Romania has to bring down the deficit to 3 pc by 2011Updated: 25-06-2009 |

The European Commission has opened the excessive deficit procedure against ten EU member states including Romania, who exceeded the three per cent admissible threshold in 2008 to 5.4 per cent.

The excessive deficit was the result of bigger expenditures than those planned, mainly with public sector wages as well as social transfers. Moreover, the Commission has also acknowledged a poorer public revenue collection rate in the last two months of 2008 in the context of the economic crisis, which deepened the public deficit even further. The European Commission had originally announced a flexibility of the Growth and Stability Pact stipulating the three per cent budget deficit limit, in November 2008, because of the economic crisis but only applicable in 2009.

By its excessive deficit procedure, the Commission recommends corrective measures to the member states that have exceeded the cap of three per cent of their gross domestic product in order to help them become compliant. The Commission proposes to the Council of the Finance Ministers the opening of the procedure, but the Council has the ultimate decision-making power. Romania has been given the deadline of 2011 to comply with the three per cent of the GDP threshold condition.

In May, the Commission sent an early warning report to all interested states. If no corrective action is taken by the member state, the Commission publishes its recommendations which, in a first phase, are only sent to the country in question that is given a deadline to reduce its deficit. The Council may fine the member state - if it belongs to the Euro zone - and if it is unwilling to deal with the issue of excessive deficit, or may take measures concerning the allocations from the EU budget to that particular member state, if the country is not in the Euro-zone.

The excessive deficit procedure has so far been opened against 15 member states including Great Britain and Hungary, who are currently being monitored. Other countries that have been subject to the excessive deficit procedure are Germany, in 2002, France, in 2003, The Czech Republic, Poland, Slovakia, Cyprus, Malta, The Hellenic Republic and The Netherlands, in 2994. The record is held by Portugal, for which the procedure has been opened three times - in 2002, 2004 and 2005.

The state should act as an investor

In 2010, Romania will also have a budget deficit larger than the EU three per cent requirement, Central Bank (BNR) governor's adviser Adrian Vasilescu stated yesterday. The BNR official noted it was a good thing that the Ministry of Finance was borrowing from banks. 'The banks have a very good customer - the Ministry of Finance.

The institution borrows from banks and will continue to do so for a while. As far as I can tell, it is a good thing for the Finance Ministry to do that at a time when there is budget deficit', he said. According to Vasilescu, the Ministry of Finance borrows money from the banks to pay salaries and pensions, therefore all that money goes back into the economy.

'It would be a desirable thing for the money coming from the banks to the Ministry of Finance to also be re-directed towards investments, and the state should act as an investor', Vasilescu said. He warned about the fact that the banks would have to re-start retail lending if they lose the Ministry of Finance as a client. 'There may be a point when the Ministry of Finance disappears from the borrowing market , because it may benefit from various foreign loans. In such an eventuality, the banks would need to go back to their retail customers' explained the BNR adviser.

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