Wednesday, August 22, 2012

FT: Romania: reprieve for Basescu

Romanian president Traian Basescu has narrowly escaped the chop.

August 21, 2012 1:04 pm by Stefan Wagstyl

The constitutional court ruled on Tuesday that the referendum vote to impeach Basescu was invalid because the turnout was less than 50 per cent. So, by a majority of 6-3, the judges ruled that Basescu could remain in office even though 87.6 per cent of those who voted in the July 29 poll wanted him out.

The combative Basescu will quickly throw himself back into the political fray, resuming his battles with the centre-left government of Victor Ponta. But the court decision should appease European Union partners anxious about Romania’s democratic stability. So, the verdict should be mildly positive for investors.

The leu barely moved against the euro on the news, trading 0.3 per cent up at 4.483. It is is now comfortably stronger than the record weak level of 4.652 hit in early August at the peak of the referendum crisis. But the currency is considerably weaker that the 4.31 level where it started the year.

Dan Bucsa, chief economist of Unicredit in Romania, said in a note that markets would welcome the news and expect progress on Romania’s relationship with the International Monetary Fund:

We believe that the decision could be positive for the [leu] in the near term, but it doesn’t solve the political stalemate … Right now, there is a consensus among Romanian political parties in favour of maintaining a good relationship with international financial institutions (IFIs). Going forward, the political and economic costs of renouncing the loan agreement are too high and Romanian politicians should try to avoid a repeat of the situation in Hungary.

But, as Bucsa argues in his note, one battle may be over but the political war will go on. Basescu and the government could fight over the appointment of judges and prosecutors where the president has to approve parliamentary nominations; the ruling social democrats (Ponta’s PSD) and the national liberal (PNL), which united to try to overthrow Baescu, could not fall out over economic policy; and there could be budgetary fights between the central government and local barons as budgets are squeezed to meet IMF targets.

And overshadowing everything are the October parliamentary elections. Ponta expects to do well, blaming Basescu’s centre-right parliamentary allies for the austerity programmes of recent years. But, as he has recognised, economic reality demands that Romania keeps in place its precautionary IMF loan. And the economic outlook in Europe isn’t getting any better as Weinerberger, the brickmaker, warned today (Tuesday).

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