Recommendation for a COUNCIL RECOMMENDATION with a view to correct the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania
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) 802 final  Recommendation for a COUNCIL RECOMMENDATION with a view to correct the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania {SWD(2017) 603 final}  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to correct 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 
policies,1 and in particular 10(2), second sub-paragraph, thereof, 

Having regard to the recommendation of the Commission, 

Whereas: 

(1) 

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 and 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.3  Romania  was  recommended  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. 

(2) 

On  11  July  2017  the  Council  recommended  Romania  to  ensure  that  in  2017  it 
complies with the Council Recommendation of 16 June 2017 with a view to correcting 
the significant deviation from the adjustment path toward the medium-term budgetary 
objective.4 For 2018, Romania was recommended to pursue a substantial fiscal effort 

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4 

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. 
Council Recommendation of 16 June 2017 with a view to correcting the significant observed deviation 
from  the  adjustment  path  toward  the  medium-term  budgetary  objective  in  Romania  (OJ  C  216, 
6.7.2017, p. 1). 
Council Recommendation of 11 July 2017 on the 2017 National Reform Programme of Romania and 
delivering a Council opinion on the 2017 Convergence Programme of Romania (OJ C 261, 9.8.2017, p. 
98). 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

in line with the requirements of the preventive arm of the Stability and Growth Pact, in 
order  to  further  adjust  towards  its  medium-term  budgetary  objective  of  a  structural 
deficit  of  1 %  of  GDP.  According  to  the  commonly  agreed  adjustment matrix  under 
the  Stability  and  Growth  Pact,  that  adjustment  translated  into  a  requirement  of  a 
nominal  growth  rate  of  net  primary  government  expenditure  not  exceeding  4.3%  in 
2018. It would correspond to a structural adjustment of 0.5 % of GDP.  

On 26 and 27 September 2017, the Commission undertook an enhanced surveillance 
mission  in  Romania  for  the  purpose  of  on-site  monitoring  under  Article  -11(2)  of 
Council  Regulation  (EC)  No  1466/97.  The  Commission  reported  its  findings  to  the 
Council  on  24  October  2017  and  made  them  public,  after  having  transmitted  its 
provisional findings to the Romanian authorities. 

On 13 October 2017 the Romanian authorities submitted the report on effective action 
in response to the Council Recommendation of 16 June 2017. Given the information 
provided  by  the  Romanian  authorities  in  their  report  on  action  taken  and  the  overall 
assessment  based  on  the  2017  autumn  forecast,  the  Council  on  [XX]  concluded  that 
Romania has not taken effective action in response to the Council Recommendation of 
16 June 2017.  

Romania  is  pursuing  a  pro-cyclical  fiscal  policy  in  the  presence  of  high  economic  
growth  and  a  positive  output  gap.  In  2017  the  structural  balance  is  estimated  to  be 
2.3% of GDP away from its medium-term budgetary objective. Therefore, and in light 
of  the  absence  of  effective  action  by  Romania  it  is  appropriate  to  address  to  that 
Member  State  a  revised  recommendation  under  Article  121(4)  TFEU  on  the 
appropriate measures to be taken.  

Based  on  the  output  gap  projections  of  the  Commission  2017  autumn  forecast, 
Romania  is  in  normal  economic  times  in  2017  and  2018.  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 commonly agreed 
adjustment matrix under the Stability and Growth Pact, which factors in the prevailing 
economic  circumstances  and  possible  sustainability  concerns,  amounts  to  0.5%  of 
GDP. 

Romania's  structural  deficit  is  projected  by  the  Commission  to  increase  by  1.1%  of 
GDP  in  2017,  while  the  Council  Recommendation  of  16  June  2017  asked  for  a 
structural  decrease  of  at  least  0.5%  of  GDP.  Additionally,  Romania  is  projected  to 
remain at the 3% of GDP deficit reference value of the Treaty in 2017 and is forecast 
to  breach  it  by  a  significant  margin  in  2018  based  on  the  Commission  autumn  2017 
forecast. 

An  additional  effort  necessary  to  bring  Romania  back  on  an  appropriate  adustment 
path following the slippages in 2016 and 2017 should complement the adjustment of 
0.5% of GDP recommended by the Council on 11 July 2017. An additional effort of 
0.3%  of  GDP  seems  appropriate  given  the  magnitude  of  the  observed  significant 
deviation from the recommended adjustment path towards the medium-term budgetary 
objective and  it  will  accelerate  adjustment  back  towards  the  medium-term  budgetary 
objective.  The  required  improvement  of  the  structural  balance  by  0.8%  of  GDP  in 
2018  is  consistent  with  the  nominal  growth  rate  of  net  primary  government 
expenditure not exceeding 3.3% in 2018.  

(9) 

The Commission 2017 autumn forecast projects a further deterioration of the structural 
balance by 1% in 2018. Therefore, a structural improvement of 0.8% of GDP in 2018 

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translates  into  a  need  to  adopt  measures  of  a  total  structural  yield  of  1.8%  of  GDP 
compared to the current 2018 baseline from the Commission 2017 autumn forecast. 

(10)  The Commission 2017 autumn forecast projects a general government deficit of 3.9% 
of GDP in 2018, which is above the 3% of GDP Treaty reference value. The required 
structural  adjustment  of  0.8%  of  GDP  compared  to  the  projected  outcome  for  2017 
would also ensure that Romania respects the 3% of GDP general government deficit 
threshold in 2018 with a margin.  

(11)  The  requirements  for  2018, 

the 
in 
corresponding elements set out in the fiscal recommendation contained in the Council 
Recommendation addressed to Romania on 11 July 2017.  

this  recommendation,  supersede 

issued 

(12)  Romania  should  report  to  the  Council  on  action  taken  in  response  to  this 
Recommendation  by  15  April  2018,  possibly  as  part  of  its  Convergence  Programme 
submitted pursuant to Article 7 of Regulation (EC) No 1466/97. 

(13) 

It is approprite that this recommendation should be made public,  

HEREBY RECOMMENDS: 

THAT ROMANIA: 

(1) 

(2) 

(3) 

takes the necessary measures to ensure that the nominal growth rate of net primary 
government expenditure does not exceed 3.3% in 2018, corresponding to an annual 
structural adjustment of at least 0.8% of GDP in 2018, thereby putting the Member 
State  on  an  appropriate  adjustment  path  toward  the  medium-term  budgetary 
objective;  

uses  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; 

reports  to  the  Council  by  15  April  2018  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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