Romania fails to tackle excessive deficit as EU warns of economic risks

Romania is currently facing significant economic challenges highlighted by the European Commission’s latest analysis. The report, published on June 4, 2025, details that the country's net expenditures have escalated beyond the established limits, risking the correction of its excessive deficit by 2030. Fiscal and current account deficits in Romania have worsened, and there has been a noticeable decline in cost competitiveness over the past year. The high public deficit, driven largely by increases in public sector wages and pensions, has further deteriorated private consumption and exacerbated the country's substantial current account deficit. Overall, these issues indicate a troubling trend in Romania’s economic health that the European Commission finds concerning. Furthermore, the report notes the reduction in the resilience of Romania's external financial mix, previously upheld by substantial foreign direct investment and support from the European Union. As external debt grows, the outlook for government and current account deficits points only to marginal improvements in the coming years, specifically in 2025 and 2026. The report identified a slowing yet persistently high growth in unit labor costs and inflation, deepening the risks to macroeconomic stability. Political uncertainties have compounded the situation, threatening investor confidence and potentially spurring up borrowing costs for the country. In this context, the European Commission has urged the implementation of a medium-term fiscal-structural reform and tax adjustments aimed at reducing fiscal vulnerabilities. It has also called for essential structural reforms encapsulated in Romania's Risk Reduction Plan to bolster competitiveness, enhance export performance, and secure additional funding opportunities from the EU. To maintain fiscal stability and remain compliant with the Excessive Deficit Procedure, Brussels advocates for a strict tightening of fiscal policy to regulate net expenditures. Moreover, the Commission encourages Romania to expedite the execution of its Recovery and Resilience Plan, along with cohesion policy programs. In alignment with these recommendations, Romanian officials are also urged to enhance the quality and effectiveness of public administration, ensuring that legislative initiatives uphold legal certainty through thorough stakeholder consultations, accurate impact assessments, and simplified administrative procedures. These action points are essential for Romania to realign its economic trajectory toward stability and growth.