Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 22 June 2018
Date: 2018-11-21
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, 21.11.2018 COM(2018) 803 final  Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 22 June 2018 {SWD(2018) 503 final}  
 
 
Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Romania in response to the 
Council Recommendation of 22 June 2018 

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), fourth 
subparagraph, thereof, 

Having regard to the recommendation from the European Commission, 

Whereas:  

(1) 

(2) 

(3) 

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On  22  June  2018,  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 of -1% of GDP existed in Romania.  

In view of the established significant deviation, the Council on 22 June 2018 issued a 
recommendation2  for  Romania  to  take  the  necessary  measures  to  ensure  that  the 
nominal growth rate of net primary government expenditure3 does not exceed 3.3% 
in 2018 and 5.1% in 2019, corresponding to an annual structural adjustment of 0.8% 
of GDP in each year. It also recommended that Romania 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  2018  for  Romania  to 
report on the action taken in response to the recommendation. 

On 27 and 28 September 2018, 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.  After  having  transmitted  its  provisional 
findings  to  the  Romanian  authorities  for  comments,  the  Commission  reported  its 
findings  to  the  Council  on  21  November  2018.  Those  findings  were  subsequently 
made  public.  The  Commission  report  finds  that  the  Romanian  authorities  maintain 
the 2018 headline deficit target of just below 3% of GDP and thus do not intend to 

OJ L 209, 2.8.1997, p. 1. 
OJ C 223, 27.6.2018, p. 3. 
Net  primary  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) 

(6) 

(7) 

(8) 

act  upon  the  Council  recommendation  of  22  June  2018.  In  2019,  the  government 
plans to lower the headline deficit to 2.38% of GDP, but the measures remain to be 
specified.  

On 16 October 2018 the Romanian authorities submitted a report on action taken in 
response  to  the  Council  Recommendation  of  22  June  20184.  In  the  report,  the 
authorities reiterated that their target for 2018 remains a headline deficit of 2.96% of 
GDP. For 2019, the authorities target a deficit of 2.38% of GDP. The report does not 
mention  new  measures  for  2018.  For  2019,  the  report  relies  on  containing 
expenditures on compensation of employees and goods and services, without backing 
it by sufficiently detailed  and adopted or at  least  credibly  announced measures. On 
the revenue side the report mentions a prolongation of already existing measures and 
some  actions  aimed  at  increasing  tax  compliance.  Overall,  the  fiscal  impact  of  the 
the  Council 
reported  measures 
Recommendation of 22 June 2018. 

the  requirement  stated 

falls  short  of 

in 

In 2018, based on the Commission 2018 autumn forecast, the growth of net primary 
government  expenditure  is  set  to  amount  to  11.3%,  well  above  the  expenditure 
benchmark of 3.3%. The structural balance is set to remain broadly stable in 2018, at 
3.3%  of  GDP.  Therefore,  both  pillars  point  to  a  risk  of  a  deviation  from  the 
recommended adjustment. The expenditure benchmark points to a deviation of 2.3% 
of GDP. The structural balance confirms this reading, indicating a smaller deviation 
of  0.8%  of  GDP.  The  structural  balance  is  positively  impacted  by  a  significantly 
higher  GDP  deflator  and  by  a  higher  point  estimate  for  potential  GDP  growth 
compared to the medium-term average underlying the expenditure benchmark. This 
impact is partially offset by the impact of an increase of public investment, which is 
smoothed  out  in  the  expenditure  benchmark.  Therefore,  the  overall  assessment 
confirms the deviation by a wide margin from the adjustment recommended by the 
Council.  

In  2019,  based  on  the  Commission  2018  autumn  forecast,  the  growth  of  nominal 
government expenditure, net of discretionary revenue measures and one-offs is set to 
amount to 7.5%, well above the expenditure benchmark of 5.1% (deviation of 0.7% 
of GDP from the recommended adjustment). The structural balance is set to increase 
by 0.1 % of GDP, reaching a deficit of 3.4% (deviation of 0.9% of GDP). Therefore, 
as both pillars point to a deviation from the required adjustment by a similar margin 
in  2019,  the  overall  assessment  confirms  the  deviation  from  the  adjustment 
recommended by the Council. 

Moreover,  the  Commission  2018  autumn  forecast  projects  a  general  government 
deficit  of  3.3%  in  2018  and  3.4%  in  2019,  which  is  above  the  3%  of  GDP  Treaty 
reference value. 

The  above  findings  lead  to  the  conclusion  that  Romania's  response  to  the  Council 
Recommendation of 22 June 2018 has been insufficient. The fiscal effort falls short 
of  ensuring  that  the  nominal  growth  rate  of  net  primary  government  expenditure  
does  not  exceed  3.3%  in  2018  and  5.1%  in  2019,  which  corresponds  to  an  annual 
structural adjustment of 0.8% of GDP in each year, 

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Available at http://data.consilium.europa.eu/doc/document/ST-13279-2018-INIT/en/pdf 

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HAS ADOPTED THIS DECISION:  

Article 1 

Romania  has  not  taken  effective  action  in  response  to  the  Council  Recommendation  of  22 
June 2018. 

This Decision is addressed to Romania. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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