CELEX: 52011SC0825
Language: en
Date: 2011-06-07 00:00:00
Title: Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Romaniaand delivering a Council opinionon the updated Convergence Programme of Romania 2011-2014

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		52011SC0825
		
			Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Romaniaand delivering a Council opinionon the updated Convergence Programme of Romania 2011-2014 /* SEC/2011/0825 final */
			
				
		
		
			
			   	Recommendation for a
COUNCIL RECOMMENDATION
on the National Reform Programme 2011 of
Romania
and delivering a Council opinion
on the updated Convergence Programme of Romania 2011-2014
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148
(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 policies[1],
and in particular Article 9(3) thereof,
Having regard to the recommendation of the European
Commission[2],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
After consulting the Economic and Financial
Committee,
Whereas:
(1)              
On 6 May 2009, the Council adopted a Decision
(2009/459/EC) to make available to Romania medium-term financial assistance for
a period of three years under the provisions of Article 143 of the Treaty. The
accompanying Memorandum of Understanding signed on 23 June 2009 and its
successive supplements lay down the economic policy conditions on the basis of
which the financial assistance was disbursed. The Council Decision was amended
on 16 March 2010 by Decision 2010/183. Following Romania’s successful
implementation of the programme, and given a partial adjustment of the current
account because of remaining structural weaknesses in Romania’s product and
labour markets which make the country sensitive to international price shocks,
on 12 May 2011 the Council adopted a Decision (2011/288/EU) to make
precautionary medium-term financial assistance available to Romania for a
period of three years under Article 143 of the Treaty. The accompanying
Memorandum of Understanding will be signed in [June
2011]. 
(2)              
On 26 March 2010, the European Council agreed to
the European Commission’s proposal to launch a new strategy for jobs and
growth, Europe 2020, based on enhanced coordination of economic policies, which
will focus on the key areas where action is needed to boost Europe’s potential
for sustainable growth and competitiveness.
(3)              
On 13 July 2010, the Council adopted a
recommendation on the broad guidelines for the economic policies of the Member
States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision
on guidelines for the employment policies of the Member States[3],
which together form the ‘integrated guidelines’. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.
(4)              
On 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first European semester of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy. 
(5)              
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the Commission’s
Annual Growth Survey). It underscored the need to give priority to restoring
sound budgets and fiscal sustainability, reducing unemployment through labour
market reforms and making new efforts to enhance growth. It requested Member
States to translate these priorities into concrete measures to be included in
their Stability or Convergence Programmes and National Reform Programmes.
(6)              
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes. 
(7)              
On 2 May 2011, Romania submitted its 2011
Convergence Programme update covering the period 2011-2014 and its 2011
National Reform Programme. The two programmes have been assessed at the same
time. 
(8)              
Between 2002 and 2008 the Romanian economy grew
strongly, with real GDP growth averaging 6.3%, above its level of potential
growth. Economic growth was primarily driven by domestic demand, as strong
credit and wage developments boosted private consumption and investment. This
boom was also fuelled by foreign capital inflows, led to overheating and
unsustainable external and fiscal imbalances. The current account deficit
peaked at 13.6% of GDP in 2007 and decreased only marginally to 11.4% of GDP in
2008. The high external borrowing was driven by a pro-cyclical fiscal policy,
with headline deficits increasing from 1.2% of GDP in 2005 to 5.7% of GDP in
2008 as a result of recurrent budgetary slippages, notably with respect to
current spending. The financial crisis and the ensuing global economic downturn
increased risk-aversion amongst investors, leading to a significant tightening
of capital flows to Romania. Labour market participation did not rise despite
the favourable economic conditions; the employment rate changed very little
during the boom years. The employment rate then fell to 63.3% by 2010 while the
unemployment rate increased from 5.8% in 2008 to 7.3% in 2010 as a result of
the economic downturn. Unemployment remains particularly high among the Roma
population. Against this background and facing acute financing needs, the
Romanian authorities requested international and EU financial assistance in May
2009.
(9)              
Following the successful implementation of the
EU-IMF adjustment programme, and in order to consolidate these positive
achievements, a precautionary EU-IMF programme for 2011-2013 was negotiated
with the authorities. The new programme continues the fiscal consolidation,
fiscal governance reforms and preservation of financial stability started under
the 2009-2011 programme. In addition, it puts a strong emphasis on the
structural reforms in product (in the energy and transport sectors) and labour
markets necessary to unleash Romania's growth potential, foster job creation
and increase the absorption of EU funds. Romania remains on track to achieve
the cash deficit target of 4.4% of GDP in 2011 (below 5% of GDP in ESA terms).
This would also provide an adequate basis for achieving the deficit target of
below 3% of GDP for 2012, although further measures would have to be taken
according to the Commission Services' Spring 2011 Economic Forecast. The
authorities have also taken steps to achieve the structural reform objectives
of the new programme and continue to maintain financial stability.
(10)          
Based on the assessment of the updated Convergence
Programme pursuant to Council Regulation (EC) No 1466/97, the Council is of the
opinion that the macroeconomic assumptions underpinning the projections in the
programme are plausible. The Convergence Programme aims to correct the
excessive deficit by the 2012 deadline set by the Council in its recommendation
of 16 February 2010. The programme targets headline deficits of 2.6% of GDP in
2013 and of 2.1% of GDP in 2014, with the envisaged consolidation being mostly
expenditure-based. According to the structural balance recalculated by
Commission services, the medium-term objective (MTO) will not be achieved
within the programme period. The consolidation strategy appears to be
frontloaded with the structural improvement being concentrated in 2011 and
2012. In contrast, there is no improvement in the structural balance in 2013
and 2014. The deficit path foreseen is appropriate in 2011 and 2012, but not in
2013 and 2014. The main risks to the budgetary targets are implementation risks,
the arrears of state-owned enterprises which represent a serious contingent
liability for the budget, and the reservations expressed by the Commission
(Eurostat) about Romania’s excessive deficit procedure notification[4].

(11)          
Romania has made its commitments under the Euro
Plus Pact[5] in its National Reform
Programme and Convergence Programme, which were submitted on 2 May 2011. Most
of these commitments have been or are being met as part of the medium-term
financial assistance programme and are broadly appropriate to address existing
challenges under the Pact. 
(12)          
The Commission has assessed the Convergence
Programme and National Reform Programme, including the Euro Plus Pact
commitments[6]. It has taken into
account not only their relevance to sustainable fiscal and socio-economic
policy in Romania but also their conformity with EU rules and guidance, given
the need to reinforce the overall economic governance of the European Union by
providing EU level input into future national decisions. 
(13)          
In light of this assessment, also taking into
account the Council Recommendation under Article 126(7) of the Treaty on the
Functioning of the European Union of 16 February 2010, the Council has examined
the 2011 update of the Convergence Programme of Romania and its opinion[7]
is reflected in the recommendation set out below. Taking into account the
European Council conclusions of 25 March 2011, the Council has examined the
National Reform Programme of Romania,
HEREBY
RECOMMENDS that Romania should: 
Implement the measures laid down in Council
Decision 2009/459/EC as amended by Council Decision 2010/183/EU, together with
the measures laid down in Council Decision 2011/288/EU and further specified in
the Memorandum of Understanding of 23 June 2009 and its subsequent supplements,
and in the Memorandum of Understanding of [June
2011] and its subsequent supplements.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ C , p. .
[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.
[4]               Eurostat expressed reservations as to the quality of
the Romanian EDP figures due to: (i) uncertainties about the impact of some
public corporations on the government deficit, (ii) the reporting of ESA95
categories ‘other accounts receivable and payable’, (iii) the nature and impact
of some financial transactions and (iv) the consolidation of intra-governmental
flows.
[5]               More details on the commitments made under the Euro
Plus Pact can be found in SEC(2011) 731.
[6]               See SEC(2011) 731.
[7]               Foreseen in Article 9(3) of Council Regulation (EC) No
1466/97.