* New feud between Ponta and Basescu may spook investors
* Stability needed for reforms in EU's second poorest state
By Luiza Ilie and Radu Marinas
BUCHAREST, March 3 Prime Minister Victor Ponta
urged Romania's president on Monday not to block his attempts to
form a new governing coalition as a new standoff loomed between
the two bitter rivals, threatening to unnerve investors.
Ponta hopes to establish a government with the help of new
allies this week after the departure of his main coalition
partner last Tuesday following a series of spats, which raised
concern for Romania's ability to stick to commitments made in
exchange for an aid deal with the International Monetary Fund.
The split left Ponta with just over half the seats in the
lower house, not enough to pass laws reliably in a parliament
where party indiscipline and lawmaker absenteeism are common.
But an ethnic Hungarian party joined Ponta's Social
Democrat-led alliance on Monday, partially restoring his
once-two-thirds majority in parliament and giving him enough
seats to win a confidence vote due on Tuesday.
However, President Traian Basescu questioned Ponta's legal
right to form a new government because of the loss of one of its
founding parties, and has threatened to block its creation.
Ponta criticised Basescu's new challenge as irresponsible at
a time when domestic political instability, coupled with
emerging market jitters over the Federal Reserve's tapering and
turmoil in the Ukraine, have put pressure on Romanian assets.
"On Monday I will have serious discussions with legal
experts," Basescu told local television station PRO TV on
Sunday. "I will not approve a government against my conscience
and with concerns over the constitution. I would turn to the
LIBERALS OUT, HUNGARIANS IN
The ethnic Hungarian UDMR party announced on Monday it would
join the government - taking over the ministerial portfolios of
environment and culture - to replace Ponta's former Liberal
allies in the coalition.
Ponta hopes to boost his majority to around 60 percent with
the Hungarians and other minorities' support. That would be
enough to help him pass legislation but it is still lower than
the powerful two-thirds majority he previously held.
"We noticed that Romania now needs government stability
taking into account the (domestic) context and situation around
our country. Our contribution to stability is of paramount
importance," UDMR leader Kelemen Hunor said on Monday.
The Hungarians' support gives Ponta a new mandate to push a
reform agenda to further cut the fiscal deficit, raise some new
taxes and clean up loss-making state companies - difficult
policies to push in an election year. Romania will vote in
European elections in May and a presidential vote in November.
But Basescu's threat could prolong political instability in
the European Union's second poorest state. His legal challenge
would be partially based on the premise that a new government
may alter its legislative agenda - a charge Ponta denies.
Attempts by Ponta to remove Basescu in 2012 sparked a
Analysts said it was too early to say whether Basescu's
pending challenge would succeed.
"Previous governments have made serious changes and went
unchallenged, so based on that such a request cannot be
justified," said Sergiu Miscoiu of the CESPRIl think-tank.
"Knowing our Constitutional Court, it could rule either way."