Since the beginning of the year, the leu weakened 5% against the euro, amid three domestic policy events – the resignation of prime minister Boc, the fall of the Ungureanu Government and the suspension of the president.
The bill is 4 billion lei (around EUR1 billion) that Romanians have to pay out of their pockets to cover the weakening of the leu, when it comes to their bank installments. If you add the CDS increase – a bill of EUR1 million per day, plus the reaction of external markets and of investors, the bill of the political scandal costs Romania close to EUR2 billion so far. And this money is taken away from domestic consumption.
The economy, fragile as it is, is dealt blow after blow on the political scene, where hate is at an all-time high between ruling alliance USL and PDL, the former ruling party that supports Traian Basescu.
In just a week, leaders of USL, to whom president Basescu gave power after the fall of the PDL-backed Ungureanu Government, swept everything in their way, sending president Traian Basescu to face the referendum.
Romania’s main financers are concerned over the turn of events in Romania. The European Commission is asking prime minister Ponta for explanations, which he will give in person on Wednesday and Thursday in Brussels. In the meantime the country will be divided between those in favor and against deposing Basescu, while the economy will seek to keep from taking too much water on board.
Reports of foreign analysts draw attention to “Bucharest instability”, which is the last thing the economy needs, as it struggling with investor confidence, with the problems of attracting EU funds and a tax evasion that eats 30% of the GDP, i.e. close to EUR40 billion.
Consumption has made tentative steps forward and could bring the economy back to growth in the second quarter but lack of confidence could determine Romanians to take a step back.
Exports, which are dependent on what is happening in Europe, are slowing down, so consumer confidence becomes even more important to the domestic economy.
Today investors’ eyes will be on the forex market to see where the leu is going, after it had reached RON4.53 to the euro at the end of Friday’s session.
President Basescu has 20 days to convince people he deserves to stay on as president of Romania. If this doesn’t happen, another three months of uncertainty will follow until the election of a new head of state.
Given the tumultuous situation on the political scene, an economically complicated summer will follow, with investors to postpone their investments until the situation clears up.
(English version by Daniela Stoican)