The European Commission on Wednesday presented its Opinions on euro area member states’ 2020 draft budgetary plans, taken steps under the Stability and Growth Pact and adopted the fourth Enhanced Surveillance Report for Greece.
The Commission has also taken a number of steps under the Stability and Growth Pact for Hungary and Romania.
For Romania, the Commission has established that no effective action was taken in response to the Council recommendation of June 2019. It proposes that the Council adopt a decision on non-effective action and a revised recommendation to Romania to take measures in 2020 in order to correct its significant deviation from the adjustment path towards the medium-term budgetary objective.
Based on the Commission 2019 autumn forecast, Romania’s structural balance is set to deteriorate by 0.8% of GDP in 2019 and by a further 0.8% of GDP in 2020. As a result, the structural deficit is estimated to be 2.5% of GDP and 3.4% of GDP away from the medium-term budgetary objective of a structural deficit of 1.0% of GDP in 2019 and in 2020, respectively.
In order to correct for the cumulated deviations and to bring Romania back on an appropriate adjustment path following past slippages, an additional effort should complement the recommended annual structural adjustment of 0.75% of GDP for 2020 recommended by the Council on June 14, 2019. An additional effort of 0.25% of GDP seems appropriate given the magnitude of the cumulated deviations from the recommended adjustment path toward the medium term objective. It will accelerate the adjustment back towards the medium-term budgetary objective without putting economic growth at risk, the EC said.
The failure to act upon earlier recommendations to correct the observed significant deviation and the risk of exceeding the Treaty reference value call for urgent action to put Romania’s fiscal policy back on a prudent path. In order to achieve the recommended budgetary targets, it is crucial that Romania adopts and strictly implements the necessary measures and monitors the development of current expenditure closely.
Romania should report to the Council on action taken in response to this recommendation by April 15, 2020.