Romania's next government likely to include all four pro-European parties, party leader says

Romania's new government will likely include all four of its pro-European parties after weeks of negotiations, centre-left Social Democrat leader Sorin Grindeanu said on Thursday following talks with centrist President Nicusor Dan.

Dan won a divisive presidential election last month despite a strong challenge from the increasingly popular far-right but not before borrowing costs rose sharply and the leu currency crashed.

He must now nominate a prime minister to tackle the highest budget deficit in the European Union, and the new government has until end-June to approve fiscal measures or risk a ratings downgrade from the last rung of investment grade.

Dan's first choice for prime minister is Liberal Party leader Ilie Bolojan, who also has the backing of centre-right Save Romania Union and the ethnic Hungarian Party UDMR.

But the centre-left Social Democrats, without whom a ruling majority cannot be achieved, have pushed back against the idea of supporting the leader of a different party for the post and have proposed a yet-to-be-agreed rotating premiership to run until Romania's next parliamentary election in 2028.

"Based on what we discussed - economic measures and political agreement - things seem headed in the correct, constructive direction," Grindeanu told reporters after consultations with Dan, adding that he saw an 80%-90% chance that all four parties would form the next government.

The European Commission, ratings agencies and analysts have said Romania cannot reduce its budget deficit over seven years to the EU's threshold of 3% of national output, as agreed, without hiking taxes. However, Dan and the four putative coalition parties have proved reluctant to enforce unpopular tax hikes, focusing instead on possible state spending cuts.

The fiscal package will likely save around 30 billion lei ($6.85 billion) and entail an equal mix of spending cuts, postponed investments and tax hikes, politicians said.

Sources have said the main value-added tax could rise to 21% from 19% despite vocal public opposition from Dan and party leaders.