BRUSSELS — The European Commission has backed drastic measures announced by the new Romanian government to bring down its borrowing and avoid a blow-up with Brussels.
Newly-elected Romanian President Nicușor Dan is pushing a raft of measures including a public-sector pay freeze, an end to energy price caps, and a bumper VAT hike to bring down a deficit that in 2024 hit 9.3 percent of GDP, the widest in the EU.
The overspending led the EU executive last year to begin an Excessive Deficit Procedure against Romania, putting it on its list of countries under strict orders to curb their borrowing or else face sanctions. The Council’s approval on Tuesday removes for now the threat of Romania losing financial support from the EU.
Following a meeting of EU finance and economy ministers, European Commissioner Valdis Dombrovskis said Bucharest’s measures represented an “important and positive step toward complying with the new excessive deficit recommendation, provided all measures are swiftly legislated and implemented.”
The Commission will produce a follow-up assessment by autumn, he added.
In a speech given to parliament earlier this week Dan said he wanted to stop Romania’s debt falling to “junk” status, which would make the country essentially uninvestable.
The move also marks a shift in the EU’s attitude to Romania after the country came close to electing anti-establishment candidate George Simion in its national election earlier this year.
Dan’s proposed package of spending cuts and tax hikes is already proving unpopular, triggering street protests and prompting Simion to call for a no-confidence vote.
The last meeting saw European ministers blast the previous Romanian administration for not taking “effective action” to fix the country’s finances.
Elsewhere on Tuesday, Romania’s central bank said it expected the package of fiscal measures to push inflation up in the short term but would address some of its underlying causes. In doing so, it said the package would bring down Romania’s financing costs and support the leu’s exchange rate.
The Bank had spent an estimated €6 billion in May — nearly 10 percent of its total foreign reserves — in calming what ultimately proved to be a brief crisis of confidence in the local currency.
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