Sudden brake on public spending – with what conditions does the “pasture” come from the European Commission?
The unconvincing approach of the past of the Romanian authorities regarding the reduction of the budget deficit, which reached 9.3% of GDP in 2024 and continues to remain at a high level and in 2025, caused the European institutions to issue information according to which our country has not implemented efficient solutions for the correction of the deficit and in the case of this Romania does not act quickly to reduce its budget imbalances ”. And, although in the latest communication, from June 23, the European Commission proposes October 15, 2025 as a date until our country to take effective measures to correct the excessive deficit, the decision makers must pay attention to the conditions that accompany this proposal, in particular regarding the restriction of public spending.
Specifically, the Commission recommends the EU Council to establish a new term (October 15, 2025) until the Romanian authorities will implement concrete measures to ensure the timely deficit correction (until 2030), but strengthen the maximum limits regarding the increase of public spending. If at the beginning of the year, the European institutions considered that Romania allows them to increase public expenses by 5.1% in 2025 (compared to 2024) and by 4.9% in 2026, now they claim that they must be tempered to at most 2.8% in 2025 and 2.6% in 2026. Recommendations will be issued. However, regardless of the decision of the Council the correction measures must be implemented as quickly as possible to maintain the expenses within the limit mentioned by the EC, given that, in the first four months of this year, we already have an increase of 6.6% compared to the similar period of 2024.
On the other hand, the measures to reduce the deficit are also necessary in the perspective of the expected assessments from the rating agencies, in the following months. Currently, Romania is placed by the three major financial evaluation agencies on the last stage recommended to investors, with negative perspective. In case of worsening, our country falls into the category of non -recommended states for investments, with an immeasurable impact on the costs and availability of loans.
Total reaction missing from the beginning of this year
Our country has been in excessive deficit procedure since 2019 (when it registered a budget imbalance of 4.6% of GDP), it was exempted from correction measures during the pandemic period, when the tax rules were suspended in the EU to allow the Member States to support their savings affected by the sanitary crisis, but subsequently returned to the European authorities consolidated its fiscal-budget position. However, because, this time, Romania was no longer the only country in excessive deficit procedure, which relaxed the procedures and granted the respective states to adjust its budget deficit for a period of four to seven years, provided that the structural reforms and investments necessary to increase the competitiveness of national economies. Romania, already on an accelerated trend of increasing the deficit, transmitted CE, in October 2024, a fiscal-structural plan for seven years (the maximum permissible term) by which it was committed to reduce the budget deficit to 7.9% of GDP in 2024, to 7% of GDP in 2025 and to 2.5% of GDP in 2031.
The EU Council approved the Romanian Plan in January 2025 and issued a set of recommendations for our country which, practically, represented the directions to recover public finances – the limits in which the public expenses and the reforms needed to stabilize the economy and the increase of the state budget (including the fiscal reform, the fiscal reform, and taxes and taxes).
The correction measures should have been adopted by Romania until April 30, 2025 and presented to the European Commission in the annual report on the progress made in the first part of the year, but this report has not been transmitted to European institutions so far.
Thus, at the beginning of June 2025, the European Commission found that Romania did not take effective measures to correct the budget deficit and submitted the ECOFIN Council in this regard. In the document transmitted to the Council, which identified the most pressing challenges facing our country, respectively excessive macroeconomic imbalances, and again transmitted the set of recommendations to remedy the situation. On June 20, the information of the EcoFin Council followed on the fact that Romania did not take the recommended measures earlier this year (January 21, 2025) but, on the contrary, “budgetary expenses increased much faster than it was recommended, which led to a persistent high public deficit and endangered the correction in a timely deficit of Romania”.
Recommendations of European institutions, the way to be followed for budget recovery
In this situation we are now and it is very important that, once the electoral calendar of the last year, the representatives of the authorities will follow the recommendations of the European institutions, which, in essence, aim at stabilizing public finances and maximizing the potential for developing the Romanian economy. Specifically, it is about maintaining public expenses on the correction trajectory and implementing the reforms and investment programs assumed by the medium -term structural fiscal plan. At the same time, what recommends Romania to urgently implement the recovery and resilience (PNRR) plan, including the repowereu chapter, to accelerate the implementation of the programs related to the cohesion policy and to use at the optimal level the EU instruments, including the opportunities offered by the Investu Platform and the Platform of Strategic Technologies, to improve the Romanian Economy. In this regard, the Romanian authorities are encouraged to prepare and plan the large infrastructure projects and to accelerate their implementation, to ensure that mature public investment projects are carried out in a timely manner and to promote private investments to stimulate sustainable economic development.
And, last but not least, European institutions say that Romania should improve the efficiency of the public administration and the predictability of the decision-making process, ensuring that the legislative initiatives are based on relevant impact studies and are subject to adequate consultations with the interested parties.
In conclusion, the documents of the European institutions offer a clear image of the stage in which the economy of Romania is located and the areas where a prompt intervention is required. It is only necessary for the Romanian authorities to show the necessary will in this regard, in order to avoid, on the one hand, the reduction of the country rating and, on the other hand, the decommissioning of European funds and, implicitly, the blocking of numerous essential projects for the overall development of the Romanian society. The new Government in Bucharest has announced, through the governing program, that it treats the issues related to the reduction of the budget deficit, and not only the European Commission, but also the whole company are waiting for concrete results in this regard, as soon as possible.
Opinion material by Dan Bădin, partner of fiscal services, Deloitte Romania
Article supported by Deloitte Romania
