EC officially places Romania under Excessive Deficit Procedure

The European Commission (EC) has officially notified Romania about opening the Excessive Deficit Procedure (EDP) as a result of the country exceeding the 3%-of-GDP public deficit threshold in 2019.

The Commission instructed Romania to follow a fiscal consolidation path in line with the Romanian Government’s public deficit targets of 3.6%-of-GDP in 2020, 3.4%-of-GDP in 2021 and 2.8%-of-GDP in 2022. Such performance is consistent with annual nominal increase in public spending of 8.2% in 2020 and 5.5% in each of the following two years.

Furthermore, the Commission wants Romania to come up with the fiscal consolidation strategy by September 25 this year.

This is a tight deadline considering the electoral calendar in the country, after the early elections scenario turned less likely. Specifically, the acting Government - irrespective of its political structure, is unlikely to come up with a realistic fiscal consolidation strategy before the general elections this autumn most probably after September 15.

The Commission estimated under the Winter Forecast that, unless corrective steps are taken, Romania’s public deficit will hit 6.1% of GDP in 2021.

The key issue is the 40% pension hike scheduled for this September - the hot potato in the hands of any political party governing before the elections.

The Liberal Government, which took office last November after overthrowing the Social Democrats, under the medium term fiscal strategy drafted along the 2020 budget planning, estimated that the country's public deficit will return under the 3%-of-GDP threshold no sooner than 2023. Acting finance minister and prime minister designate Florin Citu has repeatedly confirmed this rather moderate fiscal consolidation strategy.

However, on March 4 after the EC issued the notification about Romania’s EDC, Citu claimed in a Facebook post that "Romania has a plan to reduce the sustainable and credible [its public] deficit, fully accepted by the European Commission, which means that the experts from the European Commission trust this Government".

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