SCENARIOS-No confidence vote may undermine Romania govt

* Govt plans spending cuts to boost investor sentiment

* No confidence vote likely to take place next week

By Radu Marinas

BUCHAREST, June 7 (BestGrowthStock) – Romania’s coalition government
faces substantial opposition to its plans for drastic spending
cuts and needs to survive a no confidence vote in parliament to
secure vital international economic aid.

The EU’s second-poorest member has pledged to reform its
mammoth, highly-unionised public sector, but mounting social
unrest is casting doubts on its austerity drive and raised the
spectre of Greek-style debt woes in the country of 22 million.

Centrist Prime Minister Emil Boc plans to slash public
sector wages and pensions to secure further tranches of a 20
billion euro IMF-led aid package, but has been challenged by the
leftist opposition and trade unions. [ID:nLDE64B1PN]

Uncertainty over the cabinet’s ability to implement
restraint has dragged the leu currency (EURRON=: ) down by about 2
percent in the past 10 days. Bond tenders have also failed.

Here are possible outcomes of next week’s vote in parliament
and their consequences.

GOVERNMENT WINS BY WIDE MARGIN

A one-day general strike is planned to coincide with the
parliamentary vote and could be supported by a million state
employees.

The opposition, including leftist Social Democrats,
currently commands about 200 seats and needs 236 votes to win
the no confidence vote, which would topple the government and
kill its reform plans.

But nalysts say it will struggle to get all its deputies and
lure others from the governmental camp to vote against the
government. Some may abstain or even vote against the motion.

Boc’s Democrat-Liberal Party, which relies on support of an
ethnic Hungarian party and independents to command a fragile
majority, would then win the vote.

IMPLICATIONS: A wide victory margin would strengthen Boc’s
hand and provide a strong incentive to pursue economic reforms
in the longer term as the government would have more than two
years before the next scheduled elections in late 2012.

However, if the government defeats the no confidence motion,
it would still probably have to deal with legal challenges to
its proposed spending cuts at the powerful constitutional court.

Likelihood: Things look evenly balanced, but this is very
possible, provided the government can hang on to backing from
independents. The ethnic Hungarian party has said it will back
the government.

GOVERNMENT WINS TIGHT VOTE

A 28-strong group of independent deputies, who act together
and have so far backed the government, have yet to announce
their stance for next week’s vote.

Analysts say the independents could abstain, in which case
the government would still probably manage enough votes to
defeat the no confidence motion but the small majority would
substantially weaken its mandate to pursue reforms.

Abstention by independents — most of whom defected from
the opposition Social Democrats — could lead to a reshuffle in
Boc’s cabinet, where they hold the key defence minister position
and raise questions over its ability to command a majority.

This would likely deter further reforms, including badly
needed changes to the judiciary, as the government would be
forced to negotiate bills on a case-by-case basis with
opposition MPs.

It will also raise the prospect of possible new alliances
centred around the Social Democrats, who have proposed “higher
taxes for the rich” as the main tool to battle the crisis, and
strengthen their case to form a government.

IMPLICATIONS: Risk aversion towards Romania could rise and
the leu currency could witness more depreciation. The cost of
insuring sovereign debt of Romania, which rose by 13 bps to
trade at 12-month highs to 386 bps, could rise even further.

Likelihood: This looks just as possible as a big win, though
independent parliamentarians may shy away from weakening the
government at such a vital point.

OPPOSITION WINS

This is the least likely outcome, as the opposition would
probably need the support of government Democrat-Liberal
deputies or their allies to win the parliamentary vote.

There is plenty of discontent in government ranks over the
unpopular measures, however, and an opposition win would not
only torpedo reforms but also topple the government, causing a
political crisis and longer suspension of the vital IMF-led aid.

Many Democrat-Liberal deputies did not attend a weekend
meeting with President Traian Basescu to discuss support for the
fiscal measures, which some analysts say suggests parliamentary
support for the executive may be eroding.

Local media reported Basescu had threatened to send the
party, with which he has close links, into opposition if they do
not back the cuts.

“This may open the door for even more political
uncertainty,” ING Bank in Bucharest said a note.

IMPLICATIONS: A potential leftist-led government is expected
to water down IMF-prescribed recipes as they pledged to keep
pensions and wages unchanged. This could potentially derail the
rescue deal and enentually damage Romania’s recovery prospects.

Likelihood: The least likely outcome, if only because
parliamentarians fear the consequences would be far more severe
than the spending cuts.

Stock Analysis

(Editing by Sam Cage and Jason Webb)

SCENARIOS-No confidence vote may undermine Romania govt