Romania's Social Democrats quit the coalition government on Thursday in protest at the sacking of a minister ahead of a November presidential election, jolting markets and raising the risk of failure to meet IMF aid terms. The centrist Democrat-Liberal (PD-L) can rule alone for a few weeks but will have to win parliament's approval for new ministers to replace the Social Democrats, making the support of centrist and ethnic Hungarian opposition key to their survival.
Even if their minority government survives, they face an uphill battle to win support for difficult fiscal reforms that have riled workers from Romania's vast public sector. The coalition went sour this week when Prime Minister Emil Boc suddenly sacked interior minister Dan Nica - a Social Democrat - and proposed a replacement from his own party.
On Thursday President Traian Basescu, who has links to the PD-L, approved Nica's dismissal. "All PSD ministers, supporting Dan Nica, are announcing their resignation from government," Social Democrat leader Mircea Geoana told reporters after an emergency party meeting. "The president succeeded in triggering a political crisis."
Economists said the break-up of the coalition put in question Romania's ability to meet fiscal targets set by the IMF in return for the 20 billion euro aid package it led for Romania this year. "It's still very early days and one should be careful in jumping to conclusions. But of course one needs to see how a minority government, if that's what we do get, can continue to adhere to the IMF programme. That's key," said Koon Chow, strategist at Barclays Capital.
Romania went through a sharp economic reversal in the last year as a result of the global financial crisis. It shifted from being the European Union's fastest-growing economy to one in dire need of IMF aid to combat deep recession. The centrist finance minister, Gheorghe Pogea, said Romania was on track to meet the IMF's third-quarter target for a budget deficit at 5.4 percent of gross domestic product (GDP).
But the leu currency shed about one percent against the euro in reaction to the news, even as dealers suspected central bank intervention aimed at stabilising the wobbly currency. By 1040 GMT, the leu fell as low as 4.2700 per euro , compared with Wednesday's close around 4.2100. The central bank declined to comment. "The worst that could happen is that the next tranche will be delayed for a few months, I don't think the next government will walk out of the programme," said Raffaella Tenconi of Wood & Co in Prague.
Moody's Investor Service said Romania's credit rating would be threatened if there were delays in fiscal reforms as result of political turmoil. Opposition parties made little immediate comment about their potential support for a minority government, with the biggest Liberal Party (PNL) calling for a new cabinet made of technocrats. Observers said the political stand-off reflected tactical manoeuvring by the two ruling parties before the presidential ballot, rather than policy differences.
The vote pits incumbent Basescu against the PSD's Geoana and the PNL leader, Crin Antonescu. Boc's PD-L and their leftist partners have ruled since they took power in December, sparring over cost-cutting reforms and trading blame for economic woes. "The crisis is theirs now," Nica told reporters.
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