Austerity topples Romanian government

Romania's left-leaning opposition will try to form a new government after torpedoing the centre-right cabinet in a confidence vote on Friday, the latest collapse of an austerity-minded ruling coalition in Europe.

Like other governments in the European Union, ousted Prime Minister Mihai Razvan Ungureanu's two-month-old cabinet has faced a wave of public anger against plans for spending cuts and tax hikes. Violent protests toppled his predecessor, Emil Boc.
"Today justice was done," said Victor Ponta, head of the left-leaning opposition Social Liberal Union (USL). President Traian Basescu, a political opponent, nominated Ponta to try to form a new government as prime minister.

The European Union's second-poorest member slashed public sector salaries and raised sales taxes to put its economy on a more solid footing, but the measures have hit the poorest as Romania emerges only slowly from a two-year recession. Ponta said he controls 228 seats in the 460 member parliament. He should be able to gain backing from smaller parties that will give him a clear majority. If parliament fails to back a new prime minister, an early vote would be held. The next general election is scheduled for November.
The International Monetary Fund, which with the EU has extended two loan packages to Romania, postponed a review there pending details on the shape of a new government. The deal is key to Bucharest's battle to maintain investor confidence. The IMF said it expected Romania to observe its economic policy commitments. The USL has more than 50 percent support in opinion polls. It has committed to work with the IMF, but if it takes power there will be uncertainty over whether it will roll back some austerity measures like wage cuts or hikes in sales tax. Reuters

Austerity talks collapse in the Netherlands

The ruling Dutch minority government was on the brink of collapse Saturday after anti-EU lawmaker Geert Wilders torpedoed seven weeks of austerity talks, saying he would not cave in to budget demands from "dictators in Brussels." 

New national elections that will be a referendum on the Netherlands' relationship with Europe and its ailing single currency are now all-but-certain. But before Prime Minister can tender his resignation -- possibly as early as Monday -- he must consult with allies and opposition parties on how to run a caretaker government that will have to make important economic decisions in the coming weeks and months. "Elections are the logical next step," Rutte said.

Opposition leader Diederik Sansom of the Labor Party joined others across the political spectrum in calling for new elections as soon as possible. "In the meanwhile, we in parliament will take responsibility for a careful budget in 2013," he said.

Austerity talks began in early March after the Dutch economy sank into recession and forecasts showed the 2012 budget deficit will reach 4.6 percent -- well above the 3 percent limit mandated by European rules. Dutch politicians have strongly demanded that Greece and other countries meet that target.

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Rutte said negotiations had been rounded off Friday to deliver a "balanced package" of cuts, but Wilders walked out after discussing the package with his Freedom Party. Christian Democrat leader Maxime Verhagen accused Wilders of "political cowardice" for refusing to sign off on the cuts -- details of which have not yet been released.

Wilders was happy to take the blame, saying he "would not accept that the elderly in the Netherlands have to pay for nonsensical demands from Brussels." He underlined that an accord would have been possible had the coalition been less concerned with following European rules to the letter. "We don't want to bow to Brussels," he said. "We don't want our pensioners to suffer for the sake of the dictators in Brussels."

Wilders has long been a staunch critic of the European Union, opposing an EU constitution and last month suggesting the Netherlands should return to its pre-euro currency, the guilder. Most mainstream Dutch parties are generally pro-EU.

The collapse of talks could endanger the Netherlands' coveted AAA credit rating and drive up its borrowing costs. The Netherlands is one of only four nations using the euro that has the top rating, though it already is under review by rating agencies. Central Bank President Klaas Knot said last week borrowing rates would rise by 1 percent if the Netherlands' ratings are cut.

Once considered one of Europe's strongest economies, the Netherlands is suffering from high levels of personal debt, mostly mortgage related. Rutte came to power in 2010 and slashed spending by (EURO)18 billion. But after the latest downturn, he needs to cut at least (EURO)9 billion ($12 billion) more, according to estimates by the Central Plan Bureau, the government's economic think-tank.

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Businessweek

EU suspends most Myanmar sanctions

The European Union agreed on Monday to suspend most of its sanctions against Myanmar for a year despite a dispute over a parliamentary oath between the army-backed ruling party and pro-democracy leader Aung San Suu Kyi. 
In the first clear sign of friction since Suu Kyi's party swept historic by-elections, the ruling party on Monday rejected her demand to replace the words "safeguard the constitution" with "respect the constitution" in the oath. Suu Kyi and party colleagues refused to take their seats at the opening of parliament, denting the image of political transformation Myanmar hopes to portray. 
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One EU diplomat said the sanctions suspension did not mean Myanmar was a fully democratic country, and that it was up to the people there to work out problems like the oath. 
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The suspension, which does not apply to a separate arms embargo, is likely to go into effect this week. It will allow European companies to invest in Myanmar, which has significant natural resources and borders economic giants China and India. The EU had frozen the assets of nearly a thousand companies and institutions, and banned almost 500 people from entering the EU. It also prohibited military-related technical help and banned investment in the mining, timber and precious metals sectors.
The EU is rewarding a shift that has seen many political prisoners freed and a range of repressive measures lifted.
More...

Spain Not Greece Is the Real Test

The decisive test of the euro area’s plans for economic recovery was never Greece but Spain, and the European Union shows every sign of failing it. The Spanish government’s new austerity plan hasn’t won investors’ confidence, and this creates a threat not just to Spain but to the whole EU. Europe’s governments need to change course before it’s too late. (...)
The problem is not that Spain’s new austerity plan is too timid. Just the opposite: Under EU orders, Spain is promising what might be the tightest fiscal squeeze that it or any other European economy has ever faced. The new plan calls for the budget deficit to fall from 8.5 percent of gross domestic product to 5.3 percent this year. Since the economy is already shrinking, this requires a discretionary fiscal tightening of roughly 4 percent of GDP -- with the unemployment rate already standing at about 23 percent. (...)
Spain cannot work through this crisis without more help from its EU partners. In their own larger interests they should allow a milder path of fiscal consolidation, and support Spanish growth along that path. That means steps to buoy EU-wide growth, including easier fiscal policy in Germany and easier monetary policy from the ECB. It means outright temporary fiscal transfers to Spain. Above all it means announcing that the ECB will act as lender of last resort to distressed euro-area governments.
Spain is being drawn into a vicious circle of economic, fiscal and political collapse. Even now, this is an avoidable danger, so long as the EU is willing to act. But if it stands aside too long and lets Spain fall into the trap, containing the damage will make dealing with Greece look like child’s play.
Bloomberg

Free trade or fair trade

Under pressure from French President Nicolas Sarkozy, the European Commission adopted proposals on March 21 that could shut foreign companies out of bidding for public contracts in the European Union unless their home countries provide similar access to European firms.
The EU executive, which has historically promoted free trade and opposed protectionism, insists the measure is intended as a crowbar to open lucrative government contracts in countries such as Japan, the United States and China, not to close EU markets. (...)
Critics, notably the free-trading British, say the proposals send the wrong signal and would put Europe on a slippery slope towards fencing off markets rather than opening them.
Germany, Europe's biggest exporter, is also unenthusiastic, fearing retaliation against its cars, chemicals and industrial machinery, which are still conquering Asian growth markets.
Sarkozy, who has long banged the drum for trade reciprocity and branded Europe "naive", has gone further and demanded that the EU adopt a Buy European Act similar to the Buy American Act reserving certain markets for domestic producers. (...)
Like many trade battles, the dispute pits the interests of producers against those of consumers and exposes the limits of Europe's ability to spread its own system of rules-based governance worldwide. A study produced for the French government argues that aside from public procurement markets, European manufacturers face a growing problem of "unfair competition" from countries with lower labor, environment and safety standards.(...)
Reuters