As expected the proposed PM who is the head of Secret Police Service in Romania belongs to the current ruling coalition. Thus, my first scenario was right and we should expect a government that will continue the same economic program made public until now.
The implications for such a decision are for the short term but mainly for the long term. It is easier to assess the short term ones while for the long term we have to rely on scenarios.
I do not expect anything drastic to happen with the exchange rate or interest rates. On the FX market the NBR will thwart any attempt of the exchange rate EURRON to get too fast too close to 4.4. Unsterilized interventions, not expected until EURRON above 4.37 will push the short term rates higher.
On the bond market we might see more volatility with longer term yields expected to increase but as the market is very small do not expect high volatility.
The only major risk on the short term comes from outside Romania: Greece defaulting. It is a long shot but overlapping a Greece default with a PM resignation will be a negative shock for Romania via weaker RON and higher yields.
For the long term we have to work with scenarios. There are tow major ones and a minor one.
The first one, the most likely, the President proposes a PM from the current coalition and he/she passes the Parliamentary vote.IN this scenario we will continue with the current economic program where the fiscal code remains unchanged, do not expect any privations in 2012 but expect higher wages and pensions. Under this scenario expect moderate to no growth in 2012 but recession and higher taxes in 2013.
In the second scenario the President proposes a PM from the opposition and he/she [asses the Parliamentary vote. Under this very unlikely scenario expect a strong push for a change in the fiscal code which could entail lower social contributions, a differentiate tax code( no more flat tax) and a higher minimum wage. While the first one would be growth inducing and will lead to job creation the second and third will cancel out its effect. This scenario has a very small probability of becoming reality as the current coalition will want to be in charge of organizing the upcoming elections.
Third scenario, but the most unlikely, is the one where we have early elections. In that scenario we will see where the chips will fall and what it would mean for the future of Romania.