Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 16 June 2017
Date: 2017-11-22
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, economic policy, economic reform, financial control, gross domestic product, multilateral surveillance, public finance, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.11.2017 COM(2017) 803 final  Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 16 June 2017  
 
 
Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Romania in response to the 
Council Recommendation of 16 June 2017 

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 1466/971, and in particular Article 10(2), 4th 
subparagraph, thereof, 

Having regard to the recommendation from the European Commission, 

Whereas:  

(1) 

(2) 

(3) 

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On 16 June 2017 the Council decided in accordance with Article 121(4) of the Treaty 
on  the  Functioning  of  the  European  Union  ("TFEU")  that  a  significant  observed 
deviation  from  the  adjustment  path  toward  the  medium-term  budgetary  objective 
existed in Romania 

In view of the established significant deviation, the Council on 16 June 2017 issued a 
recommendation  for  Romania  to  take  the  necessary  measures  to  ensure  that  the 
nominal growth rate of net primary government expenditure2 does not exceed 3.3% in 
2017,  corresponding  to  an  annual  structural  adjustment  of  0.5%  of  GDP.  It 
recommended  Romania  to  use  any  windfall  gains  for  deficit  reduction,  while 
budgetary consolidation measures should ensure a lasting improvement in the general 
government structural balance in a growth-friendly manner. The Council established a 
deadline of 15 October 2017 for Romania to report on action taken in response to the 
recommendation. 

On  26  and  27  September  2017  the  Commission  undertook  an  enhanced  surveillance 
mission in Romania for the purpose of on-site monitoring under the Article -11(2) of 
Council Regulation (EC) No 1466/97. After having transmitted its provisional findings 
to the Romanian authorities for comments, the Commission reported its findings to the 
Council  on  24  October  2017.  These  findings  were  subsequently  made  public.  The 
Commission report finds that the Romanian authorities do not intend to act upon the 
Council Recommendation of 16 June 2017. The authorities stated that their target for 
2017  remains  a  headline  deficit  of  3%  of  GDP.  Given  the  positive  and  increasing 

OJ L 209, 2.8.1997, p. 1. 
Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  four-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(4) 

(5) 

output  gap  this  would  amount  to  a  deterioration  of  the  structural  deficit  in  2017, 
contrary  to  the  Council  Recommendation.  This  reflects  a  clearly  expansionary  fiscal 
policy. 

On  13  October  2017  the  Romanian  authorities  submitted  a  report  on  action  taken  in 
response  to  the  Council  Recommendation  of  16  June  2017.  In  the  report,  the 
authorities  reiterated  that  their  target  for  2017  remains  a  headline  deficit  of  3%  of 
GDP.  The  only  measure  listed  in  the  report  with  a  significant  budgetary  impact  in 
2017 is an increase of excise duties for energy products back to their 2016 level (i.e. a 
reversal of a previously adopted excise duties cut which entered into force in January 
2017). Thus, the fiscal impact of the reported measures falls significantly short of the 
requirement stated in the Council Recommendation. 

Based  on  the  Commission  autumn  2017  forecast,  the  structural  balance  is  set  to 
deteriorate by 1.1 % of GDP, reaching a deficit of 3.3% in 2017. This is the opposite 
of  the  recommended  structural  improvement  of  0.5%  of  GDP  relative  to  2016.  The 
corresponding growth of net primary government expenditure amounted to 4.9%, well 
above the expenditure benchmark of 3.3%. This deterioration compared to 2016 was 
driven by cuts to indirect taxes, in particular to VAT and excise duties, which entered 
into  force  at  the  beginning  of  the  year  and  increases  to  public  wages  and  social 
benefits introduced through the year. Since the Council Recommendation of 16 June 
2017, the increase of excise duties for energy products back to their 2016 level as well 
as  a  cut  in  public  investment  in  the  September’s  budget  rectification  had  a  positive 
impact  on  the  public  deficit,  although  their  effect  was  largely  offset  by  increases  to 
public wages also contained in the budget rectification.  

(6) 

This  leads  to  the  conclusion  that  the  response  of  Romania  to  the  Council 
Recommendation of 16 June 2017 has been insufficient. The fiscal effort falls short of 
the  annual  structural  adjustment  of  0.5%  of  GDP  for  2017  which  corresponds  to  a 
nominal growth rate of net primary government expenditure that does not exceed 3.3% 
in 2017, 

HAS ADOPTED THIS DECISION:  

Romania  has  not  taken  effective  action  in  response  to  the  Council  Recommendation  of  16 
June 2017. 

Article 1 

This Decision is addressed to Romania. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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