Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 4 December 2018
Date: 2019-06-05
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 pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019 COM(2019) 538 final  Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 4 December 2018 {SWD(2019) 533 final}  
 
 
Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Romania in response to the 
Council Recommendation of 4 December 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) 

the  Council 

the  established  significant  deviation, 

In June 2017 and June 2018, the Council found in accordance with Article 121(4) of 
the  Treaty  that  a  significant  observed  deviation  from  the  medium-term  budgetary 
objective or from adjustment path towards it existed in Romania. On each occasion, 
in  view  of 
issued  a 
Recommendation  for  Romania  to  take  the  necessary  measures  to  address  the 
significant deviation. 
On 4 December 2018 the Council concluded2 that Romania had not taken effective 
action in response to the Council Recommendation of 22 June 20183. On that basis, 
on 4 December 2018 the Council issued a revised Recommendation4 for Romania to 
take  the  necessary  measures  to  ensure  that  the  nominal  growth  rate  of  net  primary 
government  expenditure  did  not  exceed  4.5%  in  2018,  corresponding  to  an  annual 
structural  adjustment  of  1.0%  of  GDP.  It  also  recommended  that  Romania  use  any 
windfall  gains  for  deficit  reduction,  and  that  budgetary  consolidation  measures 
should secure a lasting improvement in the general government structural balance in 
a growth-friendly manner. The Council established a deadline of 15 April 2019 for 
Romania  to  report  on  the  action  taken  in  response  to  the  Recommendation  of  4 
December 2018. 

On  14  and  15  March  2019,  the  Commission  undertook  an  enhanced  surveillance 
mission  to  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,  on  5  June  2019  the  Commission  reported  its 
findings  to  the  Council.  Those  findings  were  made  public.  The  Commission  report 
finds  that  the  Romanian  authorities  do  not  intend  to  act  upon  the  Council 

1 
2 
3 
4 

OJ L 209, 2.8.1997, p. 1. 
OJ L 323, 19.12.2018, p. 16. 
OJ C 223, 27.6.2018, p. 3. 
OJ C 460, 21.12.2018, p. 1. 

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Recommendation of 4 December 2018. The authorities confirmed to the Commission 
that  the  government  has  no  intention  to  comply  with  the  recommended  structural 
adjustment. They continue to focus on maintaining the headline deficit below the 3% 
of GDP Treaty threshold, thus aiming to avoid the corrective arm of the Stability and 
Growth  Pact.  The  2019  budget  targets  an  accrual  deficit  target  of  2.8%  of  GDP. 
According  to  the  government’s  own  estimates  at  the  time  of  the  mission,  that 
headline  would  entail  a  structural  adjustment  of  around  0.1%  compared  to  2018, 
significantly short of the Council Recommendation. 

On  20  April  2018,  after  the  deadline  established  by  the  Council,  the  Romanian 
authorities  submitted  a  report  on  action  taken  in  response  to  the  Council 
Recommendation  of  4  December  2018.  In  the  report,  the  authorities  reiterated  that 
their  targets  for  2019  are  a  headline  deficit  of  2.8%  of  GDP  and  only  a  marginal 
decrease  of  the  structural  deficit.  The  fiscal  impact  of  the  reported  measures  falls 
significantly short of the requirement stated in the Council Recommendation. 

In 2019, based on the Commission spring 2019 forecast, the growth of net primary 
government  expenditure  is  set  to  amount  to  11.6%,  well  above  the  expenditure 
benchmark of 4.5%. The structural balance is set to deteriorate by 0.7% of GDP in 
2019, reaching a deficit of 3.6% of GDP. This is the opposite of the recommended 
structural  improvement  of  1.0%  of  GDP  relative  to  2018.  Therefore,  both  pillars 
point to a deviation from the recommended adjustment. The expenditure benchmark 
points to a deviation of 2.1% of GDP. The structural balance confirms that reading, 
indicating a somewhat smaller deviation of 1.7% of GDP. The size of the deviation 
indicated  by  the  structural  balance  is  smaller  because  of  a  revenue  windfall  and  a 
higher  GDP  deflator.  Taking  these  factors  into  account,  the  overall  assessment 
confirms a deviation from the recommended adjustment. 

The  projected  increase  of  the  deficit  compared  to  2018  is  largely  driven,  as  in 
previous years, by increasing expenditures on the compensation of public employees. 
Since  the  Commission  autumn  2018  forecast,  which  was  the  basis  for  the  Council 
Recommendation of 4 December 2018, the authorities have enacted new taxes on the 
telecommunication,  energy  and  banking  sectors.  On  the  other  hand,  the  authorites 
granted tax cuts in the construction sector and increased some social benefits. 

The  above  findings  lead  to  the  conclusion  that  Romania's  response  to  the  Council 
Recommendation  of  4  December  2018  has  been  insufficient.  The  fiscal  effort  falls 
significantly  short  of  the  annual  structural  adjustment  of  1.0%  of  GDP  for  2019, 
corresponding to a nominal growth rate of net primary government expenditure that 
does not exceed 4.5% in 2019, 

(4) 

(5) 

(6) 

(7) 

HAS ADOPTED THIS DECISION:  

Article 1 

Romania  has  not  taken  effective  action  in  response  to  the  Council  Recommendation  of  4 
December 2018. 

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This Decision is addressed to Romania. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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