Wednesday, June 16, 2010

NYT: Romanian Government Survives No-Confidence Vote

By DAN BILEFSKY


PRAGUE — Romania’s center-right government narrowly survived a no-confidence vote on Tuesday as thousands of angry Romanians protested outside Parliament against tough new austerity measures meant to stave off a Greek-style crisis.

The vote help clears the way for Romania to receive the next installment from a 20 billion euro ($24.6 billion) aid package the country secured last year from the International Monetary Fund and the European Union to finance its current account and budget deficits and pay state sector salaries.

But the narrowness of the government’s victory — it was spared by a margin of just eight votes — illustrated the challenges ahead as it tried to rein in the spending that has made the country among the most economically vulnerable in the region. The vote was 228 to 197, with a majority of 236 votes needed to unseat the government.

As lawmakers debated, more than 3,000 public sector workers and retirees gathered to demonstrate against the belt-tightening measures, which include cutting public sector wages by 25 percent and pension payments by 15 percent.

Some threw water at the police, The Associated Press reported, while others set fire to effigies of government ministers impaled on poles. Union members attending the debate before the vote heckled Prime Minister Emil Boc during his speech.

Romania, a member of the European Union that does not use the euro, finds itself in a similar position to other deficit-ridden countries across the 27-member union, from Hungary to Spain. It is caught between unforgiving financial markets or creditors demanding austerity and a population unwilling to shoulder further economic pain.

Last week, Romania’s neighbor, Hungary, was forced to backtrack after senior government officials scared investors by declaring that the country risked becoming another Greece.

In Romania, the opposition Social Democrats have equated the cuts to “social genocide.” But the government insists they are necessary to reach a deficit target of 6.8 percent of gross domestic product and secure financing from international creditors. In the absence of that money, Mr. Boc has warned that Romania could reach the point where it could not pay wages, benefits and pensions.

Last week, he also insisted that in the absence of the austerity measures, the budget deficit would spiral to 9.1 percent of gross domestic product. The government has called for 195,000 jobs to be cut this year and in 2011 from Romania’s 1.4 million-member public sector to squeeze savings from the budget.

Economists said that even though the government had survived the no-confidence vote, the continuing threat of political instability was undermining Romania’s ailing economy.

A previous Boc-led government collapsed in October, forcing the I.M.F. and the European Union to suspend payments from the rescue package until a new government could be formed. The measures, in particular the cuts to pensions, also face legal challenges in the country’s constitutional court.

Radu Soviani, an economist in Bucharest and commentator on the Money Channel on Romanian television, said he feared the protests could mean the beginning of a long summer of discontent once the cuts hit people’s pocketbooks.

“The worst is yet to come,” he said by telephone from Bucharest. “Romanians haven’t yet felt the crisis at full scale, but when these cuts are implemented it will pour gas on the fire, especially since there is a feeling that the government bears the responsibility for creating this mess.”

Mr. Soviani tempered his warning by stressing that Romania was on surer financial footing than Greece, saying that it was not shackled by an outsize level of indebtedness or an endemic protest culture. He said Romania’s total debt of about 40 billion euros was dwarfed by the 300 billion euros Greece owed when its credit crisis exploded in May.

Even so, uncertainty over Romania’s ability to enforce austerity measures has pushed up yields on the country’s debt in recent weeks. The leu, the Romanian currency, fell to its weakest level Tuesday in more than a month on fears that the no-confidence vote would succeed.

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