Romania faces potential default because of dispute with local investors

Romania’s Government will analyze in its cabinet meeting on Thursday (July 18) the effects of a decision of the European Court of Justice, issued on June 18, related to Romania’s dispute with local investors Ioan and Viorel Micula, Mediafax reported.

The European Court of Justice overruled a decision of the European Commission issued in March 2015 that provided that Romania couldn’t pay compensations to Ioan and Viorel Micula according to a decision of the International Court of Arbitrage in Washington because this would represent illegal state aid. The European Court’s decision allows the investors to enforce the decision of the arbitrage court and block the Romanian state’s accounts until they recover their claims

This would lead to serious implications, such as the activation of cross-default clauses for all of Romania’s sovereign loans, which could lead to Romania going into default, according to a document that finance minister Eugen Teodorovici will present to the Government, quoted by Mediafax.

This situation is the result of a long string of international lawsuits involving the Romanian state and companies controlled by Ioan and Viorel Micula. The two investors, who built a food and beverage empire in the 1990s, opened a lawsuit against the Romanian state in 2005 after Romania cancelled the tax breaks and other facilities provided to their companies as these were no longer allowed by Romania’s EU member status.

The Miculas, who had gotten Swedish citizenship, invoked a treaty to protect investors between Romania and Sweden. They asked for EUR 613 million worth of compensations. In 2013, the International Arbitrage Court ruled that the Miculas were entitled to compensations worth some EUR 84.54 million plus interest, which was not mentioned. The Romanian authorities claim that they offered these compensations by waiving some EUR 74 million worth of taxes owed by a company controlled by the Miculas and by paying over EUR 10 million in January-February 2015.

In March 2015, the European Commission ruled that Romania should recover these sums as they represented illegal state aid. It’s not clear if the Romanian state recovered the money, but the Miculas now have enforcement procedures started against the Romanian state in several jurisdictions.

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