BUCHAREST Romania's feuding coalition government could split in a matter of days, a break-up that might disrupt five years of economic reform backed by the International Monetary Fund (IMF).
The Liberal party, the second largest member of Prime Minister Victor Ponta's ruling alliance, was set to meet for crisis talks on Tuesday evening to decide whether to pull their ministers out of the government. That could shortly be followed by a formal split from Ponta's leftist Social Democrats.
The meeting was the culmination of a series of rows between Romania's two biggest parties, mainly over ministerial appointments, as they jockey for position before European elections in May and a presidential election in November.
The infighting comes at a time when Romania should be capitalizing on an economic rebound that has seen growth jump to 5.2 percent in the last quarter, buoyed by a bumper harvest in 2013 and a rise in exports to a recovering Europe.
A weakened or unstable government could hamper policymaking in the European Union's second poorest member state. High on the agenda for Romania is to speed up a process of selling off or restructuring inefficient state companies, as part of a 4 billion euro ($5.49 billion) aid deal with the IMF.
"I see the danger of populism in this particular election year is enormous and the risk to the IMF deal seems big," said Cristian Patrasconiu, a Bucharest-based political analyst.
"The government committed to the restructuring of inefficient state firms including in the railway sector this year, with layoffs on the cards," Patrasconiu said. "I don't see the new government enforcing any pay cuts or pursuing any redundancies ahead of European and presidential elections."
GOING IT ALONE
Political squabbles have often hampered Romania's progress in the 25 years since it threw off Communist dictator Nicolae Ceausescu, and its economy trails other emerging EU countries such as Poland and the Czech Republic.
Ponta's own alliance was formed after it brought down a center-right coalition government in a confidence vote in May 2012. That government had imposed unpopular austerity measures to help Romania recover from a deep recession.
While Ponta's coalition commands a more than two-thirds majority in parliament, in recent weeks its rule has been overshadowed by a series of bust-ups.
Most recently, Ponta has blocked the appointment of a charismatic Transylvanian mayor as a new deputy prime minister. Earlier this month, a disagreement over a policy proposal to reschedule the bank debts of low-income borrowers prompted the Liberal party to sack its own finance minister.
The increased risk of a split in the government helped push Central European assets down on Tuesday, although movements were slight compared with last week's swings on the crisis in Ukraine. Mihai Tantaru, an economist at ING bank, says a formal coalition breakup could push the Romanian leu towards year lows of around 4.55 to the euro.
If the coalition fractures, Ponta would probably be able to cobble together another alliance and still command a majority in parliament, albeit with reduced numbers.
Doing so could strengthen his hand in some ways, as it would unshackle him from an agreement under which the Liberals put forward their nominee as the coalition's presidential candidate.
Ponta, who has seen his own policies repeatedly pushed back by his arch-rival, the outgoing president Traian Basescu, would be free to put forward his own choice for president.
"It's a safer bet for Ponta, if he can push it through, to have his own president," said Otilia Dhand, a vice president at Teneo Intelligence.
But going it alone could ultimately put the brakes on the Romanian government's push to liberalize its economy - a drive seen as vital if it is to catch up with its European peers.
Romania has pledged to stick to an IMF-agreed June 30 deadline to list a 15 percent stake in hydropower producer Hidroelectrica and also in coal-fired Oltenia, which operates lignite-fired power plants, in October.
It is also due sell a 51 percent stake in state-controlled power distributor Electrica in an initial public offering in June.
"At least the sale of a majority stake in Electrica is highly unlikely, as we know the (Social Democrats) won't like to embark alone on any large privatization drive," said a Bucharest-based economist of an international bank.
"This situation does note bode well in terms of credibility," the economist said.
($1 = 0.7285 euros)
(Editing by Alistair Lyon)