Romania’s Political Turmoil Drags Down the Leu Amid Election Uncertainty

The Romanian leu (RON) has plunged to historic lows against the euro in 2025, as political instability triggered by the presidential election cycle has spooked investors and tested the resilience of the National Bank of Romania (BNR). With far-right candidate George Simion poised to dominate the May 18 runoff, the currency’s trajectory now hinges on whether markets will tolerate a potential shift toward economic nationalism or demand a return to stability.

The Political Catalyst: Simion’s Rise and Its Economic Fallout

The crisis began on May 4, when Simion’s Alliance for the Union of Romanians (AUR) scored a landslide victory in the first round of the presidential election. His platform—calling for the nationalization of energy giant OMV Petrom and the appointment of radical nationalist figures—sparked a sell-off in government bonds and a rush to exit Romanian assets. Foreign investors, who hold 52% of Romania’s government bonds, began offloading holdings at unprecedented speeds, pushing the 10-year bond yield to 8.02% by May 6—a 0.5 percentage point jump in two days.

The political turmoil deepened when Prime Minister Marcel Ciolacu resigned on May 5, followed by the Social Democrat Party’s (PSD) withdrawal from the ruling coalition. The subsequent appointment of interim Prime Minister Cătălin Predoiu did little to calm nerves. “Everyone wants to exit! All foreign investors want to sell and run!” one bank treasurer told traders, underscoring the panic.

Currency Under Siege: The Leu’s Historic Decline

The BNR responded by selling €2 billion from its reserves on May 5 to stabilize the leu, but the currency continued its downward spiral. By May 9, the RON had depreciated to RON 5.1160/EUR, marking its first breach of the symbolic 5/EUR threshold and a 2% drop from earlier 2025 levels.

Analysts note the depreciation reflects not only political risks but also a delayed correction of Romania’s real effective overvaluation. Despite nominal exchange rate stability over five years, persistent inflation gaps—Romania’s prices rising faster than those in the eurozone—had already eroded the leu’s purchasing power. Economist Dragoş Cabat argues the BNR may have allowed the leu to weaken intentionally to align its value with economic fundamentals.

Scenarios: The Election’s Dual Path for Markets

The outcome of the May 18 runoff will likely determine whether the leu stabilizes or suffers a deeper slump. JPMorgan outlines two scenarios:
1. Stabilization (Simion Loses): A moderate depreciation of 3–5% if political tensions ease and investors regain confidence.
2. Crisis (Simion Wins): A sharp decline of 15–20%, driven by fears of capital controls, nationalizations, and economic isolationism under his radical policies.

The BNR faces a precarious balancing act: it must intervene to stabilize the currency without exacerbating borrowing costs, which are already rising due to capital flight. Its foreign reserves, now at €32 billion, provide a buffer but may dwindle if outflows intensify.

Investor Implications: Navigating Uncertainty

For investors, Romania’s situation highlights the vulnerability of emerging markets to populist policies and governance risks. Key takeaways:
- Equity Exposure: Sectors tied to state assets, like energy and utilities, face heightened risks if nationalization proceeds.
- Bond Markets: Foreign holders of Romanian debt may face further losses unless yields stabilize.
- Currency Hedging: Investors in leu-denominated assets should consider hedging against further depreciation.

Conclusion: The Leu’s Fate Hangs on Politics

The Romanian leu’s decline to RON 5.1160/EUR by May 9 underscores the profound impact of political instability on currency valuations. With Simion’s policies threatening investor confidence and the BNR’s interventions buying only temporary relief, the election outcome is now the critical pivot point.

If Simion wins, the leu could depreciate by up to 20%, worsening inflation and forcing the BNR to raise rates aggressively—a double blow to growth. Conversely, a return to centrist governance might allow the currency to stabilize near current levels, with the BNR focusing on rebuilding foreign reserves.

Either way, the episode serves as a stark reminder: in emerging markets, the line between political rhetoric and economic reality is perilously thin. For now, investors are holding their breath—and their wallets.