Political and fiscal normalization in Romania delayed by president's resistance to VAT rate hike

Romania's efforts to stabilize its fiscal position and finalize a new ruling coalition have been delayed after president Nicușor Dan rejected a proposed VAT rate increase central to a budgetary corrective package agreed by the four pro-Western parties, Digi24 reported on June 29, citing sources familiar with the negotiations.

President Dan, who pledged during his election campaign to avoid tax hikes, reportedly turned down the plan during a final round of talks with Liberal Party leader Ilie Bolojan. The decision led to the suspension of all meetings scheduled for June 20, effectively stalling the coalition talks after three weeks of negotiations.

Although the four parties—National Liberal Party (PNL), Social Democratic Party (PSD), the reformist USR, and the Hungarian UDMR—had reached a consensus on both cabinet positions and a fiscal adjustment framework, neither the president nor the parties have publicly disclosed the structure of their supposedly different proposed budgetary packages.

Romania's lack of a formal fiscal consolidation plan ahead of the European Union's Economic and Financial Affairs Council (Ecofin) meeting on June 20 is expected to trigger concern in Brussels. The Government will only be represented by a state secretary, and no updated fiscal roadmap will be presented.

President Dan has suggested the plan could be enacted by the end of the month, but EU institutions had expected at least a political agreement on the principles and a named prime minister by June 20 to signal credible progress.

Bolojan has stated he will accept the prime minister post only if the VAT hike is part of the final fiscal package. In its absence, he has invited President Dan to nominate a technocratic prime minister—a proposal now reportedly under serious consideration.

President Dan has already held discussions with Anca Dragu, the current governor of the central bank in Moldova, while other potential candidates have been circulated in local media. However, it remains unclear how the president intends to meet EU-mandated fiscal targets without a VAT increase, a measure reportedly favored by European Commission officials.

The scenario of a technocratic government is not the preferred option for the PNL and PSD, but both parties have signaled conditional support. PSD leader Sorin Grindeanu said his party still favours a rotating prime minister arrangement but could accept a technocrat depending on the nominee's profile.