EC Launches Excessive Deficit Procedure Against Romania

The Commission also adopted Wednesday reports under the corrective arm of the Stability and Growth Pact for Lithuania, Malta and Poland.

"Taking due account of the economic background and all other relevant factors, it is examined whether the deficit remained close to the reference value and the excess was exceptional and temporary. The Commission concludes that, in all cases, the deficit criterion in the Treaty is not fulfilled," the Commission said in a press release.

In February, E.U.’s executive arm had launched excessive deficit procedures for France, Greece, Ireland, Latvia and Spain.

According to the Commission, Romania’s 2008 budget deficit of 5.4% of GDP mainly reflects significant slippages with respect to current spending, notably with public wages and social benefits as well as overly optimistic revenue projections and, to a lesser extent, a sudden drop in revenue collection in the last quarter of 2008 owing to the economic slowdown.

EC noted that Romania pursued a pro-cyclical fiscal policy during the 2005-2008 demand boom, with the headline deficit rising from 1.2% of GDP in 2005 to 5.4% in 2008, despite average real GDP growth of 6.5%. "This evolution reflects to a large degree a weak budgetary planning and implementation," the Commission said.

It also said that, from 2009 onwards, fiscal policy aims to correct the significant external and internal imbalances that have been allowed to develop in the economy.

This is part of the EUR19.95 billion economic program agreed by Romania with the European Union, the International Monetary Fund and other financial institutions.

Under the program, Romania will limit the deficit to 5.1% in 2009. In 2010, under unchanged policies, the Commission’s spring 2009 forecast projects the deficit at 5.6% of GDP, against a background of a significant economic slowdown.