Romania starts talks with EU on potential rescue loan

Romania has started talks with EU on a potential rescue loan to shore up its budget as it struggles to prevent a financing crisis due to past fiscal laxity.

Romania starts talks with EU on potential rescue loan

Romania has started talks with the European Commission on a potential rescue loan to shore up its budget as it struggles to prevent a financing crisis due to past fiscal laxity and a sharp economic slowdown.

Many economists warn the new EU member state may be the next in line to seek financial aid, following several of its eastern European peers, as the global crisis cuts off sources of cash.

A threat of recession and lavish spending by the previous government have forced Bucharest's five-week-old coalition to drastically cut state spending but its austere budget plans may not be enough to plug Romania's vast trade deficit, they say.

An EU delegation visited Bucharest this week, parallel to a regular mission from the International Monetary Fund, and talks on EU aid were likely after Romanian President Traian Basescu said this week a loan may be needed.

"A mission of experts from the Commission is in Bucharest. They will discuss macroeconomic stability and probably they will talk about the possibility of giving Romania financial support," Nicolae Idu, head of the EU delegation in Bucharest, told Reuters.

"President Basescu ... has discussed (with the EU Commission) the possibility of getting European financial aid worth 6-7 billion euros ($7.8-$9.2 billion). This discussion is now initiated."

Commenting on a possibility of extending aid to Romania, both the Commission and the IMF said they had received no official request from Bucharest.

"We will not comment further on this issue at this stage," the Commision said in a statement issued after the EU mission ended.

Meanwhile, Prime Minister Emil Boc confirmed his government was struggling to finance this year's deficit and a request for aid from the IMF or the EU could not be ruled out.

"We have many solutions, including the EU and the IMF. We will take a decision at some point," Boc told a news briefing after cabinet meeting.

Rescuing the economy

Diplomats say Brussels may insist any EU loan is part of a joint plan together with the IMF, because of concerns over Romania's ability to tighten budget strings and clean up its vast public sector.

But Bucharest's centre-left government, in power since November's parliamentary election, has so far been reluctant to seek help from the IMF, with Basescu saying this week he might oppose it, likely because of concerns over any stringent conditions imposed by the Fund.

The IMF has said a rescue package is not on the agenda of its mission this week.

Boc's cabinet approved its 2009 budget plan on Thursday, pledging to slash the deficit to 2 percent of gross domestic product from some 5 percent last year and to cap wage growth in the public sector far below trade unions demands.

But the fiscal plans have yet to win the backing of workers' groups, threatening to spark protests as unemployment is on the rise with production cutbacks and extensive layoffs.

There have been no mass protests in Romania so far, in contrast to its southern neighbour Bulgaria where riots broke out earlier this month as fears of economic pain and anger over poor policy-making reached boiling point.

Reuters
Last Mod: 31 Ocak 2009, 12:01
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