European Parliament/ Economic Governance and EMU Scrunity Unit: The fiscal situation in Romania

  *This briefing outlines recent and past developments concerning Romania’s fiscal situation and the steps taken under the Excessive Deficit Procedure. On 4 June 2025, the Commission issued a recommendation stating that Romania had failed to take effective corrective action. Should the Council adopt a decision in this regard, the Commission would be obliged to propose the suspension of payments or commitments under the ESI Funds and the RRF. Such a suspension could carry significant economic and social repercussions. Finally, this briefing recounts the situation of Spain and Portugal which also faced a suspension of payments in 2016, and highlights the role of the European Parliament in this process.   Macroeconomic and fiscal situation   According to the European Commission’s Spring 2025 forecast Romania is expected to experience only modest GDP growth (about 1.4% in 2025, rising to 2.2% in 2026) after a lacklustre 2024. Inflation is expected to remain elevated (around 5–6% in 2024–25, easing to 3.9% by 2026), and unemployment steady at ~5.3%. Crucially, public deficits are extremely high.   The country is grappling with one of the European Union's largest budget deficits. The general government deficit reached 9.3% of GDP in 2024 and is forecast to stay far above the 3% Treaty reference (around 8.6% in 2025). Gross debt is rising rapidly (from 54.8% of GDP in 2024 to ~63% by 2026). These fiscal pressures reflect large public wage/pension increases and other expansions of spending.   The current financial challenges stem from a consumption-led growth model that has relied heavily on expansionary fiscal policies. Throughout 2024, the government implemented substantial increases in public sector wages and pensions, partly influenced by the electoral cycle, which saw both parliamentary and presidential elections. These measures, combined with rising interest payments on public debt, have created significant pressure on public finances. The situation has been further complicated by political instability, with the rescheduling of presidential elections to May 2025 dampening reform appetite in the first half of the year.   Meanwhile Romania runs a large current-account deficit (~8–9% of GDP), reflecting strong domestic demand and weak exports. Overall, the macroeconomic imbalance – slow growth, high deficits and debt – is a key background to the ongoing EDP proceedings.   Market confidence has suffered as a result of these fiscal imbalances. Romania's 10-year yield has surged to 8.6% earlier this month, a two-year high, whilst rating agencies have responded swiftly to the deteriorating outlook. Two of the three major rating agencies have changed Romania's credit rating outlook to negative, placing the country at its lowest investment-grade level. This market repricing reflects growing concerns about the sustainability of Romania's fiscal trajectory and the government's ability to implement necessary reforms under the European Semester framework.   Excessive Deficit Procedure developments   Romania has been under the EU's Excessive Deficit Procedure (EDP) since 2020, making it one of the longest-standing cases amongst EU member states.   Key steps so far include:   • April 2020 – The Commission proposed (Opinion of 4?March 2020) and the Council adopted Decision (EU 2020/509) confirming an excessive-deficit situation in Romania (a deficit above 3% of GDP). The Council issued a Recommendation (Article 126(7) TFEU) demanding correction by 2022. • June 2021 – Owing to the pandemic downturn, the Council revised the EDP Recommendation and extended the correction deadline to 2024. Romania implemented some measures in late 2021. In November ?2021 the Commission concluded Romania had taken “effective action” under the June 2021 Recommendation, so no further immediate EDP steps were needed. (The EDP remained formally open, but in “abeyance”.) • 2023 – Fiscal outcomes began to deviate markedly from the Council’s 2021 roadmap. By end-2023 the deficit was about 6.6% of GDP (versus a 4.4% target) and net expenditure growth far above the recommended path. Romania’s structural balance barely improved, missing the adjustment benchmarks.   June–July 2024 – The Commission issued a formal report finding that Romania had taken “no effective action” to correct its excessive deficit. It proposed a Council Decision under Article 126(8) TFEU. On 26?July 2024 the Council adopted a Decision establishing the lack of action and requiring a revised approach.   • October 2024 – Under the new fiscal framework (Regulation 2024/1263), Romania submitted on 25 October 2024 its first medium-term fiscal-structural plan (covering 2025–31) with a fiscal adjustment path and reform commitments. • November 2024 – The Commission issued a Recommendation for a new Council Recommendation on Romania. This document endorsed Romania’s plan (with reforms) but noted that its trajectory only restores sustainability by 2031. • January 2025 – On 14?January 2025 the Council adopted the new Council Recommendation. It formally endorses Romania’s plan and sets strict conditions. In particular, it caps the nominal growth of net public expenditure, requires that Romania “put an end to the excessive deficit situation by 2030”, and establishes a deadline of 30 April 2025 for Romania to take effective corrective action and submit the measures. Thereafter Romania must report on progress at least every six months. • June 2025 – On 4 June 2025 the Commission highlighted that despite submitting a medium-term fiscal-structural plan in October 2024, Romania's efforts have fallen short, and that no effective action has been taken to address the excessive deficit. Specifically, its net expenditure growth has significantly exceeded the recommended limits, jeopardizing the goal of correcting the deficit by 2030. The Commission notes that there are no mitigating factors to justify Romania's deviation from the recommended fiscal path. Additionally, the country faces high medium-term fiscal sustainability risks, further complicating its economic outlook. In light of these issues, the Commission recommends that the Council formally acknowledge under Article 126(8) TFEU that Romania has not taken effective action in response to the January 2025 recommendation.   The next ECOFIN meetings are scheduled for 20 June and 8 July. Those occasions could provide the Council with an opportunity to adopt the Commission’s proposal. However, there is neither a deadline nor an obligation for adoption. It is also possible that the Romanian government may decide in the meantime to address Commission’s concerns and take action - such as implementing a budget reduction plan - in an effort to prevent the Council from adopting the decision. The Impact of the EDP on the European Structural and Investment Funds and the Recovery and Resilience Facility   If the Council endorses the Commission's recommendation that Romania has not taken effective action under the EDP, the Commission shall propose the suspension, in whole or in part, of commitments or payments under programmes related to the European Structural and Investment (ESI) Funds (Article 23(9) of Regulation 2013/1303, hereinafter referred to as Common Provision Regulation, CPR) and the Recovery and Resilience Facility (Article 10(1) of Regulation 2021/241, hereinafter referred to as Recovery and Resilience Facility Regulation, RRFR).   The legislation does not provide any room for discretion. Article 23 of CPR and Article 10 of RRFR are "shall" provisions, meaning that non-effective action under the EDP automatically triggers a proposal for suspension by the Commission. However, neither the CPR nor the RRFR foresee any deadline for its presentation.   In both the context of the ESI Funds and the RRF Funds, it is important to distinguish between the suspension of commitments and the suspension of payments, as the two measures have different procedural requirements and financial implications. For the ESI Funds, a suspension of commitments refers to the freezing of future budgetary allocations, meaning that no new funding can be committed to programmes starting from the year following the adoption of the suspension decision. This does not affect ongoing projects or past commitments.   By contrast, a suspension of payments has an immediate financial impact, as it blocks the reimbursement of expenditure already incurred by the Member State. In the case of the RRF, the distinction follows a similar logic, though within a different financial framework. A suspension of commitments implies that future disbursements foreseen in the financial envelope for a Member State may not be authorised, effectively preventing access to upcoming funding tranches.   A suspension of payments, on the other hand, directly halts the disbursement of funds related to milestones and targets that have already been assessed. Procedurally, for both ESI and RRF Funds (see Article 23(10) of the CPR and Article 10(3)), a commitment suspension is adopted through a “reverse qualified majority" procedure - meaning it enters into force unless the Council blocks it within one month - while a payment suspension must be approved through a formal Council implementing act. Due to its more immediate and direct consequences, the suspension of payments is generally considered more disruptive. (The whole document: https://www.europarl.europa.eu/RegData/etudes/BRIE/2025/764360/ECTI_BRI(2025)764360_EN.pdf)