Romania's president expects fiscal plan this week, new government by mid-June

A realistic deadline for forming the new government is two weeks from now, Romania's president Nicușor Dan said, speaking at a press conference in Vilnius on June 2. A fiscal consolidation plan agreed by the tentative ruling majority would be ready within several days, he added, according to G4media.ro.

Current scenarios for fiscal reform focus on reducing expenditures, with higher tax rates - including a potential VAT hike - retained as a (nearly unavoidable) last-resort measure. The June 5 deadline for the fiscal consolidation plan appears highly ambitious, as the complex structure of public spending makes it challenging to identify and eliminate excessive spending quickly while avoiding legal challenges.

Hiking the VAT rate remains the solution of last resort as long as employers' associations seem in a position to prevent any increase in corporate taxation.

Separately, all the options are back on the table for the prime minister seat – which marks a shift from the prior baseline assumptions showing interim Liberal (PNL) leader Ilie Bolojan as the leading candidate for the post.

While PNL would accept a prime minister from the Social Democrats (PSD, the largest party by the number of MPs), PSD's interim president Sorin Grindeanu can hardly be accepted as a valid candidate as it would seriously damage the credibility of the executive (due to his ties with the PSD's hardliners). Not only does the reformist party Save Romania Union (USR) find it hard to cooperate with an unreformed PSD, but an unreformed PSD would make the ruling coalition vulnerable to isolationist opposition, claiming that no change in the country's administration took place despite the electorate's vote.

While a reformed PSD as the senior partner in the next ruling coalition would look like a reasonable and credible solution, able to secure Social Democrats' support for the ruling coalition, this scenario may be undermined by the lack of reforms within the Social Democratic Party which remains unable to generate a credible prime minister candidate keeping the negotiations in limbo.

President Dan sets a calendar for government formation, striving to restore the country's financial credibility.

President Nicușor Dan explained that the working group to reduce the deficit began its activity on May 29, and it is hoped that a conclusion agreed upon by the four parties plus the minorities, supposed to form the ruling majority in Parliament, regarding spending cuts, will be presented on June 5 at noon.