ECOFIN approve excessive deficit procedure against six member states

During the ECOFIN meeting, European Finance Ministers okayed the European's Commission proposal to open an excessive deficit procedure against six EU member states - Latvia, Lithuania, Malta, Poland, Hungary and Romania. The European officials recommended Romania to fulfill the political commitments it assumed through the agreement signed with the European executive and the IMF.

According to the European Commissioner in charge with Economic and Monetary Affairs, Joaquin Almunia, the financial support negotiated with the two institutions will be made available only when the country fulfills its commitments and private banks will provide, in their turn, the promised financial support only when Romanian authorities will comply with the objectives and deadlines they assumed.

The European Finance Ministers asked Romania to make concrete steps toward meeting its budget-related targets for 2010 and 2011, but they agreed to delay for one year, until 2012, the medium-term target of a budget deficit equivalent to 0.9 pc of the GDP. The proposal sent by the Commission to ECOFIN ministers mentions that the government's gross debt in 2008 stood at 13.5 pc of the GDP and will climb to 22 pc in 2011.

On the other hand, the Finance ministers also warned Romania about the risks that would be posed by the worsening of the macroeconomic situation, the skids in the salaries of public servants, already observed since the beginning of 2009, or even by eventual budget pressures in an electoral year.

According to the EC recommendations, Romania will have to create a short-term framework budget and an independent fiscal council, to set limits for the budget revisions made during the fiscal year, and to restructure its wage system in the public sector and the public pensions system. With respect to fiscal management, the EC recommends improving the tax collection via a reform of the administration and by widening the taxation basis.
Last March, Romania reached an agreement for a total financing worth EUR 19.95 bln, made available over a two-year period, of which EUR 12.95 bln will be provided by the International Monetary Fund (IMF), EUR 5 bln by the European Commission, EUR 1 bln by the World Bank and EUR 1 bln by the European Bank for Reconstruction and Development (EBRD) jointly with the European Investment Bank (EIB) and the International Finance Corporation (IFC). The money from the IMF will go to the Central Bank, in view of supporting the forex reserves, the sums from the EC and World Bank are aimed at covering the budget deficit and the remaining EUR 1 bln is for banks, to support the crediting process.
On the other hand, Commissioner Almunia added that the EC has not received any request from Romania regarding an increase in the budget deficit target agreed with the IMF and the Commission, and the Union's financial support depends on the implementation of this programme.

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