Former Romanian president Traian Băsescu has issued a stark warning about the country’s economic trajectory.
He has publicly claimed that unless the current government immediately reduces public spending, Romania could be forced within two to three years to sell its strategic national assets of the Constanța Port, the Midia Port, Otopeni Airport, and major energy infrastructure just to cover the cost of its debt.
Debt itself isn’t the problem, as Băsescu himself admits. Every country has debt. The problem lies with the exceptionally high interest rates at which the Romanian state has borrowed in recent years.
In a Digi24 talks show, Băsescu informed that successive governments (particularly under former PM Marcel Ciolacu, a representative of Băsescu’s rival PSD party) contracted loans at interest rates of 6.5–7 percent.
Băsescu argues that borrowing “tens of billions” at such rates inevitably leads to fiscal collapse if corrective measures are postponed.
Action was needed years ago to avert the crisis we find ourselves in at the present moment, but a governing coalition stayed in a state of paralysis for a long time, and now we are paying the cost for that.
Unfortunately, there is truth in the former president’s warning. Romania has run large budget deficits and has increasingly relied on external borrowing to finance them. Compared to that of many of its EU peers, Romania’s borrowing costs are high, reflecting weaker fiscal credibility and inflationary pressures. We are already seeing and feeling abrupt austerity measures and painful tax increases in Romania, and that is on track with the two or three years it typically takes for economic mistakes to make themselves apparent in practice.
Hopefully, though, Băsescu’s claims can be taken as a hyperbolic warning and not an infallible prophecy if Romania turns things around…now.
What will come before such extreme measures, though, remain painful for the private citizen: actions like fiscal consolidation, tax increases, renegotiation of spending commitments, inflation-driven debt erosion. It feels like Romania is really lagging behind, and people are paying for it with a decreased quality of life.
Let’s understand why austerity measures are such an unpopular reform and thus difficult for politicians to implement. Unfortunately, Romania’s economy is characterized by low wages and fragile household finances. A large share of the population lives close to subsistence, with limited savings and high exposure to price shocks. In such conditions, even modest cuts to public wages and subsidies have disproportionate social effects.
Băsescu argues that informal coalition leadership bodies have effectively blocked government action while lacking constitutional basis. The creation of a coalition did soothe the spirits that dominated Romanian politics for decades — divided into a senseless binary — but it seemed that it was exactly in this period that the tide ran out for Romania.
Unconstitutional? Concerns about constitutional boundaries are no trivial thing, but the deeper issue in Romania’s case is that prolonged negotiation and diffused responsibility within the coalition have repeatedly delayed difficult decisions. Whether or not such structures are formally grounded in the Constitution, their concrete effect has been to replace decisive governance with inertia.
By the way, though he did many questionable things himself, Traian Băsescu was president during the 2010–2011 financial crisis, and at time supported severe austerity measures and IMF-backed stabilization policies that deeply affected Romanian society. He garnered much antipathy and long-lasting resentment for this, but valued discipline over consensus. To this day, in the contemporary Romanian experience, austerity is deeply associated in the public mind with the 2010–2011 crisis, when the president implemented harsh IMF-backed measures, including a 25% cut in public-sector wages and reductions in social benefits. Those policies caused a sharp drop in living standards…which were already low.
Unlike countries that issue reserve currencies, Romania cannot rely on large-scale monetary financing without risking currency instability. The National Bank of Romania’s ability to backstop government borrowing is constrained — should a confidence shock come around, the government would have fewer tools to stabilize financing costs, and might prefer this to a soaring epreciation of the leu.
Long story short? Romania is quite literally paying the price for reforms that came too late and now have arrived abruptly and severely. Who pays for that? The average Joe, naturally. Joe is feeling it most acutely now. Soon enough, everyone will pay.
Oh, and another thing: commentators point out that there would be no love lost should those assets have a Chinese fluttering over them instead of a Romanian one, given that they already function poorly, but as employment hubs for the family members of politicians.
