Recommendation for a

COUNCIL RECOMMENDATION

delivering a Council opinion on the 2021 Convergence Programme of Romania

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, and in particular Article 9(2) thereof,

Having regard to the Recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

After consulting the Economic and Financial Committee,

Whereas:

(1)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact. In its Communication, the Commission set out its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the conditions to activate the general escape clause were met. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The general escape clause has granted Member States budgetary flexibility to deal with the crisis. It has facilitated the coordination of budgetary policies in times of severe economic downturn. Its activation allows for a temporary departure from the adjustment path towards the medium-term budgetary objective of each Member State, provided this does not endanger fiscal sustainability in the medium term. On 17 September 2020, in its Annual Sustainable Growth Strategy, the Commission announced that the general escape clause would remain active in 2021.

(2)On 3 April 2020, the Council adopted Decision (EU) 2020/509 on the existence of an excessive deficit situation in Romania due to non-compliance with the deficit criterion in 2019. This was based on the updated fiscal targets by the government, while the subsequent publication of the general government deficit outturn of 4.3% of GDP confirmed the breach. The excess over the 3% of GDP Treaty reference value was the result of a continuous build-up of fiscal imbalances due to an expansionary fiscal policy since 2016, in a period of strong economic growth. On 3 April 2020, the Council also issued a Recommendation with a view to bringing an end to the situation of an excessive government deficit in Romania by 2022 at the latest.

(3)On 20 July 2020, the Council recommended Romania to pursue fiscal policies in line with the Council Recommendation of 3 April 2020, while taking all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery.

(4)Next Generation EU, including the Recovery and Resilience Facility, will ensure a sustainable, inclusive and fair recovery. Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility came into force on 19 February 2021. This Facility will provide financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the EU. It will contribute to the economic recovery, to the implementation of sustainable and growth-enhancing reforms and investment, notably to promote the green and digital transitions, and it will strengthen the economies’ resilience and potential growth. In turn, it will also help public finances to return to more favourable positions in the near term and will contribute to strengthening sustainable public finances, growth and job creation in the medium and long term.

(5)On 3 March 2021, the Commission adopted a Communication providing further policy orientations to facilitate the coordination of fiscal policies and the preparation of Member States’ Stability and Convergence Programmes. That Communication also announced the Commission’s view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as key quantitative criterion. On the basis of the Commission’s 2021 spring forecast, on 2 June the Commission considered that the conditions to continue to apply the general escape clause in 2022 and to deactivate it as of 2023 were met. Country-specific situations will continue to be taken into account after the deactivation of the general escape clause.

(6)On 5 May 2021, Romania submitted its 2021 Convergence Programme, beyond the deadline established in Article 8 of Regulation (EC) No 1466/97.

(7)In 2020, based on data validated by Eurostat, Romania’s general government deficit was 9.2% of GDP, while general government debt increased to 47.3% of GDP. The annual change in the primary budget balance amounted to -3.6% of GDP, including discretionary budgetary measures of 1.5% in support of the economy and the operation of automatic stabilisers. Romania also provided liquidity support to companies and households (such as guarantees and tax deferrals, which do not have a direct and immediate budgetary impact), estimated at 1.4% of GDP.