SNAP ANALYSIS-Romania govt fall shows regional coalition risk

* Coalition failure, weakness threatens reforms in region

* Czech, Poland, Hungary, Latvia, Ukraine have risks

* IMF, EU face difficult choices over funds without reform

LONDON, Oct 1 - A global recovery in risk appetite may have taken the pressure off emerging European economies, but the collapse of Romania's ruling coalition is a reminder local politics could imperil reforms and recovery.

Romania's Social Democrats quit the coalition government on Thursday in protest at the sacking of a minister, potentially endangering efforts to pass fiscal reforms necessary to meet International Monetary Fund (IMF) conditions for aid.

The news undermined Romania's leu, while ratings agencies warned that while political turmoil ahead of presidential elections next year was not unexpected its creditworthiness could be threatened if IMF and EU reform programmes were put on hold.

Several countries have had to grab lifelines from the both bodies, and even those that have not will have to make stark spending cuts to redress growing budget deficits -- but local politics could undermine that process and prevent real structural reforms.

Ratings agency Moody's said this week domestic politics in Poland helped undermine its creditworthiness, with the government seeming unlikely to significantly rein in spending ahead of presidential elections next year.

LATVIA, UKRAINE WEAKEST LINKS

In the Czech Republic, analysts had worried a court-imposed election delay until next year might stymie policymaking, although the interim government approved a package of laws to reduce the 2010 budget gap earlier this week with the prime minister threatening to quit if it were not passed.

Hungary's prime minister last week also threatened to resign if parliament did not pass the country's budget in November, with a looming 2010 election again seen denting policymakers enthusiasm for painful cuts.

Latvia, the EU state most affected by the crisis, has already lost one government and its current coalition is seen struggling to pass spending cuts required by the EU and IMF as part of their 7.5 billion euro ($10.93 billion) rescue deal. So far, the government has only agreed to cut budget spending by 275 million lats, less than the 400 million the finance ministry says is necessary.

Any failure of the multinational aid programmes would devastate what fragile investor confidence remains in the country, likely prompting the collapse of its currency peg which could itself spark a wider regional crisis.

On the other hand, some analysts argue that in itself means lenders such as the IMF will be much more flexible in their desperation to avoid a repeat of last year's Iceland collapse, which helped fuel a wider exodus from perceived risky markets.

That would likely mean that the multilateral lenders might delay payments rather than pull out altogether. Analysts say the IMF has been particularly flexible with Ukraine -- although it did delay one tranche of its loan programme and some believe it might again in the coming months.

Geopolitical factors are seen bolstering IMF support for Ukraine despite its failure to make some of the budget cuts and reforms that would normally be necessary -- as well as an awareness that domestic political strife makes them all but impossible.

Ukraine's internal politics are wreaking havoc on policy-making ahead of a January presidential election, with ratings agency Moody's saying on Monday political factors and willingness to pay would prove far more important than Ukraine's actual balance sheet.

State energy firm Naftogaz failed to pay off a $500 million Eurobond due this week -- although it continues to talk to bondholders about a restructuring deal. But that was seen as essentially a political decision as Ukraine had enough money in its coffers to pay the debt.

The sale of one of Ukraine's largest state companies, the Odessa port fertiliser plant, collapsed into farce this week as a live auction fell apart amid accusations from rivals President Viktor Yuschenko and Prime Minister Yulia Tymoshenko.