Romania's Liberal party pulled the plug on the coalition government on Tuesday, in a break-up that might disrupt five years of economic reform backed by the International Monetary Fund (IMF) in the European Union's second poorest state.
The second-largest member of Prime Minister Victor Ponta's ruling alliance, the Liberals announced the split after crisis talks late into the evening in Bucharest. Its ministers will submit their resignations to the prime minister on Wednesday.
The move will force Ponta's Social Democrats to seek a vote of confidence from parliament within days which analysts expect them to win, while the Liberals will return to the opposition benches after being in power since May 2012.
The exit was the culmination of a series of rows between Romania's two biggest parties, mainly over ministerial appointments, as they jockey for position before European elections in May and a presidential election in November.
“We decided to put an end to this crisis, prolonged artificially by Prime Minister Ponta for two weeks,” Liberal Party head Crin Antonescu told reporters.
“This decision wasn't an easy one, we've been trying to avoid it through negotiations ... it was fair not to extend this festival of hypocrisy.”
Ponta did not immediately comment on the Liberals' exit, but previously said he would not resign if they left.
The infighting comes at a time when Romania should be capitalizing on an economic rebound that has seen growth jump to 5.2 percent in the last quarter, buoyed by a bumper harvest in 2013 and a rise in exports to a recovering Europe.
A weakened or unstable government could hamper reforms. High on the agenda for Romania is to speed up a process of selling off or restructuring inefficient state companies, as part of a 4 billion-euro ($5.49 billion) aid deal with the IMF.
“I see the danger of populism in this particular election year is enormous and the risk to the IMF deal seems big,” said Cristian Patrasconiu, a Bucharest-based political analyst.
“The government committed to the restructuring of inefficient state firms including in the railway sector this year, with layoffs on the cards,” Patrasconiu said. “I don't see the new government enforcing any pay cuts or pursuing any redundancies ahead of European and presidential elections.”
Going it alone
Political squabbles have often hampered Romania's progress in the 25 years since it threw off Communist dictator Nicolae Ceausescu, and its economy trails other emerging EU countries such as Poland and the Czech Republic.
Ponta's own alliance had been formed after it brought down a center-right coalition government in a confidence vote in May 2012. That government had imposed unpopular austerity measures to help Romania recover from a deep recession.
While Ponta's alliance with the Liberals had commanded a more than two-thirds majority in parliament, in recent weeks its rule has been overshadowed by a series of bust-ups.
Most recently, Ponta has blocked the appointment of a charismatic Transylvanian mayor as a new deputy prime minister. Earlier this month, a disagreement over a policy proposal to reschedule the bank debts of low-income borrowers prompted the Liberal party to sack its own finance minister.
The increased risk of a split in the government helped push Central European assets down on Tuesday, although movements were slight compared with last week's swings on the crisis in Ukraine.
Mihai Tantaru, an economist at ING bank, says a formal coalition breakup could push the Romanian leu towards year lows of around 4.55 to the euro.
Ponta still has the numbers to form another alliance with a functioning majority in parliament, albeit with fewer seats.
Splitting from the Liberals could strengthen his hand in some ways, as it would unshackle him from an agreement under which the Liberals put forward their nominee as the coalition's presidential candidate.
Ponta, who has seen his own policies repeatedly pushed back by his arch-rival, the outgoing president Traian Basescu, will now be free to put forward his own choice for president.
But going it alone could ultimately put the brakes on the Romanian government's push to liberalize its economy - a drive seen as vital if it is to catch up with its European peers.
Romania has pledged to stick to an IMF-agreed June 30 deadline to list a 15 percent stake in hydropower producer Hidroelectrica and also in coal-fired Oltenia, which operates lignite-fired power plants, in October.
It is also due to sell a 51 percent stake in state-controlled power distributor Electrica in an initial public offering in June.