European Council: Romania has failed to take effective action to correct a significant budgetary deviation

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2017-12-07 22:40

On 5 December 2017, the Council adopted a decision establishing that Romania has failed to take effective action to correct a significant budgetary deviation.

It issued a new recommendation, revising a recommendation already addressed to Romania under the EU’s ‘significant deviation procedure’.

Romania is responsible for a significant deviation from the agreed adjustment path towards its medium-term budgetary objective.

Both the medium-term objective and the significant deviation procedure are part of the preventive arm of the Stability and Growth Pact, the EU’s fiscal rulebook. The preventive arm focuses on structural balances, i.e. budgetary balances corrected for cyclical, one-off and budgetary factors. It thereby isolates the impact of discretionary government policy action and spending on interest repayments.

In the light of the Commission’s autumn 2017 economic forecast, Romania’s structural balance is expected to have deteriorated by 1.1% of GDP in 2017.

This is contrary to the 0.5% of GDP structural improvement recommended by the Council in July 2017. The risk is that it will generate a deficit estimated at 3.3% of GDP for 2017 – above the EU’s reference value for government deficits – requiring an excessive deficit procedure under the Pact’s corrective arm.

Furthermore, the growth of Romania’s net primary government expenditure has amounted to 4.9% of GDP in 2017, well above the expenditure benchmark of 3.3% set by the Council.

The Council calls for measures ensuring a nominal growth of net primary government expenditure of no more than 3.3% in 2018, representing an annual structural adjustment of at least 0.8% of GDP. It recommends that any windfall gains be used for deficit reduction, and that budgetary consolidation measures secure a lasting improvement in the general government structural balance.

The Council set a 15 April 2018 deadline for Romania to report on action taken in response to its revised recommendation.

Source: European Council statement


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