Austerity topples Romanian government, Czech survives

BUCHAREST/PRAGUE Fri Apr 27, 2012 2:52pm EDT

1 of 15. Czech Prime Minister Petr Necas and Karolina Peake, the leader of a breakaway faction from an expelled coalition party that continues to support the cabinet, attend a parliamentary confidence vote, in Prague April 27, 2012. The Czech and Romanian governments were expected to survive confidence votes on Friday, but may soon falter over austerity measures that have prompted some of the largest protests in central Europe since communist times.

Credit: Reuters/Petr Josek

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BUCHAREST/PRAGUE (Reuters) - Romania's left-leaning opposition will try to form a new government after torpedoing the centre-right cabinet in a confidence vote on Friday, the latest collapse of an austerity-minded ruling coalition in Europe.

Like other governments in the European Union, ousted Prime Minister Mihai Razvan Ungureanu's two-month-old cabinet has faced a wave of public anger against plans for spending cuts and tax hikes. Violent protests toppled his predecessor, Emil Boc.

"Today justice was done," said Victor Ponta, head of the left-leaning opposition Social Liberal Union (USL). President Traian Basescu, a political opponent, nominated Ponta to try to form a new government as prime minister.

The defeat came hours before a confidence vote for another budget-cutting EU government, in the Czech Republic. Although Prime Minister Petr Necas survived, his unpopular cabinet may now be hamstrung by a thin majority, infighting among its scandal-plagued parties and public outrage over its policies.

Nicolas Sarkozy is on course in nine days to become France's first president to be voted out of office in 30 years, and a centre-right cabinet in Holland resigned this week over disagreement about budget tightening measures.

"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, of the Romanian vote.

"France, Holland, the Czechs - it's all connected,"

Romania's Ungureanu was defeated by the votes of 235 deputies, four more than required to topple his government.

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 as Romania emerges only slowly from a two-year recession.

Ponta said he controls 228 seats in the 460 member parliament. He should be able to gain backing from smaller parties that will give him a clear majority. If parliament fails to back a new prime minister, an early vote would be held. The next general election is scheduled for November.

The rise of Ponta, 39, marks a change of guard for his Social Democrat party, founded chiefly by former communists and now the dominant force in the USL. Some analysts and opponents say he remains under the influence of its founder, Moscow-educated Ion Iliescu.

"USL has already prepared a government and could appear in front of parliament towards the end of next week," said political commentator Mircea Marian.

IMF PULLS BACK

The International Monetary Fund, which with the EU has extended two loan packages to Romania, postponed a review there pending details on the shape of a new government. The deal is key to Bucharest's battle to maintain investor confidence.

The IMF said it expected Romania to observe its economic policy commitments.

But the leu currency suffered its biggest daily loss of the year after the vote. Usually protected by market expectations that the central bank would intervene, it fell to an all time low of 4.4025 against the euro. The government collapse will probably put the central bank's expected rate cut next week on ice as it seeks to prevent any selloff.

The USL has more than 50 percent support in opinion polls. It has committed to work with the IMF, but if it takes power there will be uncertainty over whether it will roll back some austerity measures like wage cuts or hikes in sales tax.

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 350 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 the 20-million-odd population in the last decade.

"The fact that the government cut salaries is madness," Constantin Badea, a 75-year old pensioner from Bucharest, said in the bright spring sunshine outside government headquarters.

CZECHS SURVIVE

Romania's example - a centre-right party that struggled to cling to power in the face of repeated confidence votes, delaying reforms aimed at cutting deficits and debt - serves as a warning to Czech Prime Minister Necas.

He 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.

With his coalition broken, he counted on a breakaway Public Affairs faction and a couple of independents to support his cabinet in Friday's vote, which he won with 105 votes against 93.

But the austerity drive has angered Czechs and sent the cabinet's approval rating to an all-time low of 16 percent.

And with a majority supported only by independent deputies, Necas will be vulnerable to individual demands for policy changes as well as future confidence motions from the opposition Social Democrats, who lead polls, have called for an early election and have vowed to reverse some reforms.

That could complicate Necas's future plans, which include a law capping debt, tuition fees for state universities and billions of dollars in cash and property for the Catholic church as compensation for communist-era seizures.

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, it faces the prospect of a 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.

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.

(Additional reporting by Luiza Ilie, Andreea Birsan, Ioana Patran and Radu Marinas Ilie in Bucharest and Robert Mueller and Jana Mlcochova in Prague; Writing by Michael Winfrey)

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Comments (3)
Harry079 wrote:
“No Pepsi for YOU Romania”

Apr 27, 2012 11:03am EDT  --  Report as abuse
bobber1956 wrote:
Dominos

Apr 27, 2012 2:18pm EDT  --  Report as abuse
Neurochuck wrote:
If Romania was in the Euro, they could have a technobankercrat appointed to manage the looting.

Apr 27, 2012 8:00pm EDT  --  Report as abuse
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