EC opens excessive deficit procedure against Romania

The European Commission officially announced that it launched the Excessive Deficit Procedure against Romania, whose budget deficit surpassed the 3% of GDP limit set by the EU Treaty.

The decision was largely expected, considering that Romania’s budget deficit reached 4.5% of GDP in 2019.

Commenting on the EC’s report, finance minister Florin Citu blamed the policies of the former Social Democrat Government, without which “we would not have been here.”

Citu also assured that the Government would take corrective steps but repeated that the deficit can’t drop below 3% of GDP before 2022.

However, the European Commission’s report suggests that the Romanian Government’s forecast is overly-optimistic.

Romania has been under consecutive Significant Deviation Procedures (SDP) since spring 2017 as it’s budget deficit significantly deviated from the medium-term objective (MTO).

Since then, the Council has issued bi-annual recommendations to which Romania has not responded with effective action, repeatedly deviating from the recommended adjustment path.

On December 10, 2019, the new Government adopted and sent to the Parliament its Fiscal Budgetary Strategy for 2020-22 (the Fiscal Strategy), with an increased deficit target of 3.8% of GDP in 2019, which is “well above and not close to the Treaty reference value of 3% of GDP,” the EC report points out.

Moreover, the excess over the 3%-of-GDP reference value is not temporary as it neither results from an unusual event nor from a severe economic downturn, the EC concluded.

The Commission’s 2020 winter forecast projects a general government deficit of 4.0% of GDP in 2019, 4.9% in 2020 and 6.9% in 2021.

“The projected increase in the deficit is mostly driven by significant pension increases enacted in summer 2019, in particular an increase in pensions of 40% scheduled for September 2020 and a further upward recalculation of pensions scheduled for September 2021,” the report mentions.

Moreover, the Commission doesn’t seem to trust the Romanian Government’s projections for a reduction of the budget deficit in the coming years arguing that the underlying assumptions are more optimistic and the actions taken so far don’t fully support this scenario.

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