Oct. 1 (Bloomberg) -- Romania’s Social Democrats, the junior member of the ruling coalition, resigned from the government after a minister was fired, threatening political stability in theEuropean Union’s second-poorest state.
The Social Democrats’ nine Cabinet members stepped down, Interior MinisterDan Nica told local television. The mass resignations come after Romanian President Traian Basescu today approved Nica’s dismissal, supporting a recommendation by Prime Minister Emil Boc, who heads the ruling Liberal Democrat Party.“We’re left with a minority government, which will do absolutely nothing in terms of actually governing the country until after the elections,” said Adrian Moraru, deputy director of the Institute for Public Policies in Bucharest.
The government of Romania, which is relying on a 20 billion euro ($29.2 billion) loan from the International Monetary Fund and the EU to stay afloat, is unraveling as the country prepares for Nov. 22 presidential elections.
Boc dismissed Nica on Sept. 28 following accusations from the minister that the premier’s party is trying to steal votes ahead of next month’s election.The leu slumped as much as 1.4 percent against the euro, its biggest drop since April 23, to trade at 4.2706 at 4:19 p.m. in Bucharest. Credit default swaps on the country’s debt rose 12 basis points to 209, according to CMA DataVision prices at 2:29 a.m. in London.
A higher CDS price signals heightened investor perceptions of risk. TheBucharest Stock Exchange’s benchmark BET Index fell 1.4 percent to 4,334.69.“They won’t pass any economic reforms until” after the elections, “that’s clear,” Moraru said. “We’re going to have to renegotiate the terms of the agreement with the IMF.”
The opposition bloc, led by the National Liberal Party, will call a no confidence vote to bring down the minority government, the group’s leader Crin Antonsecu said on local television. The opposition group, which also comprises the Democratic Union of Hungarians in Romania, is seeking a technocratic government.“We’ll file a no-confidence vote against the minority government, and the Social Democrats will have to vote with us,” Antonescu said. “If the vote passes, Basescu will have to accept a technocratic government with no political affiliation, which must immediately draw up a budget for next year to make sure we can pay public wages and pensions even after the IMF money is gone.”
Social Democrat party leader Mircea Geoana said on Sept. 28 that Boc’s decision to remove Nica from the Cabinet had no grounds, warning then that the party’s resignation from government would be a likely consequence. By law, the president must sign off on any Cabinet changes.Basescu has approved Vasile Blaga, a minister of the Liberal Democrat Party, as interim interior minister, the president’s office said today.“This is the last time the Social Democratic Party plays second fiddle in a government,” Geoana said today in a televised speech.
Adriean Videanu, the Liberal Democrat deputy head, said today in a televised speech that his party may seek a confidence vote in parliament for a new minority government or appoint interim ministers.“We’re aware this has turned into a political crisis on top of the economic one, now we hope to be able to deal with things to avoid a social one as well,” said Videanu, who is also economy minister. “We will continue to govern the country.”
The economy slumped an annual 8.7 percent in the second quarter, the most on record, and output will likely shrink 8.5 percent this year, the government and the IMF estimate. That follows a 7.1 percent expansion last year, the fastest pace in the EU.
Romania needs to fulfill a budget-deficit target of 7.3 percent of gross domestic product to comply with the terms of the bailout by cutting spending or boost revenue by 0.8 percent of GDP this year. The government said on Aug. 11 it will send all state workers on 10 days’ leave without pay this year and fire some next year to cut meet its budget-gap target. The target agreed with the IMF compares with a deficit of 4.8 percent last year.
“Romania’s political stability is essential for completing the ambitious fiscal reforms agreed with the IMF” and European commission, Florin Eugen Sinca, an economist at Banca Comerciala Romana SA in Bucharest, said in an e-mail today. “Tensions between the major political parties are not helping at all the achievement of the ambitious macroeconomic targets, all the more so as these performance indicators are difficult to achieve even during stable political times.”The Social Democrats and the Liberal Democrats formed a governing coalition with a two-thirds parliamentary majority on Dec. 14, after a tie in Nov. 30 elections. The parties will compete again in the November vote, as they must each nominate their own candidate for a five- year term.
Basescu, backed by the Liberal Democrats, has yet to reveal whether he will seek another term. The Social Democrats said they will nominate their candidate in early October.
To contact the reporter on this story: Irina Savu in Bucharestisavu@bloomberg.net.