Romania looks to counter capital outflows after far-right election gains
Summary
Companies
Romania's international bonds continue to slide
Leu currency falls past 5 per euro level for first time
Trading volumes surge after presidential election
Romania grappling with EU's highest budget deficit
Cenbank may need to raise rates if budget outlook worsens -analyst
BUCHAREST/LONDON, May 6 (Reuters) - Romania's central bank said on Tuesday it was looking for the "optimal way" to counter significant capital outflows amid steep falls in the leu currency after a hard-right opposition leader won the first round of a repeat presidential election.
The bank, which holds its next policy meeting on May 16, held its benchmark interest rate at the European Union's joint-highest 6.5% level last month, faced with heightened risks over trade tariffs and fiscal uncertainty ahead of the vote.
Romania's 10-year local currency bond yields jumped by some 50 basis points to 8% on Monday after eurosceptic nationalist George Simion decisively swept Sunday's ballot, triggering the resignation of Prime Minister Marcel Ciolacu.
By mid-afternoon in Europe on Tuesday, most of Romania's international sovereign bonds had arrested earlier declines, but the dollar-denominated issues maturing in 2044 and 2048 remained close to their lowest since November 2022, with bid levels at 81.62 cents and 69.62 cents on the dollar, respectively.
Romania, whose debt pile at 54.8% of output is still well below an 81% EU average, failed to sell domestic bonds at a regular tender on Monday due to low demand. Debt managers plan to tap domestic markets again on Thursday.
"An important change happened in the currency market lately, capital inflows fell but outflows rose significantly," Romanian central bank spokesperson Dan Suciu told Reuters.
"As a result, to counter these movements liquidity must be drawn from the market and (market) interest rates must rise. The central bank will look for an optimal way for this situation."
Romania's leu fell more than 2% on Tuesday, past the key 5 per euro level for the first time, underperforming central European currencies. The central bank declined to comment on whether it had intervened to help the currency.
The bank had previously said it would give the tightly-controlled leu "more flexibility" if political tensions eased later this year after spending what JP Morgan estimates is over 10 billion euros ($11.35 billion) on interventions in 2024.
Romanian media reported a surge in interventions on Monday, which Reuters could not independently verify.
"They have limited amount to spend. And clearly, if this story from yesterday continues, they would run out of reserves quite fast," said Anton Hauser, senior fund manager with Erste Asset Management.
Stronger demand for euros from households to shield their savings could put further pressure on the exchange rate, which he said was "clearly overvalued."
VOLUMES SURGE
On Tuesday JP Morgan recommended going long on the euro versus the leu in FX spot markets, with Romania's intervention policy seemingly shifting. The central bank's foreign exchange reserves stood at 62.4 billion euros at the end of April.
As the leu crashed out of the tight range it had held onto for much of the past three years, trading volumes surged to their highest levels in at least a decade in the first two sessions following Sunday's election, LSEG data showed.
More than half of Romania's debt stock is denominated in foreign currency, the highest rate in central Europe, with billions more in hard currency issuance planned for 2025.
While Romania's credit rating sits on the lowest rung of investment grade, investors say markets were starting to price in a downgrade, and several of its international bonds were trading below the 70 cent level, the point at which debt is typically considered distressed.
Romania, whose 354 billion euro economy is central Europe's second largest behind Poland, already has an interim president until the May 18 run-off.
An interim government cannot issue decrees or introduce policies. The country has the EU's largest budget deficit and risks a ratings downgrade to below investment level unless it enforces a decisive fiscal correction.
A Simion victory in the run-off could isolate Romania, erode private investment and destabilise NATO's eastern flank, where Bucharest plays a key role in providing logistical support to Ukraine as it fights a three-year-old Russian invasion, political observers say.
"Given the recent results and political developments, we have lifted our guidance for the 2025 budget execution from 7.7% of GDP to 8.7% of GDP, and skew the risks to the upside," economists at Wood&Company said in a note.
"We see an emerging risk that the Central Bank will not be able to ease monetary policy this year and may even reverse into an emergency interest rate increase if the budget outlook worsens further."
($1 = 0.8814 euros)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The National
30 minutes ago
- The National
Why Scotland joining Efta or EEA is infinitely preferable to the EU
Since then, there has been an understandable desire expressed by many to rejoin the EU after independence, though how that is delivered remains to be seen. However, the debate thus far has not fully addressed other options: notably membership of Efta/the EEA, at least in the medium term. Efta is the European Free Trade Association. It was formed in 1960 as kind of an economic waiting room prior to EU accession. The UK was a member of Efta before 1973 when it passed legislation to become a member of the EU. Switzerland, Norway, Iceland, and Lichtenstein never left the waiting room, and currently comprise Efta. READ MORE: These key economic truths show how independent Scotland and Wales can succeed The EEA is the European Economic Area. This was a treaty signed in 1992 which enabled all the EU states and the Efta members (excluding Switzerland) to be part of the single market. This requires all members of the EEA to respect the four freedoms of movement – workers, goods, services, and capital. Switzerland has a series of bilateral treaties with the EU under which it must abide by these four freedoms, but it is much more complicated than EEA membership. I have attended two biennial seminars of the Efta/EEA council in Brussels, and was struck by the positive engagement between all EEA members, Efta and the EU. There is this slogan against Efta membership that Scotland would be 'rule takers, not rule makers'. This ignores the fact that within the EEA treaty, all EEA states must be closely consulted on any change in EU law pertaining to the EEA agreement. On many occasions, Efta/EEA members engaged in the process early and had a positive formative influence on the law. READ MORE: Assa Samake-Roman: What if we are wrong about reasons for rise in far-right support? While Efta/EEA members do not have a vote on laws, I asked Efta members if they had ever had EU laws forced on them against their will. They couldn't think of any such occasions. Many smaller EU states feel they have no influence at all. Upon a 'democratic event' affirming majority support for independence, Scotland could apply to join Efta. While I cannot speak on their behalf, I can safely say there is great support among Efta officials for Scottish membership. The three Efta/EEA members would then lobby to get an independent Scotland into the EEA. Again, I cannot speak on their behalf, but when I last spoke with Efta officials they saw no impediment to Scotland joining Efta and the EEA within a few short months. Compare this to the EU accession process. This could easily take 10 years. EU law (the acquis) comprises 35 chapters, all of which would need to be reflected in Scots law, and Scotland would have to demonstrate that it has the institutions in place to apply EU law. It doesn't, because the 'Scottish' civil service is merely an appendage of the UK state. File photo of a Yes for EU rally at the Scottish parliamentAll 27 EU member states have veto power at any stage in the process. Think Spain and Catalonia. At the recent SSRG conference in Dunfermline, we held a panel on Efta/EEA membership. I was in touch with @YesforEU, and asked if any known prominent advocate for Scotland in the EU would be willing to speak. We got zero responses. There seems to be a contrived prevailing assumption that, because Scots voted to remain in the EU in 2016, rejoining the EU after independence would be easy and preferable to Efta membership. I was in touch with a well-known purportedly pro-indy corporate lobbyist, who after changing his mind, assured me that the EU membership 'polled' better than Efta/EEA, therefore independence should be automatically linked with EU membership. However, that assumes Scots are well-informed about the pros and cons of membership of both, and can make an informed decision. This debate has yet to be held. This ignores the many independence supporters who, despite the Scottish vote to remain in 2016, take a dim view of EU membership. As an American with UK citizenship through my Scottish father, I have been able to carve out a career as a university teacher in France. When I came to France in 1995, I felt a genuine optimism towards the economic objectives of the EU, and have benefited from it. My view of the EU has changed drastically since then. The musician Frank Zappa famously remarked that '[US] Politics is the entertainment division of the military-industrial complex'. Regrettably, the same can increasingly be said of the EU and Nato, which are becoming indistinguishable. At the same time, the EU is increasingly authoritarian. Whether you agree with them or not, look at how Viktor Orban in Hungary and Robert Fico in Slovakia have been threatened because of their opposition to the EU approach to Russia and Ukraine. It also managed to get Calin Georgescu eliminated in Romania as a presidential candidate because he dissented from Ursula Von der Leyen's orthodoxy. Kaja Kallas is the High Representative of the European Union for Foreign Affairs and Security PolicyAnd don't get me going on the incompetence and stupidity of Kaja Kallas, the EU foreign minister. She is openly Russophobic, speaks about defeating and carving up Russia, and laments that if the EU cannot defeat Russia, how can it defeat China? Does Scotland want to join THAT EU? What happens when that bile is directed at Scotland if it dissents from EU-manufactured consent? Maybe, over time, the EU leadership will regain some sanity, get back to its original economic purpose and stop violating its members' sovereignty and cultures. Until then, Scotland should join Efta/the EEA, recoup and exercise its popular sovereignty, and let the EU sort itself out. Whether it does or not, Scotland will be much better off as an Efta/EEA member, and will be warmly welcomed. Later, there is no obstacle to joining the EU, if that is what Scots democratically decide. Dr Mark McNaught is the founder of the Scottish Sovereignty Research Group and Maître de Conférences at the University of Rennes 2, France
Reuters
an hour ago
- Reuters
Germany's imports from Russia fall by 95% since start of Ukraine war
June 11 (Reuters) - Germany's imports of goods from Russia fell by 95% in the 2021-2024 period while its exports of goods to Russia were cut by 72%, the country's statistics office Destatis reported on Wednesday. The European Union as a whole cut its imports from Russia by 78% and exports by 65% over the same time frame, leading to a trade deficit of 4.5 billion euros ($5.1 billion) in 2024 compared with 147.5 billion euros in 2022, Destatis added. "The main reason for the continued import surplus in 2024 was that the EU continued to import oil and natural gas from Russia to a significant extent," Destatis wrote in a report. Despite avoiding Trump's U.S. tariffs, Russia, whose trade with the U.S. and EU has sharply declined due to sanctions over its ongoing war in Ukraine, has seen its economy perform better than expected during the three-year conflict. However, it faces a period of lower oil prices and shrinking budget revenues. Russia has cut its forecast for 2025-2027 oil and gas export revenues in April, a key source of funding for the state budget, due to weaker oil prices, expecting proceeds to fall by 15% this year, according to an economy ministry document seen by Reuters. According to the European commission, in 2020, the European Union was Russia's largest trading, opens new tab partner, accounting for 36.5% of its imports and 37.9% of its exports. The European Commission has proposed an 18th package of sanctions against Russia for its invasion of Ukraine, aimed at Moscow's energy revenues, its banks and its military industry, European Commission President Ursula von der Leyen said on Tuesday. ($1 = 0.8758 euros)
The Herald Scotland
2 hours ago
- The Herald Scotland
Ireland's growth looks impressive. Until you read the small print
These figures are, however, astonishing, just too good to be true – and they are. Irish growth is hugely inflated by the presence of large US multinationals in the high-tech sector, especially in pharmaceuticals and digital technologies. The capital flows – investments, repatriated profits, IP ownership etc – and trade flows – imports and exports – associated with their operational activity and financial engineering, heavily distort the picture of what's happening elsewhere in the Irish economy. The lowest corporation tax rate in Europe (12.5%) and other sweeteners have helped to attract these US behemoths. This has already put the Irish Government in the crosshairs of the EU: last year the European Court of Justice required a reluctant Irish Government to claw back 13 billion euros from Apple on the grounds that unlawful tax advantages had been granted. Now, reciprocal tariffs of up to 50% are being threatened by the Trump administration: not good news for the likes of Pfizer, in Cork, which exports 80% of its drugs back to the US for finishing. Unsurprisingly, the high surge in Irish first-quarter growth is in large part due to stockpiling by these businesses in anticipation of new tariffs being imposed. Paul Krugman, the Nobel Prize-winning economist, described Irish growth as 'leprechaun economics' where GDP is 'artificially' distorted by multinational tax strategies. He's right. The main lesson for Scotland is to avoid dangerous over-dependence on powerful multinationals and to try to keep on Trump's good side – at least until things change. Other home-grown development paths are always available. Ewen Peters, Newton Mearns. Read more letters: Swinney should call an NHS summit I recently read a letter, published elsewhere, from a group of senior health professionals who very crisply, in a blameless collegiate way, described a way forward for our NHS and Social Care. In essence they are calling for John Swinney to put aside party politics and call a non-political summit to discuss and review the way forward for our health service. We've had various summits most recently about the rise of far right so surely it shouldn't to too difficult to organise this considering it's the subject uttermost in the minds of most citizens' concerns. Of course these experts are not suggesting that a simple summit will solve all the ills of our health and social care but as the start of a cross-party approach, upon which there are many areas of common ground. Our politicians owe us this but sad to say, with another election looming, I somehow doubt anyone has the guts or ambition to grasp the health nettle and plot a way forward. Come on, John, do as you say and put the people of Scotland First. Ian McNair, Cellardyke. Summits are the height of delusion I know that the SNP likes to pretend that Scotland is a sovereign state bestriding the world stage. After all, as Cabinet secretary Mairi MacAllan told Holyrood in February 2024, 'More often than not, world leaders are approaching the Scottish government asking for our advice on how we have managed to lead the way so successfully on a number of fronts'. If you believe any of that, you will believe anything. John Swinney's self-important contribution to this is to hold 'summits'. Did we ever hear positive results from the one in April when he gathered the not very great or good together to devise a strategy for combating Reform? That went well last week. Now he is to hold a 'summit' on the scourge of knife crime. Some angry Scottish nationalists on social media are asking why he isn't holding a summit on independence, instead, which gives an indication of their (lack of) interest in the wellbeing of Scots. A summit is normally understood as a meeting of world leaders on a pressing issue of international concern. Using it to describe the deliberations of a devolved authority on a serious internal problem is to indulge in delusions of grandeur. Par for the SNP course. Jill Stephenson, Edinburgh. Organising NHS staff properly Iain McNicol's letter (June 9) gives a glowing review of his NHS treatment and he suggests that taxes should be increased to improve funding of this enormous organisation. Not everyone has been so well treated and many have to wait a very long time for treatment. I speak from some experience. Television is full of programmes about hospitals, emergency services, ambulances. et cetera. Even for a minor accident it is not unusual to have a couple of ambulances, a fast response paramedic, the Hazardous Area Response Team, the fire service, a couple of police cars and a JRU (Joint Response Unit). In many cases a helicopter is called in to add to the mayhem and sometimes sent away again as not needed. The scene is a sea of blue lights and all colours of high-vis jackets. What does all that cost and could it not be more economically organised? Then the scene switches back to the A&E department and here you can see a large number of staff milling around, sitting at computers. I don't think funding is the problem. I think it has more do with actual organisation, but with an enormous unionised workforce it will never be sorted out. David Gilchrist, Paisley. Scotland's Child Payment has been a success There can be little doubt that the Scottish Child Payment (SCP) is one of the most progressive initiatives delivered by either the UK government or any of the devolved ones during the last 10-15 years. Author, political commentator and Oxford University Professor Danny Dorling acknowledged this at the weekend when he said the SCP had significantly helped tackle child poverty in Scotland while remaining almost entirely ignored by politicians in England, whom he accused of wearing 'unbelievable blinkers'. He added that for an eligible family, 'If you've got three kids that's about £4,000 a year extra – that means that your children can eat and eat well, I mean healthily'. Figures published in March indicated that 31% of children across the UK were in relative poverty compared with 30% a year earlier. In Scotland the rate was 22% compared with 26% for the previous year. The SCP is yet another example of positive change initiated by the Scottish government and as such, is in stark contrast to the 'change' promised but not delivered by UK Labour. As Professor Dorling intimates, it is strange that there is such widespread ignorance of it south of the border. Perhaps the Child Poverty Task Force set up by Keir Starmer will recommend its adoption right across the UK. Alan Woodcock, Dundee. Sarwar did well in his TV interview They say that beauty is in the eye of the beholder. The letter from S. McArthur (June 10) would suggest that the same seems to apply to political programmes. Contrary to the views expressed, I found Anas Sarwar's interview to be excellent. He dealt at length with issues relevant to the Scottish Parliament, which was what the by-election was all about and declined the invitation to dwell on issues for which the First Minister has no responsibility whatsoever. He answered at length matters which they are. As a Labour voter I was very proud. John Swinney, a nice man, demonstrated the pressures he had been under the whole week-end, and was understandably crestfallen. I am sure that I was not alone in being hugely impressed by the interview with Dame Jackie Baillie as the votes were being counted. Emotionally drained, she gave the honest answer that at that point the result was too close to call. It came as no surprise when we saw the Herald's picture of Dame Jackie in tears. As a Labour voter I thought that, not for the first time, she is the kind of person who gives politics a good name. Sir Tom Clarke, Former Labour MP for Coatbridge. Election count It would appear that the First Minister does not even have a basic grasp of maths – pretty essential, may I suggest, for this role. He claimed that the Labour vote at Hamilton 'collapsed by 20% from 50% to 30%'; this is a reduction of 20% points, the actual percentage reduction is an entirely different figure . Perhaps the Cabinet Secretary for Education could put him right? Mike Flinn, West Kilbride.
