Budget Cuts Blocked

Romania's constitutional court blocked the government's plans to cut pensions on June 25, which will result in legislation designed to slash government expenditure being sent back for a further vote in parliament. The risk exists that the pension cuts planned by the government may now fail to be implemented, thereby derailing the administration's plan to rein in the budget deficit to 6.8% of GDP in 2010 - as required by the IMF. If pension cuts do prove unachievable, further tax hikes, amongst which VAT is a leading candidate, will likely be necessary in order to redress the fiscal balance.

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