Recommendation for a COUNCIL RECOMMENDATION with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania
Date: 2017-05-22
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, economic policy, economic reform, financial control, gross domestic product, job creation, multilateral surveillance, price stability, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 268 final   Recommendation for a COUNCIL RECOMMENDATION with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective   in Romania {SWD(2017) 174 final}  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to correcting the significant observed deviation from the adjustment path 
toward the medium-term budgetary objective  

in Romania 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(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 10(2), second sub-paragraph, thereof, 

Having regard to the recommendation of the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

According  to  Article  121  of  the  Treaty  on  the  Functioning  of  the  European  Union, 
Member States shall promote sound public finances over the medium term through the 
coordination  of  economic  policies  and  multilateral  surveillance  in  order  to  avoid  the 
occurrence of excessive government deficits. 

The Stability and Growth Pact (SGP) 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. 

On 12 July 2016, the Council recommended Romania to limit the deviation from the 
medium-term budgetary objective in 2016 and achieve an annual fiscal adjustment of 
0.5% of GDP in 2017 unless the medium-term budgetary objective is respected with a 
lower effort2. 

In  2016,  based  on  the  Commission  2017  spring  forecast  and  the  2016  outturn  data 
validated by Eurostat, from a position of  -0.6% of GDP, i.e. above the medium-term 
budgetary objective of -1% of GDP, the structural balance has deteriorated to -2.6% of 
GDP,  pointing  to  a  significant  deviation  from  the  medium-term  budgetary  objective 
(deviation  of  1.6%  of  GDP).  The  growth  of  government  expenditure,  net  of 
discretionary  revenue  measures  and  one-offs,  was  well  above  the  expenditure 
benchmark, also pointing to a significant deviation (deviation of -2.0% of GDP). The 
difference in the indicators is mainly explained by different annual nominal potential 
GDP  growth  rates  used  in  their  computation.  Irrespective  of  that  difference,  both 
indicators confirm a significant deviation from the requirements of the preventive arm 
of the SGP in 2016. 

1 
2 

OJ L 209, 2.8.1997, p. 1. 
OJ C 299, 18.8.2016, p. 73. 

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(5) 

(6) 

(7) 

(8) 

(9) 

On 16 May 2017, following an overall assessment, the Commission considered that a 
significant  observed  deviation  from  the  medium-term  budgetary  objective  exists  in 
Romania  and issued a warning to Romania in accordance with  Article 121(4) TFEU 
and 10(2), first-sub-paragraph, of Regulation (EC) No 1466/97.  

According  to  Article  10(2),  second  sub-paragraph,  of  Regulation  (EC)  No  1466/97, 
within  one  month  of  the  date  of  the  adoption  of  the  warning,  the  Council  should 
address a recommendation to the Member State concerned to take the necessary policy 
measures. The  regulation foresees that the recommendation  will set a deadline  of no 
more than five months for the Member State to address the deviation. On that basis a 
deadline of 15 October 2017 for Romania to address the deviation appears appropriate. 
Within  that  deadline,  Romania  should  report  on  action  taken  in  response  to  this 
recommendation.  

Romania's  structural  balance  in  2016  is  estimated  to  have  been  1.6%  of  GDP  away 
from its medium-term budgetary objective. Based on the output gap projections of the 
Commission  2017  spring  forecast,  Romania  is  in  normal  economic  times  in  2017. 
Romania's  general  government  debt  ratio  is  below  the  60%  of  GDP  threshold.  The 
minimum required structural effort prescribed by Regulation (EC) No 1466/97 and the 
adjustment  matrix,  which  factors  in  the  prevailing  economic  circumstances  and 
possible  sustainability  concerns,  amounts  to  0.5%  of  GDP.  The  Commission  2017 
spring  forecast  projects  a  further  deterioration  of  the  structural  balance  by  1.3%  of 
GDP in 2017. Therefore, a minimum structural improvement of 0.5% of GDP in 2017 
translates into a need to adopt measures of a total yield of 1.8% of GDP compared to 
the current baseline from the Commission spring 2017 forecast. Given the significant 
size of the required structural consolidation effort resulting from the minimum SGP-
required adjustment, it is appropriate not to require any additional required adjustment 
on top of the minimum 0.5% of GDP requirement. 

The  required  improvement  of  the  structural  balance  by  0.5%  of  GDP  in  2017  is 
consistent  with  the  nominal  growth  rate  of  net  primary  government  expenditure  not 
exceeding 3.3% in 2017. 

The Commission 2017 spring forecast projects a general government deficit of 3.5% 
of GDP in 2017, which is above the 3% of GDP Treaty reference value. The required 
structural adjustment seems also appropriate to ensure that Romania respects the 3% 
of GDP general government deficit threshold in 2017. 

(10) 

It is appropriate that this recommendation should be made public. 

(11) 

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, 

HEREBY RECOMMENDS: 

(1) 

(2) 

Romania should take the necessary measures to ensure that the nominal growth rate 
of net primary government expenditure does not exceed 3.3% in 2017, corresponding 
to an annual structural adjustment of 0.5% of GDP, thereby putting the country on an 
appropriate adjustment path toward the medium-term budgetary objective.  

Romania  should  use  any  windfall  gains  for  deficit  reduction.  Budgetary 
consolidation  measures  should  secure  a  lasting  improvement  in  the  general 
government structural balance in a growth-friendly manner. 

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(3) 

Romania  should  report  to  the  Council  by  15  October  2017  on  action  taken  in 
response to this recommendation. 

This recommendation is addressed to Romania. 

Done at Brussels, 

For the Council 
The President 

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