By Ioana Patran
BUCHAREST (Reuters) - Romania's Constitutional Court gave President Traian Basescu a fighting chance of beating a referendum aimed at ousting him, ruling on Tuesday that at least half the electorate must turn out for the vote to be valid.
But the ruling Social Liberal Union (USL) said it considered a decree passed last week, stating there was no turnout threshold, still applied - setting up a further constitutional battle and likely condemnation from Europe and the markets.
The attempt by leftist Prime Minister Victor Ponta to unseat right-wing President Basescu has raised international concerns over rule of law in the European Union's second-poorest country.
Parliament last week approved a measure by Ponta's USL to suspend Basescu, saying he had overstepped his powers. An impeachment referendum will take place on July 29.
The Constitutional Court had been asked by the opposition to rule on the legality of a new law which would have made it easier to vote Basescu out - requiring only a majority of those voting in a referendum to impeach the president, rather than a majority of the whole electorate as was the case previously.
While the court ruled on Tuesday that the law was constitutional, it also said that turnout must be more than 50 percent of the electorate for the referendum to be valid - effectively nullifying the law's impact and giving the unpopular Basescu a chance.
"The law ... over the organization and protocol of the referendum is constitutional, provided that participation in the referendum is at least half plus one of the number of people registered in permanent electoral lists," the court said in a statement.
The opposition Democrat Liberal Party (PDL), which has close links to Basescu, said the ruling respected the rule of law.
Ponta's administration initially said it would respect the judgment.
"Romania's government considers natural the Constitutional Court decision and undertakes to respect it," it said in a statement.
"The government considers that it is the duty of parliament to put forward referendum legislation in line with today's Constitutional Court's decision as swiftly as possible."
But shortly afterwards, a USL official said an emergency decree, passed last week, which states that no minimum turnout is required in the referendum, still applied.
"Our government's emergency decree is valid," Mihai Voicu of the USL told reporters. "It (the court decision) concerns a draft law which has no identical content with the emergency decree."
The political chaos has raised doubts over Romania's International Monetary Fund (IMF) aid deal, sent the leu plunging and pushed borrowing costs higher. The currency regained some ground on Tuesday after the court ruled Basescu's suspension was constitutional, but it is still close to lows.
The European Commission again expressed concern over the speed and consequences of events in Romania earlier on Tuesday and analysts said the political uncertainty was far from over.
"It is important to note that the EU may find Romanian steps against its laws and it can halt the IMF/EU bailout program," KBC analysts said in a note.
Ponta is the third prime minister this year, after protests against austerity and corruption toppled his predecessors.
Ponta, 39, represented a change of guard for his Social Democrat Party (PSD), the biggest group in the USL and main successor to Nicolae Ceausescu's communist party, which has been plagued by allegations of cronyism and corruption.
Charges of plagiarism against the prime minister, a conviction for corruption and subsequent attempted suicide of party heavyweight Adrian Nastase and the perception that the USL is seeking a stranglehold on power have damaged his image.
The presidential role is largely ceremonial, but its holder is in charge of foreign policy and nominates the prime minister. Basescu, in office since 2004, has already survived one impeachment referendum.
The turnout requirement could be crucial for the referendum. About 56 percent of the electorate voted at last month's nationwide local elections, which the USL dominated. But if Basescu's supporters do not vote, turnout could fall below half.
"I would like to see how the USL gets 9 million people to the polls in July," said Laura Stefan of the Expert Forum think-tank. "If he wants Romania to continue in Europe, Prime Minister Ponta should withdraw the decree after this ruling."
Parliament suspended Basescu - who is unpopular because of his association with austerity - last week, saying he had overstepped his powers.
He has also been criticized for intervening in day-to-day policies from his theoretically neutral position, for example by announcing austerity measures ahead of the then-prime minister.
Basescu is also accused of attempting to pressure judges, charges he says are political and an attempt by Ponta to take control of the judiciary.
Impeaching Basescu would mean Romania would have to elect a new president in the autumn as well as holding parliamentary elections, which will stall policies as it tries to keep a 5 billion euro ($6.2 billion) IMF-led aid deal on track.
While Bucharest has not drawn on those funds yet, the deal is important as a sign it is committed to bringing its finances into order and reforming the economy, which has slipped back into recession.
The USL would be favorite to win both elections, though there have been no opinion polls in the past month.
The Council of Europe has already asked constitutional experts to examine the suspension of the president after Germany and the United States criticized the action, saying it threatened the rule of law.
The government denies it is endangering the rule of law and says it is sticking to the deal with the IMF, which wants Bucharest to narrow its budget gap, overhaul energy prices and the outdated health system and to sell inefficient state assets.
(Additional reporting by Radu Marinas, Sam Cage and Luiza Ilie; Editing by Robin Pomeroy)