Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Romaniaand delivering a Council opinionon the updated Convergence Programme of Romania 2011-2014
Date: 2011-06-07
Institutions: European Commission
Subjects: EU programme, Romania, budget policy, economic growth, employment policy

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 825 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Romania 

and delivering a Council opinion 

on the updated Convergence Programme of Romania 2011-2014 

{SEC(2011) 731 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Romania 

and delivering a Council opinion 

on the updated Convergence Programme of Romania 2011-2014 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148 (4) thereof, 

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 
policies1, and in particular Article 9(3) thereof, 

Having regard to the recommendation of the European Commission2, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

On 6 May 2009, the Council adopted a Decision (2009/459/EC) to make available to 
Romania  medium-term  financial  assistance  for  a  period  of  three  years  under  the 
provisions  of  Article  143  of  the  Treaty.  The  accompanying  Memorandum  of 
Understanding  signed  on  23  June  2009  and  its  successive  supplements  lay  down  the 
economic  policy  conditions  on  the  basis  of  which  the  financial  assistance  was 
disbursed.  The  Council  Decision  was  amended  on  16  March  2010  by  Decision 
2010/183.  Following  Romania’s  successful  implementation  of  the  programme,  and 
given  a  partial  adjustment  of  the  current  account  because  of  remaining  structural 
weaknesses  in  Romania’s  product  and  labour  markets  which  make  the  country 
sensitive  to  international  price  shocks,  on  12  May  2011  the  Council  adopted  a 
Decision  (2011/288/EU)  to  make  precautionary  medium-term  financial  assistance 
available to Romania for a period of three years under Article 143 of the Treaty. The 
accompanying Memorandum of Understanding will be signed in [June 2011].  

1 
2 

OJ L 209, 2.8.1997, p. 1. 
OJ C , p. . 

EN 

2 

   EN 

 
 
 
 
                                                 
(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission’s 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 
Member States3, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 
European semester of ex-ante and integrated policy coordination, which is anchored in 
the Europe 2020 strategy.  

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 
February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It  underscored  the  need  to  give  priority  to  restoring  sound  budgets  and  fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into  concrete measures to be included  in their Stability or Convergence Programmes 
and National Reform Programmes. 

On 25 March 2011, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  to  be  included  in  their 
Stability or Convergence Programmes and their National Reform Programmes.  

On  2  May  2011,  Romania  submitted  its  2011  Convergence  Programme  update 
covering  the  period  2011-2014  and  its  2011  National  Reform  Programme.  The  two 
programmes have been assessed at the same time.  

Between 2002 and 2008 the Romanian economy grew strongly, with real GDP growth 
averaging 6.3%, above its level of potential growth. Economic growth was primarily 
driven by domestic demand, as strong credit and wage developments boosted private 
consumption and investment. This boom was also fuelled by foreign capital inflows, 
led  to  overheating  and  unsustainable  external  and  fiscal  imbalances.  The  current 
account  deficit  peaked  at  13.6%  of  GDP  in  2007  and  decreased  only  marginally  to 
11.4%  of  GDP  in  2008.  The  high  external  borrowing  was  driven  by  a  pro-cyclical 
fiscal policy, with headline deficits increasing from 1.2% of GDP in 2005 to 5.7% of 
GDP  in  2008  as  a  result  of  recurrent  budgetary  slippages,  notably  with  respect  to 
current  spending.  The  financial  crisis  and  the  ensuing  global  economic  downturn 
increased risk-aversion amongst investors, leading to a significant tightening of capital 
flows  to  Romania.  Labour  market  participation  did  not  rise  despite  the  favourable 
economic conditions; the employment rate changed very little during the boom years. 

3 

Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

EN 

3 

   EN 

 
                                                 
(9) 

The  employment  rate  then  fell  to  63.3%  by  2010  while  the  unemployment  rate 
increased from 5.8% in 2008 to 7.3% in 2010 as a result of the economic downturn. 
Unemployment  remains  particularly  high  among  the  Roma  population.  Against  this 
background  and  facing  acute  financing  needs,  the  Romanian  authorities  requested 
international and EU financial assistance in May 2009. 

Following the successful implementation of the EU-IMF adjustment programme, and 
in  order  to  consolidate  these  positive  achievements,  a  precautionary  EU-IMF 
programme  for  2011-2013  was  negotiated  with  the  authorities.  The  new  programme 
continues  the  fiscal  consolidation,  fiscal  governance  reforms  and  preservation  of 
financial stability started under the 2009-2011 programme. In addition, it puts a strong 
emphasis on the structural reforms in product (in the energy and transport sectors) and 
labour  markets  necessary  to  unleash  Romania's  growth  potential,  foster  job  creation 
and  increase  the  absorption  of  EU  funds.  Romania  remains  on  track  to  achieve  the 
cash deficit target of 4.4% of GDP in 2011 (below 5% of GDP in ESA terms). This 
would also provide an adequate basis for achieving the deficit target of below 3% of 
GDP  for  2012,  although  further  measures  would  have  to  be  taken  according  to  the 
Commission  Services'  Spring  2011  Economic  Forecast.  The  authorities  have  also 
taken  steps  to  achieve  the  structural  reform  objectives  of  the  new  programme  and 
continue to maintain financial stability. 

(10)  Based on the assessment of the updated Convergence Programme pursuant to Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
assumptions  underpinning  the  projections  in  the  programme  are  plausible.  The 
Convergence Programme aims to correct the excessive deficit by the 2012 deadline set 
by  the  Council  in  its  recommendation  of  16  February  2010.  The  programme  targets 
headline  deficits  of  2.6%  of  GDP  in  2013  and  of  2.1%  of  GDP  in  2014,  with  the 
envisaged  consolidation  being  mostly  expenditure-based.  According  to  the  structural 
balance recalculated by Commission services, the medium-term objective (MTO) will 
not  be  achieved  within  the  programme  period.  The  consolidation  strategy  appears  to 
be frontloaded with the structural improvement being concentrated in 2011 and 2012. 
In contrast, there is no improvement in the structural balance in 2013 and 2014. The 
deficit path foreseen is appropriate in 2011 and 2012, but not in 2013 and 2014. The 
main risks to the budgetary targets are implementation risks, the arrears of state-owned 
enterprises  which  represent  a  serious  contingent  liability  for  the  budget,  and  the 
reservations  expressed  by  the  Commission  (Eurostat)  about  Romania’s  excessive 
deficit procedure notification4.  

(11)  Romania has made its commitments under the Euro Plus Pact5 in its National Reform 
Programme  and  Convergence  Programme,  which  were  submitted  on  2  May  2011. 
Most  of  these  commitments  have  been  or  are  being  met  as  part  of  the  medium-term 
financial  assistance  programme  and  are  broadly  appropriate  to  address  existing 
challenges under the Pact.  

4 

5 

Eurostat expressed reservations as to the quality of the Romanian EDP figures due to: (i) uncertainties 
about  the  impact  of  some  public  corporations  on  the  government  deficit,  (ii)  the  reporting  of  ESA95 
categories  ‘other  accounts  receivable  and  payable’,  (iii)  the  nature  and  impact  of  some  financial 
transactions and (iv) the consolidation of intra-governmental flows. 
More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 731. 

EN 

4 

   EN 

 
                                                 
(12)  The  Commission  has  assessed  the  Convergence  Programme  and  National  Reform 
Programme, including the Euro Plus Pact commitments6. It has taken into account not 
only  their  relevance  to  sustainable  fiscal  and  socio-economic  policy  in  Romania  but 
also  their  conformity  with  EU  rules  and  guidance,  given  the  need  to  reinforce  the 
overall economic governance of the European Union by providing EU level input into 
future national decisions.  

(13) 

In  light  of  this  assessment,  also  taking  into  account  the  Council  Recommendation 
under  Article  126(7)  of  the  Treaty  on  the  Functioning  of  the  European  Union  of  16 
February  2010,  the  Council  has  examined  the  2011  update  of  the  Convergence 
Programme  of  Romania  and  its  opinion7  is  reflected  in  the  recommendation  set  out 
below. Taking into account the European Council conclusions of 25 March 2011, the 
Council has examined the National Reform Programme of Romania, 

HEREBY RECOMMENDS that Romania should:  

Implement the measures laid down in Council Decision 2009/459/EC as amended by Council 
Decision  2010/183/EU,  together  with  the  measures  laid  down  in  Council  Decision 
2011/288/EU  and  further  specified  in  the  Memorandum  of  Understanding  of  23  June  2009 
and  its  subsequent  supplements,  and  in  the  Memorandum  of  Understanding  of  [June  2011] 
and its subsequent supplements. 

Done at Brussels, 

For the Council 
The President 

6 
7 

See SEC(2011) 731. 
Foreseen in Article 9(3) of Council Regulation (EC) No 1466/97. 

EN 

5 

   EN