched, on the morning of October 7, from the Gaza Strip more than 5,000 rockets against several towns in Israel, while approximately 3,000 Palestinian militants broke through the barrier between Gaza and Israel, killing civilians, setting fire to their homes and attacking Israeli Defense Forces (IDF) military bases. According to the government in Tel Aviv, more than 1,400 Israelis and foreigners, mostly civilians, were killed on October 7, including 260 people at a music festival in Re'im, and more than 200 captured Israeli civilians and soldiers were taken as hostages in the Gaza Strip. After evicting Hamas forces from southern Israel, the IDF carried out airstrikes in the Gaza Strip, bombings that killed tens of thousands of Palestinians, most of them civilians, and forced more than a million to flee to neighboring states.

The conflict in Israel did not seem to be a priority for the members of the Supreme Council of Defense of the Country except for the repatriation from the Gaza Strip of several hundred Romanian citizens accompanied by their families. Otherwise, the CSAT members, who met on September 12, were concerned with defining drug trafficking and consumption as threats to national security and approving the plan for endowment of the armed forces for the next period.

In this international context, the first visit to our country by Ukrainian President Volodymyr Zelensky, who, on October 10, signed a joint statement with President Iohannis and who did not want to give a speech in the plenary of the Parliament, and the joint meeting of the governments of Romania and Ukraine, which took place in Kiev and which ended with several promises from the officials there regarding the regime applied national minorities. In the document signed by the two heads of state, it is stated that relations between Ukraine and Romania will develop on the basis of a Strategic Partnership, that the amount of Ukrainian grain transited through Romania will be increased from 2 million tons to 4 million tons per month, that Ukrainian pilots will be trained in the training center in our country to operate F-16 fighter jets, that it is necessary for Romanians in Ukraine to enjoy the same treatment from the authorities in Kiev as Ukrainians in our country in terms of compliance rights and that the government in Kiev and Bucharest will solve the problem of the artificial distinction between the Romanian language and the so-called "Moldovan" language.

According to the program originally announced by the Chamber of Deputies, Volodymyr Zelenskiy was supposed to give a speech in the plenary session of the Parliament, but the Ukrainian president changed his mind following the information received about a possible disruption of that moment by the unaffiliated senator Diana Sosoacă and by the AUR parliamentarians. That is why the leader from Kiev preferred that, in addition to the meeting with President Klaus Iohannis, he also met Prime Minister Marcel Ciolacu at the Victoria Palace and Nicolae Ciucă - the President of the Senate and Alfred Simonis - the interim President of the Chamber of Deputies at the Parliament Palace. at the meeting with the two officials passing by Senator Diana Şoşoacă, who was displaying the map of Greater Romania.

• Florin Cîţu lost his immunity due to the purchases of anti-Covid vaccines

The main concern of the Government in the last month of autumn was to correct the errors crept into Law 296/2023 through which fiscal changes were made, a normative act that passed the Parliament through the assumption of responsibility by the Ciolacu Cabinet. One of the measures that would have affected the private business environment the most and that would have led to the disappearance from the economy of an important number of micro-enterprises and small and medium-sized enterprises was the limitation of cash payments and the reduction of the daily cash limit. Realizing the danger of losing important contributions to the state budget following the disappearance of those SMEs from the economy, the Government reverted to the initial measure, maintaining the old provisions that provide for a daily ceiling of 50,000 lei for each economic agent and maintaining cash payments at the level of 5,000 lei per day among economic agents, and at the level of 10,000 lei per day for individuals. Out of the desire to compensate for the waiver of the reduction of the ceiling on cash payments and the daily checkout ceiling, the Executive has approved a normative act establishing the taxation with a minimum rate of 15% of the profit of large multinational and national groups or enterprises whose annual turnover consolidated is at least 750 million euros.

Also during November, at the initiative of the Government, the Parliament approved the new law on public pensions. According to the normative act, the pensions of over 4.7 million beneficiaries will be recalculated according to the new formula. The right to pension is obtained after a minimum of 15 years of contributions, without taking into account assimilated non-contributory periods (university studies, military training, medical leave, unemployment, deportation, imprisonment or political detention). Gradually equalize the retirement age for women and men at 65 by 2035. Also, non-permanent increases for which contributions have been paid are taken into account when determining the pension: global agreement, 13th salary, hourly payment, awards, premiums, etc.. According to the law, pensions will increase annually, at 1 January, with the average rate of inflation plus 50% of the real increase in the average gross salary.

On a macroeconomic level, we record the fact that the budget execution for the first ten months of 2023 published by the Ministry of Finance in November shows a budget deficit of 3.97% of GDP, i.e. 62.81 billion lei, a fact that led the respective ministry to resort to lending from the domestic banking system, but also from the population by issuing new state securities intended to attract another 5.675 billion lei to the state budget.

Under these conditions, the Moody's rating agency reconfirmed on November 3 the rating related to Romania's government debt at Baa3 for long-term debt and P-3 for short-term debt, as well as the stable outlook. Moreover, the National Bank of Romania maintained the monetary policy interest rate at the level of 7% per year. At the same time, the central bank decided to maintain the inflation forecast of 7.5% for the last quarter of this year, estimating for the first quarter of 2024 an inflation of 7.7%.

The Romanian political scene was shaken in the second half of November, when the National Anticorruption Directorate requested the Parliament and President Klaus Iohannis to approve the criminal prosecution of former Prime Minister Florin Cîţu and former Ministers of Health, Vlad Voiculescu and Ioana Mihăilă for abuse of office in the file the purchase of anti-Covid vaccines, for a damage estimated at one billion euros through the purchase of a larger amount of vaccine than was actually necessary. Former Prime Minister Florin Cîţu lost his parliamentary immunity on November 29, after the Senate plenary approved the DNA's request to start the criminal investigation on behalf of the current liberal senator. Two days before, President Klaus Iohannis granted the request of the General Prosecutor's Office and gave the go-ahead to start the criminal investigation for the two former Ministers of Health.

• The tragedies at Odorheiu Secuiesc and Ferma Dacilor took the face of the year-end firecrackers

The failed state showed its ugly face again in the last month of last year, when the incompetence of the public authorities caused two tragedies that show the fact that, despite the tragedies at Colectiv and Crevedia, despite the scandal of the Asylums of Horror and despite the fires that have including several hospitals during the Covid-19 pandemic, the public system is completely covered by corruption, a criminal phenomenon that, unfortunately, results in more and more victims.

On December 18, 2023, the wall of the boarding school of a high school in the town of Odorheiu Secuiesc collapsed over 50 students in class. As a result of the incident, one of the teenagers lost his life, a colleague of his, with a fractured spine, died in the hospital, and two other girls were injured. In the criminal investigation, the administrator of the company that was carrying out works in the immediate vicinity and who allegedly did not comply with the legislation in force regarding the execution of these works, as well as the civil servants who had to supervise the work, were designated as guilty in the criminal investigation.

A week later, on December 25, on Christmas, eight people (out of 26) lost their lives in an accommodation unit located at Ferma Dacilor in the town of Gura Vadului, a unit which, although it had classification from the Ministry of Economy, Entrepreneurship and Tourism, was operating illegally because it had neither a building permit nor a fire safety permit from the Emergency Situations Inspector.

Following the checks carried out by the state authorities after the tragedy at Ferma Dacilor, it was found that more than 3000 verified guesthouses and hotels that had tourists during the winter holidays did not have this approval, and more than 1000 of them are located in the Prahova Valley.

Only after this tragedy, more than eight years after the Colectiv tragedy, the Ministry of Economy, Entrepreneurship and Tourism decided that it was necessary, together with the Department for Emergency Situations, to initiate a draft law to change the legislation in the field approval of tourism and HoReCa units.

Regarding the macroeconomics, the Parliament adopted, before the Winter Holidays, the state budget for 2024, which foresees an increase in the Gross Domestic Product by 3.4% and a cash budget deficit of 5%. According to the normative act adopted by the Parliament, the Gross Domestic Product will reach 1,734 billion lei at the end of 2024, the average gross monthly salary taken into the calculation of the state budget being 4,733 lei. State budget revenues (exclusive) are scheduled to increase in 2024 by 20% compared to 2023, and public expenditures are increased by 6.56%, given that the budgetary impact of the pension increase will be 25 billion lei this year . The 20% increase in the exclusive revenues of the state budget is an unrealistic premise, according to the Fiscal Council's Opinion on the state budget law, a premise that risks leading to a larger budget deficit at the end of 2024 than the one estimated by the Government. Moreover, the Fiscal Council specifies that, during 2024, an additional 4.5 billion lei (0.26% of GDP) will be needed in the allocations for goods and services and social assistance, compared to the estimate made by the Government in the state budget law.

At the same time, the cited document states that the Government's estimated deficit of 5% of GDP for 2024 will not be achieved and that, in reality, we will have, at the end of this year, a cash deficit that will be around 6, 4% of GDP.

The budget was quickly debated before in the specialized committees of the Parliament and was quickly adopted, although the draft numbered 12,000 pages, of which 5,000 pages contained the amendments submitted by USR, AUR and UDMR.

On a financial level, the National Bank of Romania presented the report on financial stability in the middle of last month from which it emerges that the collection deficit led to the increase of the total external debt of our country, which increased by more than 18 billion euros in the first ten months of last year. Regarding the macroeconomic situation, the BNR report shows that the main systemic risks to financial stability have remained, but it also identifies two other systemic risks: the delay in the structural reforms undertaken by the authorities and, implicitly, in the absorption of European funds, especially through the Plan National Recovery and Resilience Fund (PNRR), risk assessed at a high level, without changes in the next period and the risk of non-repayment of loans contracted by the non-governmental sector, quantified at a moderate level, but increasing.

However, the inflation rate continued to fall, with the INS announcing in the last month of the year that inflation stood at 6.7% at the end of November.

In this context, the Ministry of Finance stated, on December 29, that the arrears of the general consolidated budget increased by 8.83%, in November 2023, compared to the previous month, to 326.63 million lei, from 300.13 million lei in October

For the last month of last year, they also record three positive things. The first is the change in the leadership of the Financial Supervision Authority. Parliament, with one exception - Daniel Armeanu, vice-president for pension funds -, decided not to renew the mandates of the Marcu team, which, from the head of the ASF, impassively assisted the bankruptcy of two large companies in the insurance market - City Insurance and Euroins -, to the disruption of the RCA market and to illegal collusion in the capital market. Alexandru Petrescu, the new president of the ASF, stated, at the hearings in the Parliament, that such phenomena will no longer be tolerated in his mandate and that, together with the new management team, he will work so that the Authority fully complies with its legal obligations.

The second is represented by the appointment of the former president of the Romanian Senate, Anca Dragu - former Minister of Finance in the Cioloş government -, to the position of governor of the National Bank of the Republic of Moldova, a position she occupies following her vote by the political majority in the Parliament of in Chisinau.

The last positive thing I recorded was at the end of 2023, when the Council of the European Union announced that an agreement had been reached for Romania and Bulgaria to enter the Schengen area with air and sea borders, from March 31, 2024, without offering but a calendar regarding accession with land borders.