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: 2018-11-21
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, budgetary assessment, budgetary control, economic growth, gross domestic product, medium-term forecast, public expenditure, structural adjustment

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   EUROPEAN COMMISSION  Brussels, 21.11.2018  COM(2018) 802 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(2018) 503 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 the second sub-paragraph of Article 10(2) thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

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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  medium-term  budgetary  objective  of  -1%  of  GDP  occurred  in 
Romania in 2016. In view of the established significant deviation, on 16 June 2017 it 
issued a  recommendation for Romania to  take the necessary measures  to ensure that 
the nominal growth rate of net primary government expenditure did not exceed 3.3% 
in  2017,  corresponding  to  an  annual  structural  adjustment  of  0.5%  of  GDP.  On  5 
December  2017  the  Council  found  that  Romania  had  not  taken  effective  action  in 
response to the Recommendation of 16 June 2017 and issued a new recommendation. 
In  the  new  recommendation  the  Council  asked  Romania  to  take  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 0.8% of GDP. On 22 June 2018 the Council found that Romania had not 
taken effective action in response to the revised recommendation of 5 December 2017. 

On 22 June 2018, the Council decided in accordance with Article 121(4) TFEU that a 
significant  observed  deviation  from  the  adjustment  path  toward  the  medium-term 
budgetary objective had also occurred in Romania in 2017. In view of the established 
significant  deviation,  on  22  June  2018  the  Council  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, 

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 

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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 
this recommendation. 

On 13 July 2018, the Council recommended that Romania ensure that, in 2018 and in 
2019,  it  comply  with  the  Council  Recommendation  of  22  June  2018  with  a  view  to 
correct  the  significant  deviation  from  the  adjustment  path  toward  the  medium-term 
bdgetary objective.4  

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 
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. 

On 16 October 2018, the Romanian authorities submitted the report on effective action 
in response to the Council Recommendation of 22 June 20185. Given the information 
provided  by  the  authorities  in  their  report  and  the  overall  assessment  based  on  the 
Commission autumn 2018 forecast, on 21 November 2018 the Council concluded that 
Romania has not taken effective action in response to the Council Recommendation of 
22 June 2018.  

In  light  of  the  absence  of  effective  action  by  Romania  and  the  cumulated  high 
deviation  from  the  appropriate  adjustment  path  toward  the  medium-term  budgetary 
objective, it is appropriate to address to the Member State a revised recommendation 
on the appropriate measures to be taken.under Article 121(4) TFEU. 

Romania's  structural  deficit  has  increased  by  2.1%  of  GDP  in  2016  and  by  1.2%  of 
GDP  in  2017.  It  reached  3.4%  of  GDP  in  2017  and  is  projected  in  the  Commission 
2018  autumn  forecast  to  broadly  stabilize  as  of  2018.  In  order  to  correct  for  the 
cumulated  deviation  and  to  bring  Romania  back  on  an  appropriate  adjustment  path 
following  the  past  slippages,  an  additional  effort  should  complement  the  structural 
effort of 0.8% of GDP recommended by the Council on 22 June 2018. An additional 
effort  of  0.2%  of  GDP  seems  appropriate  given  the  magnitude  of  the  observed 
significant  deviation  from  the  recommended  adjustment  path  towards  the  medium-
term budgetary objective. It will accelerate the adjustment back towards the medium-
term budgetary objective without putting economic growth at risk.  

The  required  improvement  of  the  structural  balance  by  1.0%  of  GDP  in  2019  is 
consistent  with  a  nominal  growth  rate  of  net  primary  government  expenditure  not 
exceeding 4.5% in 2019. 

The  Commission  2018  autumn  forecast  projects  a  deterioration  of  the  structural 
balance  by  0.1%  of  GDP  in  2019.  Therefore,  a  structural  improvement  of  1.0%  of 
GDP translates into the need to adopt measures of a total structural  yield of 1.1% of 

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 13 July 2018 on the 2018 National Reform Programme of Romania and 
delivering a Council opinion on the 2018 Convergence Programme of Romania (OJ C 320, 10.9.2018, 
p. 98). 
Available at http://data.consilium.europa.eu/doc/document/ST-13279-2018-INIT/en/pdf 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

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GDP  in  2019  compared  to  the  current  baseline  in  the  Commission  2018  autumn 
forecast. 

(10)  The Commission 2018 autumn forecast projects a general government deficit of 3.4% 
in 2019, 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 
Treaty reference value in 2019 with a margin. 

(11)  The  failure  to  act  upon  earlier  recommendations  to  correct  the  observed  significant 
deviation and the risk of exceeding the Treaty reference value call for urgent action to 
put Romania’s fiscal policy back on a prudent path.  

(12) 

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. 

(13)  The  requirements  issued  in  this  recommendation  supersede  the  corresponding 
the  Council 

the  fiscal  recommendation  contained 

elements  set  out 
Recommendation addressed to Romania on 13 July 2018. 

in 

in 

(14)  Romania  should  report  to  the  Council  on  action  taken  in  response  to  this 
Recommendation  by  15  April  2019,  possibly  as  part  of  its  Covergence  Programme 
submitted pursuant to Article 7 of Regulation (EC) No 1466/97. 

(15) 

It is appropriate that this recommendation should be made public, 

HEREBY RECOMMENDS THAT ROMANIA: 

(1) 

(2) 

(3) 

take  the  necessary  measures  to  ensure  that  the  nominal  growth  rate  of  net  primary 
government expenditure does not exceed 4.5% in 2019, corresponding to an annual 
structural  adjustment  of  1.0%  of  GDP,  thereby  putting  the  Member  State  on  an 
appropriate adjustment path toward the medium-term budgetary objective.  

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. 

report  to  the  Council  by  15  April  2019  on  action  taken  in  response  to  this 
Recommendation;  the  report  should  provide  sufficiently  specified  and  credibly 
announced measures, including budgetary impact of each of them, as well as updated 
and detailed budgetary projections for 2019. 

This recommendation is addressed to Romania. 

Done at Brussels, 

For the Council 
The President 

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