Tuesday, February 3, 2009

Romanian government wobbles, eyeing EU aid

Valentina Pop

Romanian interior minister Liviu Dragnea resigned on Monday (2 February) after just 13 days in office, blaming insufficient funds allocated for his ministry in the new budget proposals, as the country's economy worsens and the government looks to potential EU aid.

The second interior minister to resign in less then a month, Mr Dragnea, a Social Democrat, argued he could not fulfill his brief to descentralise administrative powers and increase citizens' security with the current budgetary proposals.

The spending cuts were part of the new government's efforts to keep the deficit at two percent of the country's GDP, as the economic crisis has already taken its toll on a steeply devaluating currency and with growth expected to plummet to 1.8 percent in 2009, down from 7.8 percent in the last year.

In its latest forecast published mid-January, the European Commission warned that Romania's deficit could reach 7.5 percent of GDP, after it registered five percent deficit in 2008. The EU's maximum allowable deficit is three percent.

Romania's bid to joining the eurozone in 2014 might be delayed if the country fails to keep its public spending under control.

Last week, Reuters reported that Romania had started talks with the EU commission on a potential rescue, after President Traian Basescu said a €6-7 billion loan might be needed.

The commission later said no official requests had been made so far. An EU-only aid deal is unlikely to be granted to Romania, but rather a mixed package including a loan from the International Monetary Fund (IMF), as in the case in Latvia, which secured a mixed EU-IMF loan of €7.5 billion.

Bucharest's new centre-left coalition government - in power since November's election - has so far been reluctant to seek help from the IMF, with President Traian Basescu saying last week he might oppose such a move due to concerns over any stringent conditions imposed by the fund.

An IMF delegation in Bucharest last week said a rescue package was not on the agenda.

There have been no mass protests in Romania so far, in contrast to its southern neighbour Bulgaria, where riots broke out earlier this month as fears of economic pain and anger over poor policy-making reached a boiling point.

But trade unions are already threatening to go on strike in Romania, while wage freezes and spending cuts similar to those in Hungary and Latvia - which have received EU-IMF rescue packages - could yet spark protests.

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