Hi, this is Irina Vilcu and Andra Timu in Bucharest. Welcome to our weekly newsletter on what’s shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.

Tense Sequel

This weekend’s sequel to Romania’s highly charged presidential election is all but sure to involve more drama as supporters of the far right seek to avenge their hero, and the political risk has implications for the economy and financial markets. 

The new nationalist frontrunner is George Simion, who took up the fight against the establishment in place of the fringe candidate Calin Georgescu, whose shock victory in November triggered a crisis that reverberated around Europe. The vote was annuled amid allegations of Russian interference and Georgescu was barred from the rerun. 

The key question is who makes it into the second round, and critically whether the governing coalition’s candidate, Crin Antonescu, can ultimately defeat Simion. Big companies are holding onto their money and credit rating agencies are watching from the sidelines. Jittery investors are driving up costs and Romania is stuck with the European Union’s highest yields, plus more debt to sell after the election.

Romania needs to tackle its yawning budget deficit, the biggest in the EU, and avoid a downgrade to junk. The fiscal consolidation is also needed to ensure money from Brussels continues to flow. At stake is about €29 billion ($33 billion), which is badly needed to improve infrastructure and reduce inequality, the source of frustration among the electorate along with corruption.

Steadying government finances will likely entail tax increases and spending cuts, and that rarely goes down well with voters. Sunday’s election will show just how divided the country is on its future and what path it might choose.  

Romanians vote in a rerun of their presidential election on Sunday. Photographer: Andrei Pungovschi/Bloomberg

Around the Region

Ukraine: Washington and Kyiv reached a deal over access to Ukraine’s natural resources. The US offered some assurance to officials in Kyiv who had feared that President Donald Trump would pull back his support in peace talks with Russia.

Poland: Erste Group Bank is in talks to buy a major stake in Banco Santander’s Polish unit, seizing an opportunity to expand in one of Europe’s fastest-growing markets.

Hungary: Economy Minister Marton Nagy said the country won’t reduce economic ties with China, the clearest sign yet that Prime Minister Viktor Orban’s government won’t bow to US pressure to distance itself from Beijing.

Czech Republic: A central bank deputy chief signaled the nation’s monetary easing cycle may be coming to an end as a rebounding housing market adds to inflation risks. 

Bulgaria: The largest far-right party signed a cooperation agreement with Russian President Vladimir Putin’s United Russia party, deepening ties between the nation’s anti-establishment forces and Moscow.

Chart of the Week

Donald Trump Jr. toured the region to promote the family’s business and political interests. After stops in Hungary and a dinner with Serbian President Aleksandar Vucic in Belgrade, he visited Bulgaria and Romania, where he championed deregulated crypto markets and rubbed shoulders with officials in business and politics, many of whom have courted controversy. 

By the Numbers

• Bulgaria sold a total of €4 billion in bonds, its biggest ever haul of euro-denominated debt in a single day, to fund its growing budget deficit.
• Hungary’s economy unexpectedly contracted in the first quarter. Gross domestic product dropped 0.2% from the fourth quarter of last year and was flat on an annual basis. 
• Poland’s presidential election race tightened again, with a poll showing support for Warsaw Mayor Rafal Trzaskowski now on 31% compared with 27% for Law & Justice party candidate Karol Nawrocki.

Things to Watch

• Gedeon Richter, Hungary’s biggest drugmaker, is looking to boost its women’s health-care portfolio via acquisitions.
• The US wants central and eastern European countries to join its path of “energy freedom” instead of following the wider region’s transition to a net-zero economy, Energy Secretary Chris Wright said.
• Central banks in Poland, the Czech Republic and Serbia will all decide what to do with interest rates next week.

Final Thought

Sandor Csanyi has been running Hungary’s largest bank for more than three decades. When he took the role of CEO at OTP in 1992, the country was barely out of communism and was still figuring out where it was going next. He built the bank into a regional player and turned himself into a key power broker in Viktor Orban’s Hungary. The baton is now being passed on, sort of, but it’s not going far. Csanyi, 72, announced last week that he was ceding the CEO title to his son while remaining as chairman. Orban, meanwhile, showed up at OTP’s investor meeting to lavish praise on Csanyi and his achievements. But make no mistake, Csanyi said, he’s still in charge. 

Sandor Csanyi is passing the CEO role to his son, Peter Csanyi.  Photographer: Akos Stiller/Bloomberg

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