EU Commission: Romania should correct its budget deficit by 2012

The European Commission on Monday concluded that Romania has taken effective action to correct its budget deficit, but in view of a sharper-than-expected recession in 2009, the Commission proposes to extend the deadline by one year to 2012 to bring the deficit below 3 percent of GDP.

“Romania has made a serious effort to limit the deterioration of its budget deficit and to preserve macro-economic stability during the past year. The worsening of the economic situation since the initial recommendations were made justifies extending the deadline by one year.
But the consolidation effort must continue – in line with the conditions attached to the multilateral financial assistance package – to ensure the correction of the deficit by 2012”, said Economic and Monetary Affairs Commissioner Joaquin Almunia in a press release.

In July 2009, the Council endorsed a Commission proposal to open the excessive deficit procedure (EDP) for Romania, on the basis of a government deficit above 3 percent of GDP in 2008, and recommended the correction below 3 percent took place by 2011. The Council decision established a deadline of 7 January 2010 for effective action.

Romania reduced the public wage bill and cut public expenditure on goods and services in 2009, in line with the recommendation. The 2010 budget also includes a package of measures cutting expenditure by around 2 percent of GDP and raising revenue by around 0.5 percent of GDP.
In addition, a fiscal responsibility law introducing a binding medium-term fiscal framework has been submitted to Parliament. Taking into account these different actions, it can be concluded that Romania has taken effective action as required by the recommendation, the Commission’s release says.

However, Romania has experienced a recession estimated at around 7 percent in 2009, against 4 percent forecast in the Commission’s spring 2009 forecast, due to a large drop in exports and a contraction in domestic demand caused by the global economic and financial crisis. The general government deficit in 2009 is now expected to have reached 7.8 percent of GDP. The 2010 budget contains a target of 5.9 percent.

The Stability and Growth Pact foresees that where recommendations are complied with but the economic situation deteriorates significantly and beyond the control of the country concerned, the Council can revise the recommendations and the deadline for the correction of the excessive deficit. The Commission recommends that the deadline be extended by one year to 2012, the release said.

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