2009/590/EC: Council Decision of 7 July 2009 on the existence of an excessive deficit in Romania
Date: 2009-07-07
Institutions: Council of the European Union
Subjects: Romania, budget deficit, budget estimate, budget policy, public debt, public expenditure, stability pact








L_2009202EN.01004801.xml










4.8.2009   


EN


Official Journal of the European Union


L 202/48








            COUNCIL DECISION
         
of 7 July 2009
         
on the existence of an excessive deficit in Romania
(2009/590/EC)


THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 104(6) thereof,


Having regard to the recommendation from the Commission,

Whereas:







(1)


According to Article 104 of the Treaty, Member States shall avoid excessive government deficits.












(2)


The Stability and Growth Pact is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.












(3)


The excessive deficit procedure (EDP) under Article 104 of the Treaty, as clarified by Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (1), which is part of the Stability and Growth Pact, provides for a decision on the existence of an excessive deficit. The Protocol on the excessive deficit procedure annexed to the Treaty sets out further provisions relating to the implementation of the EDP. Council Regulation (EC) No 3605/93 (2) lays down detailed rules and definitions for the application of the provisions of that Protocol.












(4)


The 2005 reform of the Stability and Growth Pact sought to strengthen its effectiveness and economic underpinnings as well as to safeguard the sustainability of public finances in the long run. It aimed at ensuring that, in particular, the economic and budgetary background was taken into account fully in all steps in the EDP. In this way, the Stability and Growth Pact provides the framework supporting government policies for a prompt return to sound budgetary positions taking account of the economic situation.












(5)


Article 104(5) of the Treaty requires the Commission to address an opinion to the Council if the Commission considers that an excessive deficit in a Member State exists or may occur. Having taken into account its report in accordance with Article 104(3) of the Treaty and having regard to the opinion of the Economic and Financial Committee in accordance with Article 104(4) of the Treaty, the Commission concluded that an excessive deficit exists in Romania. The Commission therefore addressed such an opinion to the Council in respect of Romania on 13 May 2009 (3).












(6)


Article 104(6) of the Treaty states that the Council should consider any observations which the Member State concerned may wish to make before deciding, after an overall assessment, whether an excessive deficit exists. In the case of Romania, this overall assessment leads to the conclusion set out in this Decision.












(7)


According to the April 2009 EDP notification by the Romanian authorities, subsequently validated by Eurostat, the general government deficit in Romania reached 5,4 % of GDP in 2008, thus exceeding the 3 % of GDP reference value. The deficit was not close to the 3 % of GDP reference value and the excess over the reference value cannot be qualified as exceptional within the meaning of the Treaty and of the Stability and Growth Pact. In particular, it does not result from an unusual event or from a severe economic downturn in 2008 in the sense of the Treaty and of the Stability and Growth Pact. Despite growth slowing down in the final quarter of the year, overall GDP growth in 2008 accelerated to a rate of 7,1 %, from 6 % in 2007 and significantly above the rate of potential growth. Furthermore, the excess over the reference value cannot be considered temporary. According to the Commission services′ spring 2009 forecast, the general government deficit is expected to reach 5,1 % of GDP in 2009 and, on a no-policy-change assumption, 5,6 % in 2010. This projection is based on GDP growth of – 4,0 % in 2009 and 0 % in 2010. The Commission services′ forecast takes into account measures for the current year in the budget for 2009 approved in February 2009 and the additional measures adopted by the government in April 2009. The deficit criterion in the Treaty is not fulfilled.












(8)


General government gross debt remains well below the 60 % of GDP reference value and stood at 13,6 % of GDP in 2008. Nevertheless, according to the Commission services′ spring 2009 forecast, the debt-to-GDP ratio is anticipated to increase to 18 ¼ % in 2009 and 22 ¾ % in 2010.












(9)


In accordance with the Stability and Growth Pact, due consideration was given to systemic pension reforms introducing a multi-pillar system that includes a mandatory, fully-funded pillar. While the implementation of these reforms leads to a temporary deterioration of the budgetary position, the long-term sustainability of public finances clearly improves. Based on the estimates of the Romanian authorities, the net costs of this reform amount to 0,2 % of GDP in 2008, 0,3 % in 2009, 0,4 % in 2010 and 0,4 % in 2011. According to the Stability and Growth Pact, these can be taken into account on a linear degressive basis for a transitory period and only where the deficit remains close to the reference value, which is not the case for Romania. In any event, the government deficit adjusted for the pension reform cost in 2008 would be well above 3 % of GDP.












(10)


According to Article 2(4) of Regulation (EC) No 1467/97, ‘relevant factors’ can only be taken into account in the steps leading to the Council decision on the existence of an excessive deficit in accordance with Article 104(6) of the Treaty if the double condition — that the deficit remains close to the reference value and that its excess over the reference value is temporary — is fully met. In the case of Romania, this double condition is not met. Therefore, relevant factors are not taken into account in the steps leading to this Decision,





HAS ADOPTED THIS DECISION:



Article 1
From an overall assessment, it follows that an excessive deficit exists in Romania.


Article 2
This Decision is addressed to Romania.




Done at Brussels, 7 July 2009.


For the Council


The President

A. BORG
            





(1)  
            OJ L 209, 2.8.1997, p. 6.

(2)  
            OJ L 332, 31.12.1993, p. 7.

(3)  All EDP-related documents for Romania can be found at the following website: http://ec.europa.eu/economy_finance/netstartsearch/pdfsearch/pdf.cfm?mode=_m2