Romania's political bun fight steps up a gear

By bne IntelliNews July 5, 2012

bne -

Romania's long-winded political bun-fight took another turn on July 4, when the government instigated impeachment proceedings against President Traian Basescu. The mess is raising concern around the world about the state of democracy in Romania, which will do little to help it cope with its precarious economic situation.

In a motion filed in parliament, the ruling coalition accused the president of violating the country's constitution and overstepping his authority. Lawmakers from the Liberal Social Union (USL) have called an extraordinary parliamentary session for July 5 to debate the move, newswires report. This follows the sacking of the opposition speakers of both houses of parliament on July 3, a move which ousted Senate speaker Vasile Blaga called "a coup d'etat."

Prime Minister Victor Ponta's government - a coalition with the National Liberal Party that came to power in May - has a majority in parliament that should mean it can win an initial vote to suspend Basescu for a month. That would then lead to a national referendum on impeachment.

The situation has been accelerating all week, as the government has manoeuvred in an apparent bid to take control of the judiciary. Critics claim the move is motivated by corruption cases against officials. The government passed legislation earlier in the week to prevent the Constitutional Court from ruling on parliamentary matters, thus clearing the way to make it easier to impeach Basescu, who influenced the previous austerity-minded government despite his ceremonial role.

The court sent a letter to the European Commission on July 3 stating its independence is under threat from the government. The same day, parliament dismissed Romania's independent ombudsman. Ponta has attacked the court, saying it is under Basescu's control, but backtracked on July 4 on plans to replace judges.

Watched closely

The events in Romania are being watched closely. Both the European Union and United States have voiced concern over attacks on democracy, whilst a group of civil society and anti-corruption agencies sent a letter on July 4 to the president of the European Commission expressing concern over the "unprecedented attack" on the rule of law.

The letter to Jose Manuel Barroso complains: "The drift towards a non-democratic regime has continued, with serious steps taken in the last few days which will potentially affect the independence of institutions and the separation of powers."

"We emphasize that the EU institutions have vigorously reacted previously, in the case of Hungary," the authors note. "We believe similar actions are necessary in our case. One such action would be to consider starting infringement procedures against Romania, based on the Charter of Fundamental Rights of the European Union, Art. 47."

Like its neighbour to the west, Romania is also in a precarious fiscal position, and is reliant on an IMF programme to keep its head above water. The international lender has called for the government to privatise assets to raise funds and help stimulate the economy and markets, but the process has been going backwards in recent months, with deals breaking down, whilst stories of corruption inside some of the country's biggest companies do little to encourage investors. The political in-fighting only distracts Romania's leaders from sorting out such issues.

At the same time, analysts at Raiffeisen suggest the markets may finally start to tire of the long-winded bun fight. "Notoriously turbulent Romanian politics tend to be ignored as a background noise, but this time, the power grab by the ruling USL is serious enough to provide for a more lasting weakness of EUR/RON," they write, noting that "[the] accelerated move towards the president's suspension and impeachment [are] finally translating into leu weakness."

"As we move towards the actual motion, it will be up to the National Bank of Romania to stabilize the RON, especially if today's ECB action is limited to the widely expected rate cut. Our mid-term 4.55/€ expectations is becoming reality rather fast," they worry.

Looking at the wider picture, they also fret that relations with the IMF could also deteriorate, despite Bucharest's compliant approach with the lender thus far. "Fortunately, so far the government has been very careful to avoid comparisons to Hungary and [Prime Minister] Victor Orban's turbulent discussions with international institutions. On the contrary, the IMF deficit target was apparently met [in the first half of the year] ... and the PM Victor Ponta promises dismissal of the ministers failing to achieve IMF-agreed goals."

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