With the Romanian election creating market volatility and driving alpha opportunities for active investors, Tim Ash, Senior EMD Sovereign Strategist, shares his thoughts on the recent poll-topping victory of hard-right candidate, Calin Georgescu.
The only word that can be used to describe Georgescu’s first-round presidential election win in Romania over the weekend of 23/24 November is ‘meteoric’. Georgescu will next go head-to-head in the second-round run-off with the pro-EU reform candidate for the Save Romania Union (USR) party, Elena Lasconi, at the start of December.
Pro-Putin and populist
Georgescu’s win is being painted as another victory for a pro-Putin politician, following Orban in Hungary, Fico in Slovak and Dream in Georgia. There is some pro-Russian, anti-Western politicking in there for sure, as fatigue with the war in Ukraine is widespread in Romanian society and, indeed, in many places in Europe.
However, there are three other broad conclusions from this win:
Political influence: Georgescu’s victory shows the power of new forms of political influence and campaigning and the dangers, therein, to democracy more generally. Georgescu ran a hugely impactful, last minute, social media campaign.
Populism: in the current global political setting, populism is popular. Mass migration has elevated voter sensitivities around immigration, and especially in places where post-Covid populations have been hard hit by the cost-of-living crisis.
Incumbents in retreat: we’ve seen this across the globe this year, whether with Biden and the Democrats in the US, the ANC in South Africa, Erdogan in local elections in Turkey, Modi in India, and the Conservatives in the UK.
However, it must be remembered that Georgescu still only secured 23% of the vote in the first round and, even assuming the votes of the other nationalist candidate, George Simion, also go to Georgescu, the total is still only 37% of the vote. This is still some way off the 51% required in the run-off vote in December.
Set against that, the combined votes of pro-EU candidates from the PSD, PNL, USR, UDMR et al come to 58%.
Much to lose?
Additionally, the power of EU fund flows cannot be under-estimated in Romania. Under the latest EU budget cycle for 2021-2027, adding in RRF facilities, Romania is slated to secure over EUR83 billion in EU funding [1], as the biggest net beneficiary from such funds in the EU. As a percentage of GDP that runs at 3-4% annually, this covers half the budget deficit and current account deficit.
A Georgescu presidency would deteriorate relations with the EU and risk these fund flows, as has been the case in neighbouring Hungary with Orban.
The question is: would voters really risk the economic prosperity of the country by voting for Georgescu to actually assume the presidency? Some voters might think they have seen little personal benefit from EU structural fund flows (as the political elites have) and think they have nothing to lose.
The Romanian election is a good example of how policy and politics creates volatility. In turn, this creates alpha opportunities for active investors, such as ourselves.
[1] Ministry of Finance of Romania
