Romania has violated its commitment to fiscal consolidation, prompting the European Commission to delay imposing disciplinary measures.
In a nutshell, the European Commission has delivered a stern warning to Romania about its skyrocketing budget deficit and the dire need for fiscal consolidation. Here are the key takeaways from the Commission's latest assessments:
European Commission's Red Alert
- Fixing the Deficit: Romania submitted its medium-term fiscal-structural plan (MTFSP) in October 2024, but the Commission believes the efforts have fallen short in addressing the excessive deficit. Specifically, the net expenditure growth has surpassed recommended limits, casting doubts on the goal of correction by 2030[1].
- Swift Action Required: Romania should have presented effective corrective measures by April 30, 2025, but these steps have not been taken yet. Romania is now required to report progress at least every six months[1].
- Council's Decision: Should the Council of the EU officially acknowledge under Article 126(8) TFEU that Romania has not taken effective action, the Commission would be compelled to propose the suspension of payments or commitments under the European Structural and Investment (ESI) Funds[1].
- Policy Measures: The Commission suggests further structural reforms and expenditure containment, primarily with regard to public wages and pensions. However, the current fiscal consolidation package adopted by Romania at the end of 2024 has only imposed a nominal wage and pension freeze, which the Commission finds to be insufficient[3][5].
- Debt and Deficit Stabilization: The Commission underlines the importance of reducing the general government deficit, which is projected to be 8.6% of GDP in 2025 and 8.4% in 2026, and swiftly lowering public debt, expected to reach around 63% of GDP by 2026[3][5].
What Happens If Romania Dies on Debt?
- ESI Funds Suspension: If Romania fails to implement effective corrective measures, the Commission may propose the suspension of payments or commitments under the ESI Funds, which will have a substantial impact on development projects and EU financial support[1].
- EU Oversight Escalation: Continued non-compliance might lead to additional steps under the EU fiscal governance framework, including potential sanctions and increased scrutiny by the Council and Commission[1].
- Economic and Financial Risks: Prolonged high deficits and escalating debt pose risks to Romania’s fiscal sustainability, which may affect its sovereign credit rating and boost borrowing costs[2][3].
- Damper on Economic Growth: Persistent fiscal volatility and uncertainty may constrain investment, consumption, and export growth, ultimately hindering economic recovery and long-term growth prospects[5].
Summary
| Recommendation/Measure | Current Status/Requirement | Potential Consequence If Not Complied ||------------------------------------------|--------------------------------------------------------|-----------------------------------------------------------|| Take effective corrective action | Deadline passed; ongoing reporting | Suspension of ESI Funds, further EU oversight || Contain public expenditure | Partial measures (wage, pension freeze) | Continued high deficit, rising debt || Stabilize debt and deficit | Deficit projected to remain high | Deteriorating credit rating, higher borrowing costs || Implement structural reforms | Some reforms planned, insufficient impact | Reduced growth, fiscal instability |
Romania must step up its fiscal consolidation game to avoid these consequences and rebuild confidence in its fiscal resilience[1][3][5].
[1] "Romania corrective actions: the debate over EU funds," G4media.ro, June 4, 2025.[2] "Romania and the Macroeconomic Conditionality of EU Funds: An Analysis," Regulatory Policy Institute, February 2025.[3] "Romania: Fiscal Sustainability Analysis," European Commission, April 2025.[4] "Romania's Medium-term Fiscal Strategy," Ministry of Finance of Romania, October 2024.[5] "Romania: Budget 2025 and Fiscal Sustainability Challenges," International Monetary Fund, March 2025.
(Photo source: Cosmin Iftode/Dreamstime.com)
- The European Commission has advised Romania to urgently implement effective corrective measures for its excessive budget deficit, as continued non-compliance could lead to the suspension of European Structural and Investment Funds, impacting development projects and EU financial support.
- The ongoing high deficit and escalating debt in Romania may result in a deteriorating credit rating, higher borrowing costs, and reduced economic growth due to sustained fiscal instability, making it crucial for the country to swiftly lower its deficit and stabilize its finances.
