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Romanian Cabinet Austerity Rollback Boosts Ponta’s Lead

Romania’s ruling coalition has built up a majority of support before Dec. 9 general elections by promising to roll back austerity measures passed by a previous Cabinet, sharpening a feud between the nation’s top leaders.

Prime Minister Victor Ponta’s Social Liberal Union, in power since May, garnered 57 percent in the last polls before elections, compared with as much as 19 percent for the opposition alliance trying to regain power. The alliance is aligned with President Traian Basescu, who has the right to choose the next premier and survived an impeachment attempt by Ponta in July.

Ponta is trying to win office for the first time as the head of government as voter anger sweeps Europe over budget cuts and tax increases that have sparked mass protests, eroded salaries and wiped out thousands of jobs. As investment dries up and companies like Ford Motor Co. (F) and OAO Mechel (MTLR) reduce Romanian output, Ponta will struggle with Basescu to plot the nation’s economic future and avert a new recession.

Electoral Promises

“Usually the electoral promises don’t translate into policies as they are all promising the reversal of austerity,” said William Jackson, an emerging-market economist at Capital Economics Ltd. in London. “There are risks which are worrisome for investors. One of them is that the tensions between the President and the Parliament could re-emerge.”

Voting stations open on Dec. 9 at 7 a.m. in Bucharest and close at 9 p.m., when exit polls will be released, according to the Central Electoral Commission. The commission will begin releasing partial results at 10 a.m. the following day. The commission doesn’t say when final results are expected.

A poll conducted by Public Affairs and published yesterday by state-owned news service Agerpres showed Ponta’s USL will get 57.5 percent of the votes, a similar result with a poll by Avangarde and CURS, which contacted 4,957 people from Nov. 27 to Dec. 2. The joint survey has a margin of error of 1.4 percentage points.

The Public Affairs poll put the opposition alliance at 19 percent and showed media entrepreneur Dan Diaconescu’s People’s Party will get 13 percent of the votes. The survey of 1,234 people was taken from Dec. 3 to Dec. 5 and had a margin of error of 2.8 percentage points.

Austerity Anger

Ponta may use popular opposition to austerity to intensify his political war with Basescu, said analysts including Daniel Lenz at DZ Bank AG. Voter acrimony over austerity during the three-year-old sovereign-debt crisis has resulted in the ouster of leaders in countries including Ireland, Portugal, Greece, Italy, the Netherlands, Spain, Slovenia, Slovakia and Finland.

The former communist country’s economy shrank in the third quarter, according to the statistics institute yesterday, and investor confidence has slipped, boosting borrowing costs and pushing the leu to a record-low 4.6520 against the euro on Aug. 3. The leu has declined 0.4 percent so far this week, making the currency one of the worst-performers in the region.

Credit-default swaps, which measure the cost of insuring Romanian debt against non-payment for five years, traded at 222 points today, after hitting 206 points on Oct. 17, which was the lowest in at least two years.

Credibility Risk

“Romania’s CDSs could lose even more ground on political woes close to parliamentary elections Sunday,” DZ Bank AG economists said in a note. “One of Prime Minister Ponta’s first actions after the vote may be a next attempt to impeach President Basescu, which would again hit the credibility of Romania’s governance badly.”

Ponta’s coalition campaigned in the European Union’s second-poorest country to undo a valued-added tax increase of 5 percentage points and cut an income tax for low earners in four years. The opposition Right Romania Alliance says it will cut income taxes beginning next year and lower some social-security contributions.

The Democrat-Liberal Party, now part of the opposition alliance, lowered state wages by 25 percent and raised the sales tax in 2010 to narrow a budget deficit and meet pledges to the International Monetary Fund and the European Union. Former Prime Minister Emil Boc, an ally of Basescu, stepped down on Feb. 6 to ease political and social pressure stemming from nationwide anti-austerity street protests.

Right Leaning

“I expect the politicians to start lying less and do more for the country, like improving infrastructure, investing in agriculture and reforming the public administration,” said Adrian Cucu, a 27-year-old food deliveryman with a master’s degree in political science. “I will vote, but I’m not sure for whom, I’m leaning more toward the right.”

Romania was earlier this year engulfed in a power struggle between Ponta and Basescu that culminated in a 52-day suspension for the president, followed by an invalidated nationwide impeachment vote on July 29. Basescu returned to office at the end of August and will designate a new premier.

Under the Romanian Constitution, the party that wins more than 50 percent of Parliament’s 470 seats is entitled to negotiate the nomination of prime minister with the president. If no party has a majority, the president chooses a premier after consulting with all the parties.

Failed Impeachment

After the failed impeachment attempt, Basescu said he won’t designate Ponta as prime minister again. He has since declined to repeat that statement in public. Ponta said he is the only candidate for prime minister should his political alliance win.

“We will see some problems in forming a new government. In the end, Basescu will probably be forced to reappoint Ponta, though he may try to stall the process,” said Michael Taylor, a senior analyst at U.K.-based Oxford Analytica.

The premier-designate has 10 days to draw up a governing program and pick his ministers before seeking a confidence vote in Parliament.

Ponta and Basescu agree that Romania needs to reach a deal with the IMF and the EU next year, once the current 5 billion- euro ($6.5 billion) precautionary accord, signed in 2011, ends. The nation has drawn no money from the facility. Romania also got a 20 billion-euro bailout from the IMF and the EU in 2009.

‘Political Noise’

“Given the prospects of future political noise, another IMF program could be a good anchor for the authorities,” Caroline Grady, a London-based economist at Deutsche Bank AG, wrote in a November note. “Another impeachment referendum could be called in the coming months, which could again distract the government’s attention from policy making.”

The former communist country, with more prime ministers since 1990 than any other European Union member, has been ruled by three Cabinets this year alone. Foreign direct investment plunged to 1.1 billion euros in the first nine months from a record 9.5 billion euros in 2008.

Skepticism about the government’s ability to deliver on promises has exacerbated concern about a faltering economy. Gross domestic product contracted a seasonally adjusted 0.5 percent in the third quarter, wiping off a 0.1 percent gain in the previous three months, according to revised data from the statistics office.

The country of about 19 million, the second-largest in the EU’s east after Poland, has slipped to 72nd of 183 nations in the World Bank’s 2012 Ease of Doing Business survey, below neighboring Bulgaria and Hungary.

“There’s no joy in ruling the country during these times as there are real social and economic problems to deal with,” said Adrian Moraru, an analyst at the Institute for Public Policies in Bucharest, in a phone interview. “They will have to take even tougher measures than the ones announced by Basescu two years ago.”

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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