Romania’s deficit is shrinking faster than its politics can agree

Romania is running two experiments at once. The first, a fiscal correction begun in 2025, is working on the numbers the Finance Ministry publishes each month. The second, an attempt to govern without a government, has now lasted since 5 May, when the cabinet of Ilie Bolojan lost a no-confidence vote. On 17 September President Nicușor Dan named a third candidate for prime minister, the Liberal MEP Siegfried Mureșan. On 21 September the Social Democratic Party (PSD), the largest group in parliament, said it would vote against him. The question for the rest of the year is whether the first experiment can survive the second.

How Romania arrived at a third nominee

The pro-European coalition formed in June 2025 broke over spending cuts. The PSD walked out in the spring, arguing that austerity was falling on its voters, and on 5 May joined the opposition Alliance for the Union of Romanians (AUR) to remove Mr Bolojan in a no-confidence vote. He has since led an interim cabinet with limited powers, while the budget has been run on measures already in law.

Mr Dan’s first nominee withdrew before facing parliament. The second, Adrian Veștea, a Liberal, presented a cabinet in late June and received 189 votes against the 233 needed. The coalition lines had inverted: the PSD backed Mr Veștea, while the Liberals, his own party, and their smaller partners withheld their votes. AUR, the second-largest party, also declined; its leader, George Simion, had made support conditional on mainstream parties ceasing to call AUR extremist.

Under the constitution, two failed nominees within 60 days allow the president to dissolve parliament and call an early election. Mr Dan did not do so, and spent the summer in consultations. When he named Mr Mureșan on 17 September he conceded, according to the Associated Press, that “we do not have a clear majority, despite all these hours of discussions.”

The arithmetic facing Mr Mureșan

Mr Mureșan, 44, has sat in the European Parliament since 2014 and is a vice-chair of the European People’s Party group. He has ten days to present a cabinet. The parties behind him, the PNL, USR and the Hungarian UDMR, hold roughly 169 or 170 seats, about 64 short of the 233 required, as Brussels Signal calculated. The PSD has signalled that it will not support a cabinet it does not sit in, and the Liberals have refused to govern with it again.

The PSD’s leader, Sorin Grindeanu, greeted the nomination with what he called surprise and disappointment. On 21 September the party voted unanimously against the proposed cabinet, arguing that it would continue policies the party says impoverish Romanians and the economy, and said it was willing to govern only as part of a coalition. AUR has also signalled that it will not cooperate. Unless one of those positions moves, Mr Mureșan’s route to 233 votes is not visible in the published figures.

Both sides have a case. The PSD speaks for voters who have paid higher taxes during a contraction; the Liberals point to a deficit that markets and rating agencies are watching closely. The dispute is about who bears the correction and at what speed, not about whether one is needed. That makes it negotiable in principle, which is why the president has kept trying rather than dissolving parliament.

What the fiscal numbers show

The deficit reached 9.3 per cent of GDP in 2024, by Fitch’s figure, and 7.7 per cent in 2025, according to ING. In-year data for 2026 show a steep improvement. The consolidated deficit was 2.0 per cent of GDP in the first half, against 3.65 per cent a year earlier, and 2.34 per cent (RON48.08bn) over January–July, down from 3.99 per cent (RON76.44bn), according to the Finance Ministry. Fitch now expects 5.9 per cent for the full year; ING says 6.0 per cent or less.

These gains rest on measures already in force, which an interim government can administer but cannot extend. Fitch’s analyst Malgorzata Krzywicka said in mid-September that what had been expected to be “a relatively short government reshuffle” had lasted beyond the summer, and the agency estimates that a further correction of about 1.5 per cent of GDP is needed to stabilise public debt. That work belongs to the 2027 budget, which no one currently has a mandate to write.

The economy has absorbed the correction at a cost. Output fell 1.2 per cent year on year in the first quarter, and ING now forecasts a 0.5 per cent contraction for 2026. Annual inflation fell to 6.17 per cent in August from 8.16 per cent in July, but services were still up 11.28 per cent, and the National Bank of Romania raised its end-2026 forecast to 6.1 per cent from 5.5 per cent. The central bank has not moved its policy rate since August 2024. The current account deficit was 7.9 per cent of GDP in 2025, so external financing needs remain large.

Two deadlines that do not wait for coalition talks

The first is European money. Romania’s recovery plan required its milestones to be met by the end of August, and ING expected the last payment requests to be filed in August and September. ING also projects EU-funded investment of €42.5bn in 2026, 56 per cent more than in 2025, and notes that an interim cabinet in place for months creates uncertainty over its ability to deliver politically sensitive milestones on time. Money that is not claimed now will not be available after the facility closes.

The second is the rating calendar. Fitch rates Romania BBB-, the lowest investment grade, with a negative outlook, and has warned that the country risks a cut to junk if the crisis persists; its next scheduled review is in January 2027. S&P is scheduled to decide on 2 October. A downgrade would raise the cost of financing a deficit that, even on the improved numbers, remains about twice the EU’s 3 per cent reference value.

What to watch

Three outcomes are possible in the coming weeks. Mr Mureșan could win enough PSD or AUR votes, which would require concessions that neither party has so far been offered. He could lose the vote, which would give Mr Dan grounds to dissolve parliament and call an early election two years before the one scheduled for 2028. Or talks could produce a different coalition, most plausibly one that returns the PSD to government on changed terms; the original coalition agreement had already provided for the premiership to rotate to the PSD in 2027.

For investors and partners, the useful indicators are the monthly deficit releases, the text of the final recovery-fund request and whatever S&P says on 2 October about political risk. The fiscal correction so far has been real. Its durability depends on a 2027 budget, and that requires a government that can command 233 votes.

Sources

• Associated Press via WRAL — Romania’s president nominates a new prime minister to break a political deadlock
• Brussels Signal — President nominates Mureșan as prime minister
• Universul.net — Romania’s PSD, the biggest party, won’t vote for PM-designate, as political deadlock drags on
• Balkan Insight — Romania’s crisis deepens as parliament rejects PM-designate’s government
• ZF English — Finance Ministry: Romania’s budget deficit down to RON48bn or 2.34% of GDP in January–July 2026
• ING Think — Monitoring Romania: the last-mile RRF push meets a weak economy
• KNEWS (after Bloomberg) — Fitch warns Romania risks junk status amid ongoing political crisis
• Business Review — Annual inflation rate fell to 6.17% in August from 8.16% in July