If Brexit does happen on March 29 this year, it will happen under the strangest possible presidency of the European Union: the Romanian presidency. While the role of president of the EU is all about openness, transparency and a love of democracy, the Romanian government seems to increase its preference for the opposites of these features.
Romania, which joined the EU in 2007, is still the second-poorest member of the Union, and one of its most corrupt. The country’s government, made by the former communist Social Democrat Party (PSD), is at loggerheads with its pro-EU president.
While not as vocally proud as Hungary’s government of its illiberal tendencies, Romania’s government is increasing its attacks on liberal values and pulling the country backwards towards a dark period of its history.
The mass demonstrations against a government “emergency ordinance” issued in 2017 – immediately after the PSD won the elections of December 2016 – are well known. At the time, 600,000 Romanians took to the streets of Bucharest to protest against the ordinance, which was pardoning those convicted of corruption acts.
Under pressure, the government withdrew the ordinance. But in the summer of 2018 it sacked the popular anti-corruption prosecutor, Laura Codruta Kovesi, who together with a brave team of prosecutors had managed to send hundreds of corrupt officials behind bars.
Those Romanians who are sick of protesting against corruption and against the populists’ increasingly authoritarian measures to facilitate graft are emigrating to other EU member states. Of a workforce of around 9.0 million people, around 4.0 million are estimated to have left the country.
This is putting the government under increased strain: the country is running out of taxpayers. And, because EU funds come with scrutiny, the PSD is not interested in making use of them to make up for the lack of tax revenue.
Instead, they resort to the only method they have employed consistently, throughout the party’s numerous cosmetic changes from communism to populism: force.
A latest development that has passed largely unnoticed abroad is the appropriation by the government of the reference interest rate. While setting the reference rate is still the job of the central bank, at least on paper, the government has passed legislation allowing it to levy a tax every time interest rates exceed certain levels.
From today, banks will have to pay a tax worth a certain percentage of their assets if ROBOR – the Romanian Interbank Offer Rate, which is used as a reference for interest rates on loans made by banks – exceeds 2% on a quarterly average basis.
Initially, the government openly called this a “tax on greed”, but later changed its mind – probably this moniker was too much even for the populists – and renamed it a more tame “tax on banks’ financial assets.”
If ROBOR is between 2% and 2.5%, banks will have to pay 0.1% of their assets, if it’s between 2.51% and 3%, they will have to pay 0.2%, if it’s between 3.01% and 3.5%, 0.3%, and if it is between 3.01% and 4%, 0.4%. For anything exceeding 0.4%, banks will have to pay a tax of 0.5% of their assets.
The government has justified this by saying that other countries have imposed financial transactions taxes as well.
While that is true, no other country (that I’m aware of) has linked the financial transactions tax to the level of interest rates. The fact that the Romanian government has done so suggests that more than wanting to get some money into its depleted Treasury, the government wants to pre-empt a fast rise in money market rates if investors dump the country’s debt.
It remains to be seen if a “tax on greed” will act to stop market fear when it materialises.