Romania’s parliament on Tuesday dealt a major blow to the centre-right government’s push to keep the public finances in order by amending the budget to raise pensions by a whopping 40 per cent, instead of 14 per cent, as the original legislation envisioned.

Increasing pensions by 40 per cent is an old promise of the opposition Social Democratic Party, PSD, which has the largest number of seats in parliament and tabled the amendment.

Besides the PSD, which made salary and pension hikes its trademark policy in government, the rise was supported by the Democratic Union of the Hungarians of Romania, UDMR, whose votes are decisive in Romania’s hung parliament.

Prime Minister Ludovic Orban has said that his government will appeal the steep increase before the Constitutional Court, and slated the Social Democrats as “economic criminals”.

He said the 14-per-cent hike passed by his cabinet was “the largest” ever in the history of the country, and noted that “no European country has increased pensions during the coronavirus pandemic apart from Germany” – which boosted payments for pensioners by up to 4.1 per cent.

The Finance Minister, Florin Citu, predicted that rating agencies will now “instantly downgrade Romania to junk status” if the amended law, which now will go to President Klaus Iohannis for promulgation, comes into effect.

“This would mean that we risk not being able to keep financing the budget deficit except at exorbitant costs and with very high interests,” he explained. Global rating agencies and international organisations such as the EU and the IMF repeatedly warned against the 40-per-cent increase projected by the former PSD government, which was ousted in a no-confidence vote last October, and welcomed the current cabinet’s decision to cap the pensions’ hike.

In line with the government, the country’s Foreign Investors Council expressed concerns about the “impact on Romania’s ability to access significant amounts of European funds” and about likely “modifications” of the country’s ratings by international agencies.

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