Romanian state-owned power producer Hidroelectrica has filed for insolvency after a drought cut its sales and led to losses, but it will respect all contracts, the company said on Monday, Reuters reported. A drought in late 2011 has continued into this year and reduced its sales by 10 percent, the company said. After losses of 121 million lei ($34.1 million) in 2011 and 112 million lei in the first five months of 2012, its board decided to file for insolvency. Hidroelectrica, with installed capacity of 6,400 megawatts, is Romania's cheapest power producer.

Romania's prime minister quit on Monday after a series of at-times violent nationwide protests against budget cuts and declining living standards, as deepening political turmoil fueled by Europe's prolonged economic crisis spreads across the Continent, The Wall Street Journal reported. Thousand of Romanians have taken to the wintry streets of Bucharest and other cities in recent weeks to vent their anger at the center-right administration of Emil Boc, who has implemented tough austerity measures in an effort to shore up state finances.

The Romanian government was in an uproar Monday over austerity protests - the interior minister resigned, the opposition demanded the prime minister go as well and top police officials held emergency talks with the president, the Associated Press reported. The chaos reflected social fallout from the sharp wage cuts, tax hikes and other austerity measures the government has taken to fight its budget deficit amid a deep recession.

Romania’s Constitutional Court ruled against some government austerity measures aimed at narrowing the budget deficit, risking a delay in the next handout of funds from an international loan, Bloomberg BusinessWeek reported. The leu weakened and stocks plunged. The nine justices said the plan to cut pensions by 15 percent was illegal, while a proposed 25 percent reduction in wages didn’t breach the Constitution. Parliament must now amend the law to comply with the ruling.

Just months after an epic banking collapse forced Iceland into the arms of the International Monetary Fund, this island nation is locked in a fierce debate over how to pay off its creditors without ceding too much of its vaunted independence, The New York Times reported. The balance Iceland strikes between bowing to the policy demands of the global financial community and satisfying the desires of its increasingly resentful population of 300,000 will be closely watched as I.M.F. programs in beaten-down economies from Latvia and Ukraine to Hungary and Romania enter a crucial phase.

The International Monetary Fund said Wednesday that it would come to the rescue of Romania as part of a $27 billion financing package to help the country weather the financial crisis. The fund said in a statement from Washington that agreement had been reached on an economic program supported by a loan of about $17.5 billion under a two-year stand-by arrangement, The New York Times reported. Pending the approval of the fund’s executive board, Romania would be able to draw $6.75 billion upon board approval.

Austria's banks exert an outsize influence beyond the country's borders. In the 1990s, after the fall of communism, banks based in Vienna expanded eastward and came to dominate finance in Eastern Europe. Today, however, Hungary, Romania and Ukraine--where Austrian banks nearly cornered the market--have sought emergency aid from the International Monetary Fund. Foreign investors are fleeing Eastern Europe, worried that the problems could spread. Credit-rating agencies have warned that Austrian banks are highly exposed if Eastern European borrowers trigger a wave of defaults.

The forint hit a new low against the euro Friday, continuing a slide spurred Thursday by a Hungarian Banking Association letter instructing its members to fend off rumors of an impending freeze on customers' deposits, The Wall Street Journal reported. The country's central bank quickly sought to assure depositors their money was safe to avoid a run on the banks, but the effort failed to stabilize the currency. On Friday, the forint fell .95% against the euro. The currency has lost more than 20% against the euro since the start of the year.

The number of insolvencies in Romania is likely to exceed 20,000 in 2009 from 14,500 a year earlier as a repercussion of the global financial crisis, the National Union of Insolvency Practitioners (ANPIR) forecast. Around 1,600 cases of insolvency were recorded in January from 1,000 in the same month of the previous year, ANPIR president Arin Octav Stanescu reported. Debt recovery fell to 2.0 million euros in January from a monthly average of 35-40 million euros in 2007 and 2008.