Friday, May 4, 2012

The Economist: Romania’s government falls

A country where governments have the longevity of mayflies

May 5th 2012 | BUCHAREST | from the print edition

AUSTERITY bites, citizens protest, politicians squabble and a government collapses. The latest country performing this drama is Romania, where Mihai Razvan Ungureanu’s government, 78 days old, fell on April 27th after losing a vote of confidence.

Another example of the backlash against austerity? The fiscal tightening by Mr Ungureanu’s centre-right Democratic Liberal Party (PDL) in the past three years has few fans among Romanians, the second-poorest people in the European Union. Wages have been slashed and recovery from recession in 2008-10 has been sluggish. A slowdown in the EU has hurt exporters. Thousands of Romanians protested, sometimes violently, earlier this year, toppling the government of Emil Boc, Mr Ungureanu’s predecessor.

But there are parochial as well as continental reasons for Romania’s second new government this year. Mr Ungureanu was brought down after defections from his unpopular coalition to the opposition Social Liberal Union (USL) group, which is riding high in the polls. Romania’s fair-weather politicians have done little to dispel a reputation for opportunism. An election in November (if the new government holds on until then) will bring more changes. President Traian Basescu, who once led the PDL, is not due to leave office until 2014, although voters are growing tired of him, too.

The new prime minister is Victor Ponta, head of the Social Democratic Party, which dominates the USL. Mr Ponta is a critic of austerity. On taking office he vowed to reverse “social injustices”. He plans to raise public-sector wages by 15%, after a 25% cut in 2010. The leu fell to a record low against the euro three days after Mr Ponta’s appointment. Fitch, a credit-rating agency, said it might downgrade Romania if the new government fell prey to populism.

On balance, that seems unlikely. Mr Ponta said he would respect pledges made to the IMF and EU last year in exchange for a credit line worth €5.3 billion ($7 billion), which remains untapped. That means more of a fiscal squeeze. Romania aims to cut its budget deficit to 1.9% of GDP this year, from 4.4% in 2011. The surprise choice of Florin Georgescu, number two at the central bank, as finance minister seems designed to reassure Romania’s creditors.

The USL, an awkward alliance of social democrats and liberals, has lately enjoyed poll ratings of around 50%, although in a country where politicians are widely seen as corrupt placemen this probably represents no more than an excess of distaste for the PDL. Still, if Mr Ponta is more resilient than his predecessor he may lead his group to a clear win in November’s vote. And that might mean a chance of serving a full term.

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