“Governments love inflation. That is why we avoid the euro area, because we can neither generate inflation, nor printed money,” warns a prominent economist

Expert warnings about unsustainable fiscal policies prove prophetic, while the largest deficit in Europe triggers drastic correction

The fiscal trajectory of Romania took a dramatic turn, validating the previous warnings of the financial experts who questioned the credibility of the government budget projections. What began as concern about an apparent modest fiscal deficit objective of 6% has evolved into a fiscal crisis, with the general deficit of public administration in Romania reaching 9.3% of GDP in 2024-the largest in the European Union.

The disintegration of the fiscal discipline of Romania offers a striking case study on the consequences of unrealistic budget planning and the inevitable market corrections. Adrian Codirlasu, a prominent voice in the Romanian economic circles, had warned on exactly this scenario, estimating that the ambitious deficit objectives will prove unsustainable and will force the government to make inflationary corrections.

The budget that has never been

The budget on 2024, approved in February with its projection of 6% deficit, proved quickly disconnected by the economic reality. As Codirlasu had noticed, the rapid contradiction with the macroeconomic data raised fundamental questions about the competence of the Government: if the political decision -makers did not have the necessary expertise to create realistic projections or deliberately misinformed the Parliament, investors and rating agencies. “There are no other variants!” Says Codirlașu.

Reality has proven even worse than the most pessimistic predictions. The growth of real GDP is moderate to 0.8% in 2024, while strong private consumption, supported by the robust increase in wages, was compensated by the continuous contractions of investment activities. At the same time, government expenses increased suddenly for salaries in the public sector, pensions and interest payments, creating an explosive tax cocktail.

The appearance of tax by inflation

Codirlasu's prediction that governments will resort to “inflation correction” has materialized with a comfortable precision for the government. Inflation is approaching 10% (year a year) with the elimination of the ceiling at the price of electricity and the increases of the VAT quotas implemented in August 2025.

The mechanism described by Codirlasu takes place exactly as it anticipated. The standard VAT rate increased from 19% to 21%, while the reduced VAT quotas increased to 11%, accompanied by a 10% increase in excise duties. These measures, designed to generate rapid incomes, have transmitted inflationary pressure throughout the economy, effectively taxing the entire population to pay tax imbalances.

The anticipation effects of Codirlasu warned are clearly visible. The July announcement of August tax increases has created immediate pressures on prices, demonstrating how fiscal policy signals can trigger inflationary expectations just before implementation.

European constraints and foreign exchange

The analysis of the expert on the advantages of the currency regime of targeting inflation has also been correct. Codirlașu made a comparison with the Bulgarians, who have a monetary council.

“If we make a comparison Romania- Bulgaria, the last one looks better. It has not changed its fiscal policy for many years. It enters the euro area, so it will be perceived as more stable. And the monetary council constrains the government to keep the budget deficit. Because the issuance of debt is equivalent to printing money. explains the Romanian economist.

We already have too big debts, adds Codirlașu, giving examples from Ray Dalio's book, a famous American economist, who said that at one point the economy grows, after which it creates too much debt and suddenly becomes a problem and then the party ended.

While economic growth is to stagnate in 2025, inflation in Romania will increase. But Romania retains the flexibility to use its independent monetary policy and currency depreciation as adjusting mechanisms-tools unavailable to members of the euro area.

However, this flexibility comes at a cost. Romania's ability to generate inflation and to allow currency depreciation offers a less disciplined fiscal environment compared to countries operating under monetary councils or belonging to the euro area, where balanced budgets become a strict necessity.

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