1360.38 -27.79 -2.00%
CENTRALEUROPE-POLITICS:Romanian government toppled, Czechs face test too
By Sam Cage and Jason Hovet
BUCHAREST/PRAGUE (Reuters) - Romania's opposition torpedoed the centre-right cabinet in a confidence vote on Friday, raising the prospect of months of political turmoil and questions over a belt-tightening campaign that has caused a wave of protests against IMF-backed reforms.
Prime Minister Mihai Razvan Ungureanu's two-month-old government is the latest in a string of austerity-minded ruling coalitions that have fallen across the European Union in disputes over spending cuts and tax hikes.
The defeat came ahead of another confidence vote, in the Czech Republic, whose budget-cutting cabinet is expected to survive but may find itself hamstrung by infighting among its scandal-plagued parties and widespread public anger over its policies.
Having replaced his predecessor Emil Boc, who resigned in January after anti-government protests in Romania turned violent, Ungureanu was defeated by the votes of 235 deputies, four more than required to topple his government.
"Today justice was done," said Victor Ponta, head of the opposition Social Liberal Union (USL). "USL is willing to take responsibility to govern until elections."
The European Union's second-poorest member slashed public sector salaries and raised sales taxes to put its economy on a more solid footing, but the measures have hit the poorest in the country of 22 million, which is only now emerging from a two-year crisis-induced recession.
President Traian Basescu, a close ally of Ungureanu, now has to nominate a new prime minister, which could take months.
Basescu said he was holding talks already with all parties, seeking to form a government and indicating he could find a quick solution. The confidence vote result indicates the USL may have enough support for a majority.
Failure to back a new prime minister before a general election slated for November would prompt an early vote.
"The most likely version is that Traian Basescu will nominate Victor Ponta as prime minister," said political commentator Mircea Marian.
"USL has already prepared a government and could appear in front of parliament towards the end of next week."
IMF PULLS BACK
The International Monetary Fund, which with the EU has extended two loan packages to Romania, postponed a review there pending more information on the shape of a new government. The deal is crucial to Bucharest's battle to maintain investor confidence.
The leu currency showed its biggest daily loss of the year after the vote. Usually protected by market fear over central bank intervention, it fell to match its all time low of 4.401 against the euro.
"The end result seems to ... echo what we have been seeing in other countries in terms of a popular move away from the parties that are pushing for austerity," said Koon Chow, a strategist at Barclay's Capital.
"France, Holland, the Czechs - it's all connected."
The USL, a fragile leftist alliance, has more than 50 percent support in opinion polls and would be favourite to win an election.
The cuts and public sector job losses have left millions of Romanians struggling to make ends meet every month and while the government plans to raise some wages again under the IMF's advice, the Fund says caution is needed to ensure stability.
Salaries average less than 400 euros a month. While unemployment is only 5 percent, many have left a country riddled with crumbling roads and patchy power and sewage services, prompting a 10 percent drop in population in the last decade.
"The current situation is clearly worse than before. We need at least 10 years to get back on track," said Gheorghe Stanciu, a 55-year-old legal adviser outside Bucharest's national theatre, the scene of protests that brought Boc's downfall.
Romania's example - a ruling centre-right party that has struggled to cling to power through repeated confidence votes that delay reforms aimed at healing the economy - may serve as a warning to Czech Prime Minister Petr Necas.
Necas threw out the smallest of the three parties in his coalition, Public Affairs, last week because of strained ties with one of its leaders who has been convicted of corruption.
Now he is counting on a breakaway faction from Public Affairs to support his cabinet in Friday's vote.
But his austerity drive has angered Czechs and sent the cabinet's approval rating to an all-time low of 16 percent.
Some 90,000 people held protests last Saturday in the biggest demonstrations since the fall of communism in 1989, and union leaders said they planned further protests, including strikes before the end of June.
Leading opinion polls, the opposition Social Democrats have called for an early election and have said they would reverse some reforms.
But Necas has said that even though the country's budget deficits are relatively low, and its debt level is less than half the EU average at around 41 percent of annual output, the country faces even greater dangers like the loss of investor confidence and a spike in borrowing costs if it relaxes policy.
He warned on Friday any relaxation of policy would "destroy the future of our country and that of our unborn children".
"Debt is the biggest public enemy ... Our responsibility goes far beyond the current political and economic situation," he said as the debate before the vote opened in parliament.
Even if Necas wins the vote on Friday evening - he is expected to receive the support of at least 103 of parliament's 200 lawmakers - he could be held hostage by politicians mindful that elections may be held earlier than expected.
That would complicate his further plans to reform the healthcare, education and other systems.
(Additional reporting by Andreea Birsan and Ioana Patran in Bucharest and Robert Mueller and Jana Mlcochova in Prague; Writing by Michael Winfrey; Editing by Elizabeth Piper and Giles Elgood)
ADS BY GOOGLE
1360.38 -27.79 -2.00%
video of the day
See rupee at 60-61/ $ in short to medium term: ICICI Bank