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: 2019-11-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, budgetary assessment, budgetary control, economic policy, gross domestic product, medium-term forecast, multilateral surveillance, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 20.11.2019  COM(2019) 912 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(2019) 932 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 subparagraph of Article 10(2) thereof, 

Having regard to the Recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

In  accordance  with  Article  121  of  the  Treaty,  Member  States  shall  promote  sound 
public finances over the medium term through the coordination of economic policies 
and  multilateral  surveillance  in  order  to  avoid  the  occurrence  of  excessive 
government deficits. 

The  Stability  and  Growth  Pact  is  based  on  the  objective  of  sound  government 
finances as a means of strengthening the conditions for price stability and for strong 
sustainable growth conducive to employment creation. 

In June 2017 and June 2018, the Council found in accordance with Article 121(4) of 
the Treaty that in 2016 and 2017, respectively, there had been a significant observed 
deviation from Romania’s medium-term budgetary objective or from the adjustment 
path  towards  it.  In  view  of  those  established  significant  deviations,  the  Council 
issued Recommendations on 16 June 20172 and 22 June 20183, recommending that 
Romania  take  the  policy  measures  necessary  to  address  those  deviations.  The 
Council subsequently found that Romania had not taken effective action in response 
to  those  Recommendations  and  issued  revised  Recommendations  on  5  December 
20174  and  4  December  20185  respectively.  The  Council  subsequently  found  that 
Romania  had  not  taken  effective  action  in  response  to  those  Recommendations 
either. 

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4 
5 

OJ L 209, 2.8.1997, p. 1. 
OJ C 216, 6.7.2017, p. 1. 
OJ C 223, 27.6.2018, p. 3. 
OJ C 439, 20.12.2017, p. 1 
OJ C 460, 21.12.2018, p. 1. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

On 14 June 2019, the Council decided that in 2018 a significant observed deviation 
from  the  adjustment  path  toward  the  medium-term  budgetary  objective  had  again 
occurred  in  Romania  and  issued  a  Recommendation  for  Romania  to  take  the 
necessary  measures  to  ensure  that  the  nominal  growth  rate  of  net  primary 
government  expenditure6  does  not  exceed  4.5%  in  2019  and  5.1%  in  2020, 
corresponding  to  an  annual  structural  adjustment  of  1%  of  gross  domestic  product 
(GDP) in 2019 and 0.75% of GDP in 2020.7 It also recommended that Romania uses 
any  windfall  gains  for  deficit  reduction,  while  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 October 2019 for 
Romania to report on the action taken in response to that Recommendation. 

On 9 July 2019, the Council recommended Romania to ensure that, in  2019 and in 
2020, it comply with the Council Recommendation of 14 June 2019 with a view to 
correcting  the  significant  deviation  from  the  adjustment  path  toward  the  medium-
term budgetary objective.8 

On 25 September 2019, 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 [20 
November] 2019. Those findings were made public. 

On  15  October  2019,  the  Romanian  authorities  submitted  the  report  on  effective 
action  in  response  to  the  Council  Recommendation  of  14  June  2019.  Given  the 
information  provided  by  the  authorities  in  their  report  and  the  overall  assessment 
based on the Commission autumn 2019 forecast, the Council on 20 November 2019 
concluded  that  Romania  has  not  taken  effective  action  in  response  to  the  Council 
Recommendation of 14 June 2019. 

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

Based on the Commission 2019 autumn forecast, Romania's structural balance is set 
to deteriorate by 0.8% of GDP in 2019 and by a further 0.8% of GDP in 2020. As a 
result, the structural deficit is estimated to be 2.5% of GDP and 3.4% of GDP away 
from the medium-term budgetary objective of a structural deficit of 1.0% of GDP in 
2019 and in 2020, respectively. 

(10) 

In  order  to  correct  for  the  cumulated  deviations  and  to  bring  Romania  back  on  an 
appropriate  adjustment  path  following  past  slippages,  an  additional  effort  should 
complement  the  recommended  annual  structural  adjustment  of  0.75%  of  GDP  for 
2020 recommended by the Council on 14 June 2019. An additional effort of 0.25% 
of GDP seems appropriate given the magnitude of the cumulated deviations from the 

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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. 
OJ C 210, 21.6.2019, p. 1. 
OJ C 301, 5.9.2019, p. 135. 

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recommended adjustment path toward the medium term objective. It will accelerate 
the  adjustment  back  towards  the  medium-term  budgetary  objective  without  putting 
economic growth at risk. 

The  Commission  2019  autumn  forecast  projects  a  general  government  deficit  of 
3.6%  in  2019  and  4.4%  in  2020,  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 2020. 

Based  on  the  Commission  2019  autumn  forecast,  the  required  improvement  of  the 
structural  balance  by  1.0%  of  GDP  in  2020  is  consistent  with  the  nominal  growth 
rate of net primary government expenditure not exceeding 4.4%. 

The  Commission  2019  autumn  forecast  projects  a  deterioration  of  the  structural 
balance by 0.8% of GDP in 2020. Therefore, a structural improvement of 1.0 % of 
GDP  translates  into  a  need  to  adopt  measures  of  a  total  yield  of  1.8%  of  GDP  in 
structural terms as compared to the current baseline of the Commission 2019 autumn 
forecast. 

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. 

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.  

The  requirements  issued  in  this  Recommendation  supersede  the  corresponding 
elements set out in the Council Recommendation of 14 June 2019. 

Romania  should  report  to  the  Council  on  action  taken  in  response  to  this 
Recommendation by 15 April 2020, possibly as part of its Convergence Programme 
submitted pursuant to Article 7 of Regulation (EC) No 1466/97. 

(11) 

(12) 

(13) 

(14) 

(15) 

(16) 

(17) 

(18) 

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 4.4% in 2020, 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  2020  on  action  taken  in  response  to  this 
Recommendation.  The  report  should  provide  sufficiently  specified  and  credibly 
announced measures, including the budgetary impact of each of them, with a view to 
complying  with  the  required  adjustment  path,  as  well  as  updated  and  detailed 
budgetary projections for 2020. 

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This Recommendation is addressed to Romania. 

Done at Brussels, 20.11.2019 

For the Council 
The President 

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