Recommendation for a COUNCIL RECOMMENDATION delivering a Council opinion on the 2021 Convergence Programme of Romania
Date: 2021-06-02
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Romania, budget deficit, economic policy, economic recovery, economic reform, gross domestic product, public debt, public finance, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 2.6.2021  COM(2021) 523 final  Recommendation for a COUNCIL RECOMMENDATION delivering a Council opinion on the 2021 Convergence Programme of Romania {SWD(2021) 501 final}  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

delivering a Council opinion on the 2021 Convergence Programme of Romania 

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 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 

Having regard to the Recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

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On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of 
the  general  escape  clause2  of  the  Stability  and  Growth  Pact.3  In  its  Communication, 
the  Commission  set  out its  view  that,  given  the expected  severe  economic  downturn 
resulting from  the  COVID-19 outbreak, the  conditions  to  activate the general  escape 
clause were met. On 23 March 2020, the Ministers of Finance of the Member States 
agreed with the assessment of the Commission. The general escape clause has granted 
Member  States  budgetary  flexibility  to  deal  with  the  crisis.  It  has  facilitated  the 
coordination  of  budgetary  policies  in  times  of  severe  economic  downturn.  Its 
activation  allows  for  a  temporary  departure  from  the  adjustment  path  towards  the 
medium-term  budgetary  objective  of  each  Member  State,  provided  this  does  not 
endanger  fiscal  sustainability  in  the  medium  term.  On  17  September  2020,  in  its 
Annual  Sustainable  Growth  Strategy,  the  Commission  announced  that  the  general 
escape clause would remain active in 2021.4  
On 3 April 2020, the Council adopted Decision (EU) 2020/5095 on the existence of an 
excessive deficit situation in Romania due to non-compliance with the deficit criterion 
in  2019.  This  was  based  on  the  updated  fiscal  targets  by  the  government,  while  the 

OJ L 209, 2.8.1997, p. 1. 
The  clause,  as  set  out  in  Articles  5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles 
3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of 
severe economic downturn. 
Communication from the Commission to the Council on the activation of the general escape clause of   
the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final. 
Communication  from  the  Commission  on  Annual  Sustainable  Growth  Strategy  2021,  Brussels, 
17.9.2020, COM(2020) 575 final. 
Council Decision (EU) 2020/509 of 3 April 2020 on the existence of an excessive deficit in Romania 
(OJ L 110, 8.4.2020, p. 58). 

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subsequent  publication  of  the  general  government  deficit  outturn  of  4.3%  of  GDP 
confirmed the breach. The excess over the 3% of GDP Treaty reference value was the 
result  of  a  continuous  build-up  of  fiscal  imbalances  due  to  an  expansionary  fiscal 
policy  since  2016,  in  a  period  of  strong  economic  growth.  On  3  April  2020,  the 
Council also issued a Recommendation6 with a view to bringing an end to the situation 
of an excessive government deficit in Romania by 2022 at the latest. 
On 20 July 2020, the Council recommended Romania7 to pursue fiscal policies in line 
with  the  Council  Recommendation  of  3  April  2020,  while  taking  all  necessary 
measures  to  effectively  address  the  pandemic,  sustain  the  economy  and  support  the 
ensuing recovery.  

Next  Generation  EU,  including  the  Recovery  and  Resilience  Facility,  will  ensure  a 
sustainable,  inclusive  and  fair  recovery.  Regulation  (EU)  2021/241  establishing  the 
Recovery and Resilience Facility8 came into force on 19 February 2021. This Facility 
will  provide  financial  support  for  the  implementation  of  reforms  and  investment, 
entailing  a  fiscal  impulse  financed  by  the  EU.  It  will  contribute  to  the  economic 
recovery,  to  the  implementation  of  sustainable  and  growth-enhancing  reforms  and 
investment, notably to promote the green and digital transitions, and it will strengthen 
the  economies’  resilience  and  potential  growth.  In  turn,  it  will  also  help  public 
finances to return to more favourable positions in the near term and will contribute to 
strengthening sustainable public finances, growth and job creation in the medium and 
long term.  

On 3 March 2021, the Commission adopted a Communication providing further policy 
orientations  to  facilitate  the  coordination  of  fiscal  policies  and  the  preparation  of 
Member  States’  Stability  and  Convergence  Programmes.9  That  Communication  also 
announced the Commission’s view that the decision on the deactivation or continued 
application  of  the  general  escape  clause  should  be  taken  as  an  overall  assessment  of 
the state of the economy, with  the level  of economic activity in  the EU or euro area 
compared to pre-crisis levels (end-2019) as key quantitative criterion. On the basis of 
the Commission’s 2021 spring forecast, on 2 June the Commission considered that the 
conditions to continue to apply the general escape clause in 2022 and to deactivate it 
as of 2023 were met. Country-specific situations will continue to be taken into account 
after the deactivation of the general escape clause.10 

On  5  May  2021,  Romania  submitted  its  2021  Convergence  Programme,  beyond  the 
deadline established in Article 8 of Regulation (EC) No 1466/97.  

In  2020,  based  on  data  validated  by  Eurostat,  Romania’s  general  government  deficit 
was  9.2%  of  GDP,  while  general  government  debt  increased  to  47.3%  of  GDP.  The 
annual  change  in  the  primary  budget  balance  amounted  to  -3.6%  of  GDP,  including 
discretionary budgetary measures of 1.5% in support of the economy and the operation 

Council  Recommendation  of  3  April  2020  with  a  view  to  bringing  an  end  to  the  situation  of  an 
excessive government deficit in Romania (OJ C 116, 8.4.2020, p. 1). 
Council  Recommendation  of  20  July  2020  on  the  National  Reform  Programme  of  Romania  and 
delivering a Council opinion on the 2020 Convergence Programme of Romania (OJ C 282, 26.8.2020, 
p. 149). 
OJ L57, 18.2.2021, p.17. 
Communication  from  the  Commission  to  the  Council  on  one  year  since  the  outbreak  of  COVID-19: 
fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final. 
Communication from the Commission on Economic policy coordination in 2021: overcoming COVID-
19, supporting the recovery and modernising our economy, Brussels, 2.6.2021, COM(2021)500 final. 

(3) 

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of  automatic  stabilisers.  Romania  also  provided  liquidity  support  to  companies  and 
households  (such  as  guarantees  and  tax  deferrals,  which  do  not  have  a  direct  and 
immediate budgetary impact), estimated at 1.4% of GDP. 

The  macroeconomic  scenario  underpinning  the  budgetary  projections  is  realistic  in 
2021  and  2022.  According  to  the  Convergence  Programme  real  GDP  growth  is 
forecast  at  5.0%  in  2021  and  4.8%  in  2022.  In  both  years,  domestic  demand,  with 
strong  consumption  and  investment  growth,  is  expected  to  be  the  main  driver.  The 
Commission 2021 spring forecast of Romania’s growth is slightly above the one of the 
Convergence  Programme,  with  5.1%  in  2021  and  4.9%  in  2022,  also  driven  by 
domestic demand.  

In its 2021 Convergence Programme, the government plans a decrease in the general 
government deficit from 9.2% of GDP in 2020 to 8% of GDP in 2021, while the debt 
ratio is  planned to increase to  50.8% of GDP in 2021. According to  the programme, 
the change in the primary budget balance in 2021 compared with the pre-crisis level 
(2019)  is  set  to  amount  to  3.3%  of  GDP,  reflecting  the  discretionary  budgetary 
measures of 1.5% of GDP in support of the economy and the operation of automatic 
stabilisers. These projections are in line with the Commission’s 2021 spring forecast.   

In response to the COVID-19 pandemic and related economic downturn, Romania has 
adopted budgetary measures to strengthen the capacity of its health system, contain the 
pandemic  and  provide  relief  to  those  individuals  and  sectors  that  have  been 
particularly  affected.  This  forceful  policy  response  has  cushioned  the  contraction  in 
GDP, which, in turn, curtailed the increase in government deficit and public debt. The 
measures  taken  by  Romania  in  2020  and  2021  have  been  in  line  with  the  Council 
Recommendation  of  20  July  2020.  The  discretionary  measures  adopted  by  the 
government in 2020 and 2021 are temporary or matched by offsetting measures. At the 
same time, there has been a continuous fiscal impact of expansionary measures which 
were  adopted  before  the  pandemic.  These  measures  notably  included  increases  in 
pensions and other social expenditure and tax cuts. 

(11)  The  2021  Convergence  Programme  assumes  investment  and  reforms  financed  by 
grants under the Recovery and Resilience Facility amounting to 0.1% of GDP in 2021, 
0.6% of GDP in 2022, 1.2% of GDP in 2023, 1.2% of GDP in 2024, 0.9% of GDP in 
2025  and  0.9%  of  GDP  in  2026.  The  programme  also  assumes  loans  under  the 
Recovery  and  Resilience  Facility  amounting  to  2.3%  of  GDP  in  2025  and  2.5%  of 
GDP  in  2026.  The  Commission’s  spring  forecast  includes  only  the  grants  in  its 
budgetary projections as the loans are assumed in the Convergence Programme to start 
after the Commission’s 2021 spring forecast horizon.  

(12)  To assess the overall fiscal  stance at  the current  juncture, the sizeable transfers from 
the  EU  budget  (such  as  those  from  the  Recovery  and  Resilience  Facility)  should  be 
included in the relevant expenditure aggregate.  

Therefore,  the  fiscal  stance  is  then  measured  by  the  change  in  primary  expenditure 
(net  of  discretionary  revenue  measures  and  excluding  crisis-related  temporary 
emergency  measures)  including  expenditure  financed  by  grants  under  the  Recovery 
and Resilience Facility and other EU funds.  

Going  beyond  the  overall  fiscal  stance,  the  analysis  also  aims  at  assessing  whether 
national  fiscal  policy  is  prudent  and  its  composition  is  conducive  to  a  sustainable 
recovery  consistent  with  the  green  and  digital  transitions.  For  that  reason,  particular 

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attention  is  paid  to  the  evolution  of  nationally  financed  primary  current  expenditure 
and investment. 

(13) 

In  its  2021  Convergence  Programme,  Romania’s  general  government  deficit  is 
planned to decrease to 6.2% of GDP in 2022,  mainly due to a discontinuation of the 
temporary support measures adopted in 2020 and 2021. The general government debt 
ratio  is  planned  to  increase  to  52.9%  of  GDP  in  2022.  These  projections  are  more 
favourable than the Commission’s 2021 spring forecast.  

Based on the Commision’s forecast, the overall fiscal stance as defined above – also 
including the impact on aggregate demand in 2022 from investment financed by both 
the  national  and  the  EU  budgets,  notably  the  Recovery  and  Resilience  Facility  –  is 
estimated at -0.5% of GDP11. The positive contribution of the expenditure financed by 
Recovery and Resilience Facility grants and other EU funds is projected to increase by 
0.4 percentage points of GDP. Nationally financed investment is projected to provide 
an expansionary contribution of 0.1 percentage points of GDP.12 Nationally financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  is  projected  to 
provide a neutral contribution.  

(14)  According to the programme’s medium-term budgetary plans, the general government 
deficit  is  planned  to  decrease  from  4.4%  in  2023,  to  2.9%  of  GDP  in  2024.  The 
general government deficit is planned to no longer exceed 3% of GDP in 2024. 

Based  on  the  programme,  the  overall  fiscal  stance  –  also  including  the  impact  on 
aggregate demand from investment financed by both the national and the EU budgets, 
notably the Recovery and Resilience Facility  – is estimated at 0.6% of GDP in 2023 
and  2024  on  average.  The  positive  contribution  of  the  expenditure  financed  by 
Recovery and Resilience Facility grants and other EU funds is projected to increase by 
0.2 percentage points of GDP. Nationally financed investment is projected to provide 
a contractionary contribution of 0.1 percentage points of GDP.13 Nationally financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  is  projected  to 
provide a contractionary contribution of 0.8 percentage points of GDP. 
The  current  estimate  of  the  10-year  average  nominal  potential  growth  is  5¾%.14 
However, this estimate does not include the impact of the reforms that are part of the 
Recovery and Resilience Plan and can boost Romania’s potential growth. 

(15)  The general government debt ratio is planned to increase from 53.3% of GDP in 2023 
and decrease to 52.4% of GDP in 2024. In light of the particularly fast-increasing debt 
path  in  the  medium  term,  mainly  due  to  the  large  deficit  forecasted  in  2022  and 
unfavourable  financing  conditions  compared  with  other  EU  countries,  Romania  is 
considered  to  face  high  fiscal  sustainability  risks  over  the  medium  term,  as  per  the 
latest debt sustainability analysis.15 

(16)  On  2  June  2021,  the  Commission  recommended  a  Council  recommendation  for  the 
correction of Romania’s excessive deficit by 2024. According to that recommendation, 
Romania should reach a headline general government deficit target of 8.0% of GDP in 

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A negative sign of the indicator corresponds to an excess of the primary expenditure growth compared 
with medium-term economic growth, which indicates an expansionary fiscal policy. 
Other nationally financed capital expenditure is projected to provide a neutral contribution. 
Other nationally financed capital expenditure is projected to provide a neutral contribution. 
Estimated by the Commission, following the commonly agreed methodology.  
See Commission Staff Working Document – Statistical Annex providing background data relevant for 
the assessment of the 2021 Stability and Convergence Programmes. 

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2021, 6.2% of GDP in 2022, 4.4% of GDP in 2023, and 2.9% of GDP in 2024, which 
is  consistent  with  a  nominal  growth  rate  of  net  primary  government  expenditure  of 
3.4% in 2021, 1.3% in 2022, 0.9% in 2023 and 0.0% in 2024. This corresponds to an 
annual structural adjustment of 0.7% of GDP in 2021, 1.8% of GDP in 2022, 1.7% of 
GDP in 2023 and 1.5% of GDP in 2024. 

The  Council  has  assessed  the  2021  Convergence  Programme  and  the  follow-up  by 
Romania to the Council Recommendation of 20 July 2020.  

HEREBY RECOMMENDS ROMANIA TO:  

1. 

Pursue fiscal policies in line with the Council Recommendation under Article 126(7) 
of the Treaty of [XX June 2021]. 

Done at Brussels, 

For the Council 
The President 

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