Thursday, June 17, 2010

Romania Opposition Appeals Government Spending Cuts After Vote

By Irina Savu

June 16 (Bloomberg) -- Romania’s opposition appealed the government’s austerity plan to the Constitutional Court, saying they are illegal and potentially delaying implementation, after Parliament backed Prime Minister Emil Boc in a confidence vote.

The largest opposition party, the Social Democrats, said the wage and pension cuts are “a new income tax” for state workers and breach the constitution, according to an e-mailed statement from the party. The court will discuss the challenges on June 24, news service Mediafax said today.

Boc survived a no-confidence motion by eight votes yesterday, seeking to keep International Monetary Fund and European Union bailout funds flowing and clearing the way for his austerity program. Boc has proposed reducing public wages by 25 percent and pensions and jobless benefits by 15 percent.

“Clearing the Constitutional Court is the main hurdle on the way to implementation but chances for the IMF disbursement to be released in July have increased after yesterday’s vote,” ING Bank Romania economist Vlad Muscalu wrote in a note today. “We believe this should prove less of an issue.”

The EU’s second-poorest member is relying on a 20 billion- euro ($24.6 billion) loan to resurrect its economy. Romania stands to receive 2.5 billion euros from the IMF and 2.3 billion euros from the European Commission if it meets a deficit target of 6.8 percent of gross domestic product agreed with the IMF as a condition of its loans, Boc said on June 7.

If the court throws out the spending cuts, the government will be forced to raise taxes, killing off a recovery, RBC analysts including Nick Chamie and Nigel Rendell said in an e- mailed note. The austerity measures also risk sparking more social unrest, they said.

“A protracted period of fiscal uncertainty with potential political risks will continue to drive” the euro-leu exchange rate “higher,” the analysts said.

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