UPDATE 1-Romanian president appoints Liberal Party leader as PM-designate

Romania's centrist President Klaus Iohannis said on Tuesday he had appointed opposition Liberal Party leader Ludovic Orban as prime minister-designate to form a transitional government until a parliamentary election next year.

The Social Democrat government of Viorica Dancila collapsed earlier this month after losing a no-confidence vote in parliament. Lawmakers will likely endorse Orban's cabinet, which he needs to assemble, along with a governing program, within ten days. But the 56-year-old former transport minister will struggle to negotiate majorities for any legal initiative because of a fragmented opposition.

Analysts said he could gain enough backing to partially reverse a judicial overhaul that has been described by the European Union and U.S. officials as a threat to the rule of law. But they added he may find support wanes quickly, especially if the economy stalls and forces it to cut spending.

"The other parties will try permanent blackmail, vote by vote, measure by measure," Sergiu Miscoiu, a political science professor at Babes-Bolyai University, said. Orban said his government's chief objectives include downsizing government structures, investment in key infrastructure projects and correcting economic measures that have hit the business sector.

He also said the focus will be given to "ensure real independence of the justice system". The EU and the U.S. have also criticized the previous government for watering down anti-graft legislation.

Expansionary fiscal and wage policies have increased Romania's budget and current account deficits, while tax hikes and energy price caps approved without public debate and impact assessment have dented investors' appetite. The leu currency was steady against the euro on Tuesday, but it has fallen 2.1% so far this year - central and eastern Europe's second worst-performer - as widening deficits and delayed policymaking take their toll.

A long election cycle also weighs on financial assets, with the European Union state holding a presidential vote in November, as well as local and parliamentary elections likely in mid- and late-2020. Dancila, who remains interim premier until parliament endorses a new cabinet, is the third Social Democrat Party (PSD) prime minister in as many years.

"PSD has effectively inhibited Romania's development and held us all in place," Iohannis said. "I hope all parliamentary parties understand we have a political crisis and it is necessary that this new government be in place as soon as possible."

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