BUCHAREST Romanian Prime Minister Victor Ponta rejected calls for his resignation on Friday after prosecutors named him in a criminal investigation into forgery, money-laundering, conflict of interest and tax evasion.
Ponta denied wrongdoing and his office said in a statement that the accusations brought against him had previously been put forward by his political enemies and "meticulously dismantled ... through clear proof and certified documents".
Romanian prosecutors have made a series of high-profile arrests this year in what remains one of the poorest and most graft-addled countries in the 28-member European Union.
A former prosecutor who took office in 2012, Ponta faces a general election next year. His government is now pushing a series of disputed tax cuts through parliament and is in fraught talks with international creditors over an aid deal.
The shock investigation of Ponta could increase instability in a country with a history of it in the quarter-century since the overthrow of Romania's Communist dictatorship, although he has survived several previous scandals. Ponta was bruised after a surprise defeat at the presidential election in November.
The opposition filed a no-confidence vote against Ponta's left-leaning government on Friday, a move which had been in the works for some time. However, although he lost allies in the wake of his presidential defeat, Ponta still commands an overall majority in the Balkan state's parliament.
The inquiry into Ponta mainly concerns his time as a lawyer and accuses him of colluding with Dan Sova, a former transport minister in Ponta's cabinet who was previously subject to a corruption investigation.
A separate inquiry announced on Friday targets suspected conflict of interest on the part of Ponta during his tenure as prime minister.
President Klaus Iohannis, who defeated Ponta at the ballot box on an anti-corruption platform, called on Ponta to resign over the investigation, saying his position was untenable.
"I respect his public position but I was appointed in the job by Romania's parliament and only parliament can dismiss me," Ponta wrote in a Facebook post after a discussion with Iohannis.
BID TO LIFT PONTA'S IMMUNITY
Prosecutors have lodged a request with parliament to hold a vote on lifting Ponta's immunity from arrest. Under a much criticized Romanian law, prosecutors need approval to detain sitting lawmakers for graft offences while they were in office.
Lawmakers have a patchy record of approving such requests and in March blocked an investigation into Sova, sparking low-level street protests.
Romania has emerged from steep recession and its economy grew 4.3 percent in the first quarter of this year. But it has been prone to instability for years. Ponta himself came to power after bringing a no-confidence vote against his predecessor.
The International Monetary Fund and the European Commission have shored up Romania with a series of aid deals since 2009, the latest of which expires in September.
Negotiations have become increasingly strained, and both the IMF and European Commission have warned that Romania's ambitious tax-cutting plans could endanger its fiscal targets.
"The political scandal will probably weaken the government's position in negotiations with the European Commission and the IMF," said Dan Bucsa, a CEE economist at UniCredit Bank AG London. "As a result, the government could postpone controversial decisions -- such as the VAT cut scheduled for January 2016 -- in order to comply with EC/IMF requirements."
Romania's currency, the leu, was down 0.60 percent at 1242 GMT after word of the investigation emerged.
"The Romanian leu and RON (leu-denominated) debt are expected to underperform on political uncertainty as investors are likely to require higher risk premium," said Ciprian Dascalu, chief economist at ING Bank in Bucharest.
Romania's poor graft record means the European Commission in Brussels has kept the Black Sea nation out of the EU's passport-free Schengen zone, and its judiciary under special monitoring.
But prosecutors have won EU and investor praise for an energetic crackdown on graft that has reached Ponta's inner circle, including his ex-finance minister, in recent months.
(Editing by Mark Heinrich)