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Romanian Premier’s Super Majority Risks Hurting Image

Romanian Prime Minister Victor Ponta’s newly won super majority in Parliament risks sharpening his feud with the president, hurting the Balkan country’s image further, said analysts from London to Bucharest.

Ponta’s Social Liberal Union, or USL, won 67 percent of the 588 seats in Parliament, and he said today it will seek to bolster its two-thirds majority with the aid of the ethnic Hungarian party.

With a stronger hand in Parliament, similar to Prime Minister Viktor Orban’s position in neighboring Hungary, Ponta pledged to change the constitution to diminish presidential powers after promising to roll back austerity passed by the previous government aligned with his rival, President Traian Basescu.

“We would view negatively should the new coalition manage to secure a two-thirds majority as this would give exceptionally strong power to the new government, accentuating the tensions with the president,” said Raffaella Tenconi, a London-based economist at Bank of America Merrill Lynch.

Romania earlier this year was 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.

Borrowing Costs

The turmoil boosted borrowing costs and pushed the leu to a record-low 4.6520 against the euro on Aug. 3. It weakened 0.4 percent last week ahead of the elections, one of the worst-performing currencies in the region. The leu, which rose as much 0.4 percent yesterday, weakened today to 4.5409 per euro by 7:45 p.m. in Bucharest.

Ponta, who has headed the government since May, said yesterday he plans to form a Cabinet by year-end and start talks with the ethnic Hungarian party to build a constitutional majority. The opposition Right Romania Alliance, which is aligned with Basescu, received 80 seats and the Hungarian party got 27 seats, according to the Electoral Commission.

“Decision-making should be more efficient; conversely, a government with such a large majority could feel that it has a free rein to take far-reaching decisions without broader consultation,” Fitch Ratings director Matteo Napolitano said in an e-mail to Bloomberg. “The example of neighboring Hungary is relevant, with the additional factor in Romania’s case of poor relations between the Premier and the President.”

Impeachment Process

In moves reminiscent of steps taken by Orban in Hungary to solidify power, Ponta’s coalition has already replaced the heads of Parliament, passed laws limiting the powers of the Constitutional Court and has tried to ease the impeachment process, prompting European-wide concerns about the rule of law in the country, including from German Chancellor Angela Merkel.

“USL’s plans to become a superpower in Parliament are worrisome because in any democracy you need a balance of power and with a constitutional majority there is not much the opposition can do,” said Septimius Parvu, a political analyst at Bucharest-based Asociatia Pro Democratia. “Under these circumstance, Basescu will probably face suspension regardless of whether he nominates Ponta or not.”

The political dispute comes as the country needs a third agreement with the International Monetary Fund and the European Union to keep the economy stable.

Debt Crisis

In a rare consensus, Ponta, Basescu and central bank Governor Mugur Isarescu agree Romania needs a new accord, once the current 5 billion-euro ($6.5 billion) two-year precautionary accord ends in March, to act as an anchor against the European sovereign-debt crisis. 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.

Under the constitution, the party that wins more than 50 percent of parliamentary 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. Basescu has already called for meetings with each individual party.

“Given his political enemies’ electoral landslide, the president may not try to impede Ponta’s return,” Michael Taylor, a senior analyst at U.K.-based Oxford Analytica wrote in an e-mailed note. “Romania’s perilous economic position ought to introduce some common sense into politics, but the elite’s track record does not encourage optimism.”

Confidence Vote

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

“My greater concern now is the process of the president selecting a prime minister candidate because the constitution allows him a fair degree of flexibility and we know that his relationship with the incumbent prime minister is quite bad,” said Blaise Antin, who helps manage about $9 billion of emerging-market debt at TCW Group Inc. in Los Angeles, Antin said by phone yesterday.

The new government will have to finalize the 2013 budget and then begin discussions on a new loan, said Daniel Hewitt, a London-based economist at Barclays.

“There seems to be little room in the fiscal accounts to hike government and minimum wages and lower taxes as per election promises,” he said. “Furthermore, with a heavy structural reform agenda ahead, we would worry if the new government were to concentrate on changing the constitution rather than fixing structural economic problems.”

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