By Radu Marinas and Ioana Patran
BUCHAREST (Reuters) - Romanian President Traian Basescu re-appointed leftist Victor Ponta as prime minister on Monday, having said he would never do so again, giving his arch rival a mandate to complete a new deal with the International Monetary Fund (IMF).
The move follows Ponta's Social Liberal Union (USL) winning a two-thirds majority in a December 9 parliamentary election and eases concerns over Romania's political stability. But the two men dislike working together and the partnership may not last.
The European Union criticized Ponta, a 40-year-old lawyer, for undermining the rule of law in a failed attempt to impeach Basescu in July. The dispute delayed policymaking in the EU's second-poorest state and sent its currency to a record low.
Speculation had been rife that Basescu, a blunt former sea captain known for his outspoken and combative nature, might nominate someone else from the USL to try to split the alliance of leftists, liberals and conservatives.
The row raised doubts about how quickly Romania could seal an IMF deal to replace a 5-billion-euro ($6.6-billion) agreement that expires early next year and Ponta will have to balance that with easing austerity and reviving a recession-hit economy.
The leu was barely moved by the announcement. Dealers said Ponta's re-appointment had been largely priced in last week when the currency rose to its highest since August.
"It's clear that some constitutional changes would be envisaged but meanwhile a new deal with the IMF is a certain priority as the only solution to support Romania and Romanians," Norica Nicolai, vice president of the USL's liberal wing, told Reuters.
Wrangling between the two men has distracted from pressing problems in a country where 3 percent of people live on less than $40 a day and some areas do not have reliable running water or electricity.
More than 20 years after the fall of communist dictator Nicolae Ceausescu, the EU state trails far behind the bloc's other members and remains blighted by corruption and organized crime. Brussels monitors the justice system and Romania remains outside the passport-free Schengen zone due to graft concerns.
Basescu and his allies are deeply unpopular after pushing through austerity measures including salary cuts and sales tax increases, and Ponta took power in May after toppling a government linked to Basescu in a parliamentary confidence vote.
Underlining Basescu's reluctance to name Ponta, he announced the decision in a press statement rather than the usual speech at his Bucharest presidential palace. Any renewal of Basescu's feud with Ponta could leave him at risk of impeachment again.
The USL's majority mean it could try to pass changes to the constitution such as limiting the president's powers, although any such move would need backing in a national referendum.
Ponta has a tricky juggling act to perform. He must implement austerity measures as well as long-term reforms such as selling inefficient state companies, while keeping the IMF on side and revitalizing an economy that is expected to grow only 0.4 percent this year.
"Unfortunately Romanian policymakers across the political spectrum have done very little to get the Romanian economy out of the crisis," said Danske Bank chief analyst Lars Christensen.
($1 = 0.7628 euros)
(Additional reporting by Sam Cage; Editing by Louise Ireland)