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Romania's centre-right government became the latest victim of the European backlash against austerity on April 27 as it unexpectedly fell in a no-confidence vote submitted by the opposition. Victor Ponta, leader of the Social Democratic Party, has been asked to form a new cabinet.

The outgoing cabinet will have the ignominy of enjoying the shortest-ever term in office in the country's history. The downfall of the two-month-old coalition was a surprise, with the government widely predicted to pass the test. However, defecting independents helped pass the motion by four votes over the 231 needed as they sought to distance themselves from now former Prime Minister Mihai Razvan Ungureanu's spending cuts, as well as allegations of corruption and cronyism.

"Victor Ponta is the prime minister designate. He was the only proposition made by three political parties," President Traian Basescu told a news conference. "I do hope the new government will be installed rapidly."

Ponta has 10 days to draft a cabinet line-up and ask parliament for backing. He told reporters on April 27 that his party is "ready to assume responsibility. Today justice was done." The next day he promised to present a list of minister nominees by May 1, aiming to put the new cabinet before a confidence vote in parliament on May 7, Mediafax reports.

The first point of business for Ponta will be to reassure the markets, and more immediately the International Monetary Fund delegation currently in town to negotiate over the €5bn top-up to Bucharest's €20bn bailout package granted in 2009. The PM designate said on April 28 that he would meet with the representatives to tell them he will maintain fiscal consolidation efforts. "A meeting will take place Monday [April 30] with the IMF and the current finance minister so that they will see the continuity but also the vision of the government that I will propose next week," Ponta said according to AFP.

For its part, the IMF said on April 27 it is suspending its review of the new programme pending the formation of a new government. "We have every expectation that Romania will continue to observe its economic policy commitments to its international partners," the IMF said in a statement. "Sound macroeconomic policy and continued structural reforms remain essential for Romania's economic recovery and long-term growth."

On the back of the government collapse, President Basescu insisted that it is "no reason for panic" in financial markets. However, the news clearly rattled investors already nervous about the reaction against austerity across Europe, and the resumption of stress coming out of the Eurozone debt crisis. The leu suffered a sharp drop against the euro on April 27, and analysts expect volatility to remain high.

One of the next major questions for the markets is the implication for the National Bank of Romania meeting, currently scheduled for May 2. Capital Economics say it had expected a 25-basis-point cut in interest rates to 5%, but that this is now in doubt. It seems unlikely that policymakers would cut rates with "so much uncertainty in the political backdrop," it points out.

Meanwhile, Moody's Investors Service said that its sovereign outlook on Romania comes with a built-in leniency for persistent political uncertainty ahead of parliamentary elections scheduled for November, and the government's collapse should not weigh too heavily on the ratings.

Romania has cut government salaries and public sector jobs, as well as raise taxes in its attempts to tame the budget deficit. These cuts, along with the privatisation of state assets, led to the collapse of Romania's previous government under then prime minister Emil Boc just three months ago, following huge protests held in the winter. The latest IMF loan comes with a pledge to reduce the budget deficit to just 1.9% this year, from 4.2% in 2011 and over 7.0% the year before.

If Ponta can't win parliamentary support for his cabinet, elections will likely need to be held before November. The PM-designate told Reuters on April 28 that he now controls 227 seats in the 460-seat parliament, but there have already been dissenting voices emerge inside his party. Ion Iliescu, a former president, said the country should have an independent government for the next six months until parliamentary elections are held.