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Finance Minister Sebastian Vlădescu for Thomson Reuters: I believe that the Constitutional Court will not declare the law on wages and pensions reductions unconstitutional
The Romanian coalition government's planned cuts in public sector wages and pensions will overcome legal challenges at the Constitutional Court, Finance Minister Sebastian Vlădescu said on Wednesday.
Speaking one day after his cabinet survived a no confidence vote over the cuts, needed to cap the budget deficit at 6.8 percent of GDP this year, Vlădescu said financing the deficit at his level was not a concern.
"Just as I was convinced the confidence motion will not be successful, I believe in the same way that the Constitutional. Court will not declare the law on wages and pensions reductions unconstitutional," Vlădescu told Reuters.
"Within a budget deficit of 6.8 percent of GDP I am not worried about financing this year. Question marks arise for a deficit above this level."
The failure of the motion in parliament boosted the European Union state's currency and stocks and lowered the cost of insuring its debt because it clears the way for a vital 20 billion euros IMF-led aid deal to continue.
The proposed cuts of 25 percent in public sector wages and 15 percent in pensions this year must now pass a challenge at the constitutional court filed by the leftist opposition.
The International Monetary Fund requires the measures to overcome this stage before releasing the latest 2 billion euro tranche of IMF and European Commission aid.
When enforced, the reductions will buy Romania time to reform its sprawling, highly-unionised public sector and Vlădescu said the first measures will be enacted as early as July.
"From July we will have to take measures to lower spending, including measures to lower the number of employees," he said.
Romania has pledged to the IMF that it will cut the number of state employees by 70,000 to 1.29 million by next year, and Vlădescu has said each ministry will decide how to enforce the layoffs individually.
Vlădescu said a stabilisation of leu currency debt yields at current levels was what the ministry would want and that falling inflows of foreign direct investment were a concern.
Investors are nervous about the debt and deficit position of emerging European economies like Romania after Hungarian assets slumped in early June on comments from officials that it might suffer a crisis similar to Greece's.
Uncertainty over the cabinet's ability to enforce austerity measures cuts has put upward pressure on yields and the ministry has rejected all bids at four tenders so far since May 6.
Markets are now eyeing a 5-year paper auction on Thursday.
"I think a stabilisation of (domestic) debt yields at current levels is what we would want at present," Vlădescu said. Yields have fallen sharply in the first quarter of this year not far above the central bank's key rate of 6.25 percent from levels of 10 percent in December, but analysts said they were now spiking at above 7 percent.
Analysts have said pressure on debt costs should abate once the cuts clear legal challenges, but that the ministry's large funding needs and more cautious investors in the wake of Greece's debt woes might kindle further tension.
Vlădescu said the Constitutional Court's ruling is expected by June 24, and if favourable it will give the go ahead for IMF funds in July.
Meanwhile, the funds expected from the European Commission could arrive only in September, due to lengthier procedures.