Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 18 June 2021
Date: 2024-06-19
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, 19.6.2024  COM(2024) 597 final  Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Romania in response to the Council Recommendation of 18 June 2021   
 
Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Romania in response to the 
Council Recommendation of 18 June 2021  

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(8) thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

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According  to  Article  126  of  the  Treaty,  Member  States  shall  avoid  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.  The  Stability  and  Growth 
Pact  includes  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on  speeding  up 
and  clarifying  the  implementation  of  the  excessive  deficit  procedure,1  which  was 
adopted  in  order  to  further  the  prompt  correction  of  excessive  general  government 
deficits. 

On  3  April  2020,  the  Council,  acting  upon  a  recommendation  by  the  Commission, 
adopted Decision (EU) 2020/509 under Article 126(6) TFEU on the existence of an 
excessive deficit situation in Romania due to a planned non-compliance in 2019 with 
the deficit criterion of the TFEU, and issued a Recommendation under Article 126(7) 
TFEU  with  a  view  to  bringing  an  end  to  the  situation  of  an  excessive  government 
deficit  by  2022  at  the  latest.  In  light  of  the  deep  contraction  in  economic  activity 
linked to the COVID-19 pandemic, on 18 June 2021 the Council adopted a revised 
Recommendation under Article 126(7) TFEU to Romania2.  

On 18 June 2021, the Council recommended Romania to put an end to the excessive 
deficit  situation  by  2024  at  the  latest.  Specifically,  in  its  18  June  2021 
Recommendation under Article 126(7) TFEU, the Council recommended Romania to 
reduce its headline deficit to 8.0% of GDP in 2021, 6.2% of GDP in 2022, 4.4% of 

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation 
of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6). 
All documents related to the excessive deficit procedure of Romania can be found at:  https://economy-
finance.ec.europa.eu/economic-and-fiscal-governance/stability-and-growth-pact/corrective-arm-
excessive-deficit-procedure/ongoing-excessive-deficit-procedures/romania_en 

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GDP in 2023 and 2.9% of GDP in 2024. This was 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. It corresponded 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 Recommendation further stated that Romania should fully implement the 
measures  already  adopted  for  2021,  and  to  specify  and  implement  the  additional 
measures  necessary  to  achieve  the  correction  of  its  excessive  deficit  by  2024.  Any 
windfall  gains  were  to  be  used  to  reduce  the  general  government  deficit.  In  its 
Recommendation,  the  Council  established  a  deadline  of  15  October  2021  for 
Romania to take effective action and, in accordance with Article 3(4a) of Regulation 
(EC)  No  1467/97,  to  report  on  progress  made  in  the  implementation  of  the 
Recommendation  at  least  every  six  months  until  the  excessive  deficit  has  been 
corrected. 

On 24 November 2021, the Commission concluded that Romania had taken effective 
action in response to the 18 June 2021 Recommendation under Article 126(7) TFEU 
and  considered  that  no  additional  steps  in  the  excessive  deficit  procedure  were 
necessary  at  that  point  in  time.  Romania  has  since  been  assessed  to  have  complied 
with the 18 June 2021 Recommendation under Article 126(7) TFEU, due to the fact 
that the respective headline deficit targets in 2021 and 2022 were achieved. Based on 
budgetary outcome data validated by Eurostat, Romania’s general government deficit 
decreased from 7.2% of GDP in 2021 to 6.3% of GDP in 2022. The initial estimate 
for 2022 (notified and validated in the context of the spring 2023 EDP notification) 
was  6.2%  of  GDP,  in  line  with  the  headline  deficit  target  recommended  by  the 
Council. The excessive deficit procedure therefore remained in abeyance. However, 
the structural deficit fell by 1.2 pps. of GDP in 2021 and 0.4 pps. of GDP in 2022, 
which  compares  with  recommended  adjustments  of  0.7  pps.  and  1.8  pps.  of  GDP, 
respectively.  The  cumulative  structural  adjustment  over  2021-2022  was,  therefore, 
below  the  recommended  one.  Moreover,  net  primary  expenditure  growth  reached 
7.4%  in  2021  and  15.0%  in  2021,  well  above  targets  set  out  in  the  Council 
Recommendation.  

Since  the  adoption  of  the  18  June  2021  Council  Recommendation,  Romania’s 
economic  performance  has  been  broadly  in  line  with  the  Commission’s  forecasts. 
Over 2021-2023, real GDP growth was broadly consistent with projections included 
in 
the  Commission’s  Staff  Working  Document  of  2  June  2021,  despite 
macroeconomic shocks that occurred in the meantime (in particular Russia’s war of 
aggression  against  Ukraine  and  the  ensuing  energy  shock).  The  2023  output  gap  is 
estimated to have been less negative than projected in June 2021. Moreover, growth 
in  government  revenue  has  been  much  faster  than  projected,  mostly  due  to  high 
inflation  but  also  reflecting  the  impact  of  a  tax-rich  real  GDP  growth  composition. 
Overall,  macroeconomic  developments  cannot  justify  the  significantly  worse  fiscal 
outcomes  relative to  the June 2021 Council Recommendation, even if GDP growth 
would likely have been lower with a considerably tighter fiscal policy. 

(5) 

(6) 

(7) 

A new assessment of the action taken by Romania to correct the excessive deficit by 
2024  in  response  to  the  Council  Recommendation  of  18  June  2021  leads  to  the 
following conclusions:  

–  Based  on  the  budgetary  outcome  data  notified  by  Romania  and  validated  by 
Eurostat,  Romania’s  general  government  deficit  increased  to  6.6%  of  GDP  in 

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2023,  much  higher  than  the  4.4%  of  GDP  recommended  by  the  Council  and 
planned  by  Romania  in  its  2023  Convergence  Programme.  The  main  reason  for 
this  deviation  was  that  government  spending  continued  to  grow  at  a  very  high 
rate,  mostly  driven  by  social  transfers,  interest  payments,  expenditure  in  goods 
and services and capital spending. The 2023 headline deficit was also impacted by 
the  statistical  recording  of  payments  of  public  sector  wage  increases  (0.5%  of 
GDP) following court decisions.  

–  In  2023,  the  fiscal  effort  was  much  lower  than  recommended  by  the  Council. 
Romania’s structural balance remained broadly unchanged in 2023 (deteriorating 
by  0.1%  of  GDP),  well  below  the  target  of  an  improvement  by  1.7%  of  GDP 
recommended by the Council. Net primary expenditure growth (adjusted for fiscal 
policy  measures  on  the  revenue  side)  was  much  higher  than  recommended  in 
2023, at close to 12% versus a target of 0.9% recommended by the Council.  

–  In  2022  and  2023,  strong  real  and  nominal  GDP  growth  fuelled  a  very  strong 
increase in government revenue (20.8% in 2022 and 14.2% in 2023), much larger 
than  was  envisioned  at  the  time  of  the  Council  Recommendation  in  June  2021. 
However,  in  both  years  most  windfall  gains  on  the  revenue  side  were  used  to 
finance additional spending instead of reducing the budget deficit. 

–  The Commission spring 2024 forecast projects the general government deficit to 
increase to  6.9% of GDP in 2024. The general  government  debt-to-GDP ratio is 
set to increase to 50.9% by the end of 2024, from 48.8% in 2023. As in previous 
years, the forecast increase of the general government deficit in 2024 reflects high 
growth in current government expenditure. Spending on public wages is projected 
to  increase  strongly,  reflecting  recent  discretionary  increases  in  wages  in 
education,  health  and  the  defence  sectors.  The  recalculation  of  pensions  in  the 
context of the pension reform will have a short-term cost in 2024 and 2025 – the 
reform  will  however  subsequently  generate  large  savings  over  the  medium  and 
long run, assuming the reform is fully implemented.  

–  In 2024, government revenue growth is expected to outpace nominal GDP growth, 
reflecting efforts to improve tax collection through digitalisation of the tax system 
and  the  impact  of  a  package  of  revenue-increasing  measures  adopted  in  autumn 
2023, which is expected to boost government revenue by around 1% of GDP. The 
package  mostly  consists  of  an  increase  in  corporate  taxation,  in  particular  for 
micro-enterprises,  an  increase  in  taxation  of  individuals,  coming  from  a  partial 
removal  of  preferential  tax  facilities  in  the  construction  and  agriculture  sectors, 
the elimination of reduced VAT rates for selected goods and services, an increase 
in excise duties, and a special tax on the turnover of banks and multinationals.  

(8) 

This  leads  to  the  conclusion  that  the  response  of  Romania  to  the  Council 
Recommendation of 18 June 2021 has been insufficient. Romania did not reach the 
headline deficit target in 2023 and is not forecast to put an end to its excessive deficit 
by 2024. The fiscal  effort fell significantly short of what  was recommended by the 
Council, and net primary expenditure grew much faster than recommended.  

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HAS ADOPTED THIS DECISION:  

Article 1 

Romania  has  not  taken  effective  action  in  response  to  the  Council  Recommendation  of  18 
June 2021. 

Article 2 

This Decision is addressed to Romania. 

Done at Brussels, 

For the Council 
The President 

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