Another election upset, another wave of doomsday predictions in Romania. But is this just political déjà vu or are we looking at a deeper structural shift with real macro implications? In this blog, we unpack the risks, spotlight the overlooked opportunities, and leave you to contemplate the conclusions.
First, let’s remind ourselves how this political turmoil in Romania started. 2024 was a super-election year, with local, presidential, parliamentary and European Parliament elections taking place. In November, a first round upset stunned everyone after independent candidate Călin Georgescu secured 23% of the votes and took the win. Two days before the second round where Georgescu was supposed to face Elena Lasconi, Constitutional Court annulled the entire election, citing declassified intelligence reports of Russian meddling – including cyberattacks on electoral IT systems and “massive” social media manipulation in Georgescu’s favor – declaring the vote compromised. This extraordinary decision plunged the country into political uncertainty, with many across the spectrum (from far-right supporters to liberal reformists) labeling the move as a “stitch-up” by the establishment. Even Lasconi criticized the annulment as a hijacking of the democratic process. If you want a more detailed overview of last fall’s political conflicts, you can check the previous blog here.
The aftermath was equally explosive. Protest erupted, with Georgescu’s supporters gathering outside shuttered polling stations on the day the runoff was supposed to take place. By January, tens of thousands had flooded Bucharest, labeling the Court’s decision a “coup d’état”, demanding resumption of the elections and calling resignation of Prime Minister Marcel Ciolacu and President Klaus Iohannis, accusing them of trampling on democracy.
In February, under mounting pressure from public protests, a parliamentary motion, and international scrutiny (notably from EU conservatives and US Republicans), President Iohannis resigned, having overstayed his term since December under the guise of acting as caretaker. Senate leader Ilie Bolojan assumed interim presidential powers.
Authorities began organizing a rerun, but Georgescu was barred from re-entering the race, detained en route to submit his candidacy. Prosecutors launched a wide-ranging investigation, charging him with incitement against the constitutional order, support for fascist organizations, false asset declarations, and involvement in cyberattacks on the election system. The Central Electoral Bureau and the courts officially disqualified him from the May 2025 vote, inflaming his support base. In response, Georgescu endorsed AUR leader George Simion, who rapidly emerged as the right-wing’s new champion.
Georgescu’s legal appeal – including one to the European Court of Human Rights – sparked temporary confusion when a regional appeals court ruled that the November annulments itself should be voided. Nevertheless, officials confirmed that the May rerun would proceed, as Constitutional Court rulings are final.
On 4 May, Romania held the second first round of the presidential election. The result – a decisive victory for George Simion, securing 41% of the votes, far ahead of second-placed independent candidate and Bucharest mayor Nicusor Dan who won 21% of the votes. The two are to clash in a runoff on 18 May.
The political fallout was immediate. Prime Minister Ciolacu resigned the following day, acknowledging the failure of the ruling PSD-PNL centrist coalition to field a viable candidate. His exit market the effective collapse of the governing alliance. At the same time, Elena Lasconi, once a favorite, also resigned after receiving a humiliating 2.68% of the vote. Meanwhile, Simion stoked controversy by promising to appoint Georgescu as PM if elects – further destabilizing the political landscape. As a result, last Monday BET index fell 2.88%, while the RON depreciated by more than 2% to EUR.
Parallel to political chaos, Romania’s macroeconomic situation is also struggling. The 2024 budget deficit hit 8.6% of GDP – the highest in the EU – after massive pre-election spending. This continues a long-standing trend of fiscal indiscipline, with Romania under the EU’s Excessive Deficit Procedure since 2020 for breaching the 3% ceiling.
To avoid sanctions, the government submitted a 7-year fiscal consolidation plan, targeting a deficit of 7% in 2025, with gradual reductions to 2.5% by 2031. The 2025 budget avoids major tax hikes, instead relying on slower expenditure growth attempting to preserve public investment. However, additional austerity measures will likely be required.
Public debt – though still moderate by EU standards – has risen from 50% pre-pandemic to ~55% in 2024, on track to reach 60% by 2026. The fiscal roadmap optimistically aims to cap it at 62% by 2029.
Complicating matters, Romania risks missing on a part of EU Recovery and Resilience Facility (RFF) funds, which are vital to its National Recovery Plan. As of December 2024, only 29% of the funds had been absorbed, with the RFF funds availability through 2026. Key reforms, like pension system overhaul and tax administration improvements, have stalled amid political turmoil. This uncertainty threatens disbursement timelines and undermines long-term growth prospects. If instability persists, tensions between future presidential and parliamentary leadership could further erode investor confidence.
Meanwhile, Romania’s revenue-to-GDP ratio remains among the lowest in the EU. A flat 10% income tax and 19% standard VAT – combined with generous exemptions – have hollowed out a tax base. While investor-friendly, this structure leaves the country short on funding for basic public services. Fiscal consolidation must tackle both spending and revenue shortfalls, without compromising Romania’s pro-growth tax stance.
Romania also suffers from persistently high inflation, among the worst in the EU. The energy price cap scheme, introduced in late 2021, remains in place despite EU criticism for distorting market signals, pressuring public finances, and delaying the pass-through of inflation.
This cocktail of risks has translated into worsening investor sentiment, with all three major credit agencies (Fitch, S&P, Moody’s) downgrading Romania’s outlook to negative. Yields on 10y Romanian government bonds hover around 8.5%, reflecting this skepticism.
However, despite all that, the old story remains – Romania is on the path to enter the emerging market status. Also, Romania has had robust growth in the previous two years, driven by the positive effects of nearshoring, anticipation of Schengen membership and aforementioned emerging market status, so a little consolidation is needed. Nearshoring is a trend that is here to stay, considerably more so in the wake of heightened global trade uncertainties. Schengen membership can only emphasize the effects of that. Also, the index is well-diversified, with the biggest weight attributable to energy, which poses as the strategic move for the country in context of European energy dependency, and financial industries.
Global and regional indices comparison to BET (1 Jan 2019 = 100)
Source: Bloomberg, InterCapital Research
When comparing Romania to other regional markets, its P/E and P/B multiples tell the same story – Romania is relatively cheap. However, this also reflects the risk aversion which currently marks investor sentiment on the developments in the country.
P/E and P/B comparison between BET, SBITOP and CROBEX10 (Current values)
Source: InterCapital Research
To sum up, the situation in Romania has been escalating in the past year, due to super-election year and all the political turmoil parallel to it. The challenges remain significant, including addressing the budget deficit, implementing fiscal consolidation, increasing government revenues without disturbing the growth-oriented environment, and dealing with the deregulation of the energy market. However, positive developments such as Schengen membership and the continued benefits of nearshoring, which are yet to be maximized, a robust energy potential, and the country’s impending status as an emerging market all contribute to making Romania look more optimistic than it appears on the first look. While the current turmoil in the Romanian capital market and the political tension are far from ideal, they could present attractive investment opportunities once the situation stabilizes.
