Tuesday, June 15, 2010

Romanian govt faces confidence vote over austerity

By Luiza Ilie

BUCHAREST, June 15 (Reuters) - Romania's centrist coalition government looks likely to survive a no-confidence vote in parliament over planned spending cuts on Tuesday, giving it greater scope to carry out its reforms.

The EU's second-poorest member has pledged to reform its mammoth, highly-unionised public sector, but social unrest is casting doubts over its austerity drive and raising the spectre of Greek-style debt woes in the country of 22 million.

Investors are nervous about the debt and deficit position of emerging European economies like Romania after Hungarian assets slumped in early June on comments from officials that it might suffer a crisis similar to Greece's.

Romanian Prime Minister Emil Boc should manage to pull together enough support from independent deputies to survive and secure a vital 20 billion euro international aid package for the recession-hit economy, led by the International Monetary Fund.

"We do not expect the no-confidence vote to pass, as other parties will still sit on the fence," said UniCredit analyst Dmitry Gourov.

"Should the vote fail, we would expect the opposition to appeal to the Constitutional Court, but tension should ease after today, and an IMF mission is expected in Bucharest at the end of the month."

Unions had hoped up to a million Romanians would support a planned one-day general strike on the day of the vote in an attempt to pressure deputies.

There was little industrial action on Tuesday, however, and labour leaders said they were focusing on staging protests outside parliament, where some 2,000 people braved high temperatures to demand the government step down.

"I expect the motion to pass, the government to fall and I hope competent people will replace them," said 52-year-old Adriana Paler, a public clerk in Bucharest who was taking part in the demonstration.

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Boc's centre-right coalition needs 236 votes to survive the vote, expected to take place in the early afternoon after a debate in parliament which starts at 0700 GMT.

Even if the government does win the vote, it could face problems pushing through reforms beyond the proposed spending cuts if its victory margin is tight.

Its proposed cuts of 25 percent in public sector wages and 15 percent in pensions could also be derailed by legal challenges at the constitutional court.

A defeat, which is seen as unlikely, would tip Romania into a fresh political crisis and slam asset prices, but looks unlikely as parliamentarians fear the consequences would be far worse than the spending cuts.

The country's leu currency fell 0.2 percent in early trade to 4.234 per euro by 0710 GMT. Blue chip stocks rose 0.2 percent .

Uncertainty over Romania's ability to enforce austerity measures, aimed at capping the budget deficit at 6.8 percent of GDP this year, has pushed yields on the country's debt higher in recent weeks. (Writing by Sam Cage; editing by Noah Barkin)

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