Feb. 7 (Bloomberg) -- Romanian Premier-designate Mihai- Razvan Ungureanu began talks on forming a Cabinet to rebuild the ruling coalition’s support after violent protests over government austerity measures mandated under a bailout loan.
Ungureanu, nominated by President Traian Basescu late yesterday after Emil Boc resigned, met with leaders of the coalition today at 9 a.m. in Bucharest. He has 10 days to create a government, which then must be approved in a confidence vote within 60 days. Lawmakers may approve the new Cabinet as soon as Feb. 9, newswire Mediafax quoted Boc as saying today.
Support for the coalition headed by Boc fell by more than half after a 25 percent public-sector wage reduction and a value-added tax increase prompted the most violent protests in more than a decade last month. The government wants to narrow the budget deficit to 1.9 percent of economic output this year from 4.35 percent in 2011 to meet pledges under a loan accord with International Monetary Fund and the European Union.
“The political and election noise arrived earlier than expected and raises short-term uncertainty for investors which should be arguably reflected in marginally wider Romanian credit spreads,” Demetrios Efstathiou, the chief of central and eastern European strategy at Royal Bank of Scotland Plc, said in a note to clients today.
The leu snapped two day gains yesterday and was little changed at 4.3465 per euro at 10:30 a.m. in Bucharest. The benchmark BET index of shares, which fell as much as 2.7 percent yesterday following Boc’s resignation, gained 0.5 percent to 4,945,86 points at 10:30 a.m. Romania’s euro-denominated bonds maturing in 2018 declined, lifting the yield 16 basis points to 6.38 percent.
“We see no reason to sell Romanian bonds or sell the leu at this stage,” Efstathiou said. “We think that Romania bonds trade fair compared to their regional peers, but a small premium can be added to due to political noise.”
Europe’s debt crisis has roiled financial markets, sparked protests and taken its toll on political leaders. Boc is among seven EU leaders who have given up power, while Slovakia will hold snap elections in March.
With the next regularly scheduled vote to take place this year, people took to the streets across the country to protest against an austerity budget, the level of living standards and corruption. The protests turned violent on Jan. 14 and Jan. 15, injuring 60 people.
Boc’s resignation “should be seen more as a sign of desperation, given the strong pressure on the government to cede to protests over the last few weeks, versus the stark position of the EU and IMF on issues such as public sector wages and pensions,” Simon Quijano-Evans, a London-based economist at ING Groep NV, wrote in a research report yesterday.
Ungureanu, 43, may name Bogdan Dragoi as finance minister and Andreea Paul-Vass as economy minister, Mediafax reported today, citing unidentified politicians close to the talks. Dragoi is currently deputy finance minister in charge of the Treasury, while Paul-Vass was an economic adviser to Boc.
The IMF, which together with the EU granted Romania a 5 billion-euro ($6.6 billion) precautionary loan, expects the country to honor its terms and any new government must keep the fiscal terms laid out in the agreement after Boc’s resignation, Jeffrey Franks, a mission chief for the Washington-based lender, said yesterday in an interview in Bucharest.
“The new government must remain committed to Romania’s agreement with the international lenders and continue the fight against corruption,” Basescu said after announcing his choice to lead a new Cabinet.
To win a confidence vote in Parliament, Ungureanu needs the backing of the current ruling governing coalition of the Liberal Democrats, the ethnic Hungarians, the independents’ party and the minorities. The opposition alliance of Social Democrats and Liberals are demanding early elections and won’t support Ungureanu, Liberal leader Crin Antonescu said.
If Ungureanu, a former foreign minister under a Liberal government from 2004 until 2007, fails to get the backing of lawmakers, the president will nominate another candidate. A second failure to win support may trigger early elections, according to the constitution.
--Editors: Alan Crosby, Balazs Penz
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