Defaulting banks - where will it stop?

[Jan Klimkowski]

The economic shock therapists of the IMF are busy bullying Romania.

Romania's highest court voted IMF-imposed "austerity measures" illegal.

UPDATE 1-Romania court rejects austerity measures - agency

Fri Jun 25, 2010 5:07am EDT* Some measures on pensions against constitution - Agerpres

* Savings required for resumption of IMF aid

* Leu currency and blue chip stocks fall

(Adds analyst and market reaction, details on politics)

BUCHAREST, June 25 (Reuters) - Romania's top court rejected some parts of a key austerity package related to pensions on Friday, endangering an IMF-led aid deal, local news agency Agerpres reported, citing judicial sources.

Disbursement of about 2 billion euros in aid from the International Monetary Fund and the European Union depended on the court's approval of a government move to cut state wages by a quarter and reduce pensions by 15 percent.

The 20-billion-euro IMF-led aid package is vital for the recession-hit economy, and the court ruling hit the country's currency and stocks. The court said an official announcement would follow shortly.

"This decision is a defeat for the government as it wasn't able to make a constitutional law," said Mircea Marian, political commentator at daily Evenimentul Zilei. "The letter of intent will not reach the IMF board by June 28 for sure."

"The government will not be able to take a decision until the court explains the rationale behind its decision, which could take at least 10 days..."

Romania's leu fell after the decision was reported and was down 0.6 percent on the day at 4.261 per euro by 0846 GMT EURRON=. The blue-chip stocks index also fell and was down 3.4 percent on the day .BETI.

The reported court ruling raises further questions over the government's ability to push through reforms, after it narrowly survived a no-confidence vote earlier this month, showing its majority remained fragile. [ID:nLDE65E06I] (Reporting by Luiza Ilie, Sam Cage and Ioana Patran)

http://www.reuters.com/article/idUSLDE65N18H20100625

So, to serve its IMF master, Romania's government hiked VAT instead:

UPDATE 1-Romania to hike VAT to 24 pct, IMF to meet June 30

Sat Jun 26, 2010 7:47am EDT* Romania to hike VAT to 24 pct from July 1

* PM Boc says IMF to discuss aid on June 30

* Plans to move forward with cuts in state wages


(Adds quotes, details)

BUCHAREST, June 26 (Reuters) - Romania's centrist coalition government will hike value added tax by 5 percentage points to 24 percent as of July 1, which should unlock a 20 billion euros IMF-led aid package, Prime Minister Emil Boc said on Saturday.

The VAT hike comes one day after Romania's top court ruled against key planned pension cuts, prompting the International Monetary Fund to postpone a June 28 meeting to discuss the country's aid package.

While the higher tax should help Romania meet its IMF-agreed fiscal deficit of 6.8 percent of GDP, analysts said inflation will jump significantly and recession might deepen.

"The government has decided to hike the VAT by 5 percentage points," Boc told reporters after an emergency cabinet meeting.

"Under these conditions, our agreement with the IMF goes on and our objective is ... to get a positive result when the (IMF) Board meets on Wednesday."

The disbursement of about 2 billion euros ($2.68 billion) in IMF and European Union funds depended on the Constitutional Court's approval of a government move to cut state wages by a quarter and reduce pensions by 15 percent.

The Friday court ruling against planned pension cuts sent the leu currency EURRON= falling as much as 1.1 percent to a seven-month low against the euro and hit share prices, while yields on its sovereign Eurobonds jumped.

In addition to the VAT hike, Boc said the government will also press on with its plans to cut public sector wages by 25 percent. While the court did not object to the wage cuts, they were included in the same bill as the pension cuts, which will now be sent back to parliament for further discussion.

Finance Minister Sebastian Vladescu said the VAT hike will will bring up to 4 billion lei ($1.16 billion) in additional revenue to the budget by the end 0f 2010.

"I cannot hide that I am deeply disappointed that today we are hiking the VAT," Vladescu told reporters.

"We are taking this measure because it is important to ensure our financing ability. But we believe this (the hike) is not what is best for the Romanian economy."

Analysts said investors were more wary than ever over the government's ability to enforce steps needed to keep its IMF deal going.

"Markets will not calm down until the IMF clearly announces what it plans to do related to Romania," said Nicolaie Alexandru-Chidesciuc, ING Bank chief economist in Bucharest.

(Reporting by Luiza Ilie; Editing by Ron Askew)

http://www.reuters.com/article/economicN...7E20100626