* Czech govt loses no confidence vote, currency suffers
* Hungary searches for PM, politics start to weigh on region
* Romania grabs 20 billion euro IMF/EU deal
* Budget pressures show in Poland, interest rates cut
(Updates with Hungary, Romania banks)
By Jason Hovet
PRAGUE, March 25 (Reuters) - The ousting of the Czech
government upped political nerves in the EU's eastern members on
Wednesday, putting regional currencies on a weaker footing as
markets also watched the search for a new government in Hungary.
Centre-right Prime Minister Mirek Topolanek lost a vote of no
confidence on Tuesday, complicating his government's efforts to
fend off economic troubles that have driven three of the
region's once-booming states to seek outside rescues.
Topolanek's defeat, which means his cabinet must resign but
will stay on while politicians debate the next steps, followed a
weekend decision by Hungary's prime minister to step aside.
The International Monetary Fund announced a 20 billion euro
bailout for Romania following deals for Latvia and Hungary, with
the latter using funds to help banks, and budget pressures arose
in Warsaw. [] []
The reasons behind the Czech and Hungarian government
collapses differed, with Hungarian Prime Minister Ferenc
Gyurcsany's decision to step down tied to the economic crisis
and Topolanek's due to domestic political squabbles.
[]
But market watchers agreed it was a step backwards for a
region fighting to contain a credit crunch, an outflow of
investment, a fall in manufacturing and rise in unemployment.
"For the time being we will have a weak (Czech) government
and that in itself is not good for a rapid response to what is a
weak global backdrop," said Martin Blum, emerging strategist
with UniCredit in Vienna.
"The bottom line is it is an added negative for the region."
The crown lost 1.2 percent against the euro from the
previous session, while the forint traded flat at around 299.5.
The zloty was down at 4.552 per euro after the central bank cut
interest rates to a historic low on Wednesday. []
The Czech currency has outperformed this year with just a 2
percent loss, versus 6-12 percent falls for regional peers.
NO QUICK FIX
Analysts expected Budapest's search for a new government,
tasked with leading the country out of economic turmoil, to be
quicker than Prague's, where domestic squabbling was higher.
Former Hungarian central bank chief Gyorgy Suranyi sought
support from all political parties on Wednesday, looking like
the front-runner among possible candidates. []
But the Czech opposition refused to support any Topolanek
bid to form a new government in a sign of negotiations ahead.
"You can understand why oppositions do this, but it is
almost like cutting off your nose to spite your face," said
Stuart Bennett, a currency strategist for Calyon bank.
Some analysts also warned the Czech impasse might signal a
new phase of the crisis in emerging Europe, which could possibly
give rise to populism and hurt reforms needed for growth.
Capital Economics said a retreat to populism could mean the
difference of regional growth at 2 percent annually for the next
ten years instead of 5 percent.
Forecasts on Wednesday showed Poland's first-half budget
deficit was expected to be at more than 90 percent of the
full-year plan, indicating spending cuts were needed. Officials
promised they would hit their targets by the end of 2009.
In Romania, news of an IMF lifeline, which had been flagged
to markets for the last month, pushed the leu 0.4 percent up to
4.27 to the euro. The package came with the IMF also urging
western banks to maintain exposure in the Balkan country.
A Romanian official said the central bank and IMF will offer
to let them reduce the amount of foreign currency reserves they
are required to hold at the central bank in a move that will
free up liquidity and allow banks to give credit. []
Budapest planned to use some of its $25 billion IMF/EU
package to boost banks' lending, and said on Wednesday it agreed
to lend OTP Bank and FHB Bank a total of over 520 billion
forints ($2.34 billion).[]
But analysts said an external deal was not a save-all.
"The severity of the recession facing many countries in
emerging Europe will obviously have an adverse impact on
unemployment and the public finances, in some cases requiring
budget austerity measures," said Edward Parker, head of emerging
European sovereigns at Fitch ratings agency.
"Such dynamics run the risk of increased political
uncertainty and event risk."
(Additional reporting by Peter Apps in London; editing by
Patrick Graham and Andy Bruce)
