Weekly review: when two heads are not better than one

Weekly review: when two heads are not better than one


By Daniel Stroe – Bucharest

Monday’s meeting between the Romanian President Traian Basescu and PM Victor Ponta, accompanied by his Finance minister Ioana Petrescu, turned from what seemed to be a banal leadership get together into a media and image disaster for the head of government who seeks to reach the top job in the country, after the governmental pair failed to give solid and coherent answers to matters concerning national economy.

Basescu summoned the two in order to ask for explanations following the government’s decision to cut back the social insurance contributions (CAS) by 5 percentage points as of October in what seems to be a widely electorally flavored measure. Basescu wanted to find out how Ponta’s government is going to fill the big gap the cut back is going to create in the state budget.

The Romanian Ministry of Finance has previously warned that the decision to cut back health insurance contributions by 5 points beginning this fall would lead to a negative impact on state budget of more than 4.4 billion lei each year (about 1 billion Euros) which the central authorities will have to cover through alternative means.

For this year alone, the budget gap expected is 850 million lei (193 million Euros), a document issued by the ministry also says. But the negative impact for 2014 is going to be compensated by income generated by supplementary construction taxes which is expected to rise to 1449 million lei (329 million Euros), the ministry aso argues.

With the law on CAS reduction on his table,Basescu asked Ponta and Petrescu where they would get the money to cover the budget gap. From supplimentary income, they answered. Basescu pressed and asked for details. The two answered they would have the details when the 2015 budget is drafted and all the alternative sources will be listed there. “But maddam, I have to sign this into law now and I want to do it in a credible manner (…) Give me arguments to promulgate the law, not slogans” the President replied, alluding to the electoral character of the cut back.

As the Finance minister failed to bring numbers into discussion, she clings to the argument the CAS cut back would encourage employers to hire more. “No one is hiring…maddam, where did you say you graduated from, Oxford, Harvard?”Basescu asked her. “Harvard”she replied. “Roubini is an economist there, I was expecting arguments of his kind”Basescu fought back.

The meeting was over in only half an hour. As they walked out, Ponta told the media the President had a boorish behavior with the Finance minister. In return, the Presidency published the very same day the transcript of the meeting, which is very unusual. The lines poured even more shame over the PM and his Finance minister in her mid-30’s, showing the two had come to the meeting totally unprepared.

Ponta vowed to press ahead with the CAS cut despite the apparent lack of alternative sources to compensate the hole in the budget. This April, he passed a similar measure, a tax on fuel, in spite of fierce opposition from the President and the ire of the public. Ponta was hoping to raise several hundreds millions per year out of this new tax, but the reality proved otherwise. But the national road transporters’association showed a few days ago that the 7 Eurocents tax only managed to incur about 60 millions Euros losses to the state budget, due to a lower fuel consumption or fueling abroad, calculations made before but which the government failed to take into account.

Despite Ponta’s clumsiness in handling vital economic issues, new polls released this week show he is likely to become Romania’s next president. According to an INSCOP poll, 52.4 per cent of the Romanians think Victor Ponta will win the presidential elections in November. Second comes Klaus Iohannis, the German ethnic mayor of Sibiu, supported by 23.6 % of the respondents. The other likely contenders only managed to get a one digit result. About 30 per cent of the respondents think Ponta would make a fine team with Mugur Isarescu, the National Bank governor, as prime-minister. Many warn Ponta may be tempted to resort to populist measures this year which could imperil the fragile economic growth this year, around 3 per cent, according to various sources.