Romania's Coalition Under Strain From Haggling Over 2026 Budget

Romania's Coalition Faces Turmoil Over 2026 Budget Approval and Deficit Cuts

Coalition Strains and Budget Approval Challenges

By Luiza Ilie and Gergely Szakacs

Government Struggles with Welfare Handouts and Budget Approval

BUCHAREST, March 18 (Reuters) - Romania's ruling coalition came under strain on Wednesday after a leftist party failed to push through last-minute welfare handouts and threatened to block final approval of the 2026 budget, putting the survival of the government at risk.

Tax Hikes, Spending Cuts, and Economic Impact

The nine-month-old coalition government of four pro-European Union parties had to enforce tax hikes and state spending cuts to lower the largest 27-member bloc's highest budget deficit and prevent a credit rating downgrade to below investment level.

The measures lowered the deficit but strained the coalition, while pushing inflation toward double digits, the economy into technical recession and fuelling support for the opposition far right, which currently has the strongest public support.

Market Pressures and Delayed Debt Tenders

The delays in the budget approval, compounded with market pressures from the Iran war, have already forced Romanian debt managers to scrap six debt tenders in the past weeks.

Romania will face a next key test at a bond tender due on Thursday, when lawmakers are set to have a final vote on the budget, which would aim to reduce the shortfall to 6.2% of output from last year's 7.7% mark.

Risks to Growth Estimates and Social Spending Proposals

But the government's 1% growth estimate, which the deficit cuts are based on, is already at risk after the conflict in the Middle East has pushed debt yields and fuel prices higher.

While the Social Democrats approved the budget in a first reading, they also said they would push spending proposals - including one-off aid to low-income pensioners - in parliament.

Their proposed higher social spending, worth some $250 million, failed to meet the approval quorum twice during budget-finance committee talks on Wednesday, prompting threats they will boycott the budget altogether.

Uncertainty Over Final Vote and Coalition Stability

It was unclear whether a final vote on the budget scheduled for Thursday would still take place. Credit rating agencies said the stability of the ruling coalition would be a key factor in their assessment of Romania's ability to curb its deficit.

The Social Democrats have long criticised Liberal Prime Minister Ilie Bolojan's reform drive, which they said lacked empathy for citizens. They had said they will decide after the budget's approval whether to remain in government or push the Liberals into supporting another prime minister.

($1 = 4.4214 lei)

(Reporting by Luiza Ilie and Gergely SzakacsEditing by Alexandra Hudson)