               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 538 final
            Recommendation for a
            COUNCIL DECISION
            establishing that no effective action has been taken by Romania in response to the Council Recommendation of 4 December 2018
            {SWD(2019) 533 final}

               Recommendation for a

               COUNCIL DECISION

               establishing that no effective action has been taken by Romania in response to the Council Recommendation of 4 December 2018

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               Having regard to Council Regulation (EC) No 1466/97
                  1
               , and in particular Article 10(2), fourth subparagraph, thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)In June 2017 and June 2018, the Council found in accordance with Article 121(4) of the Treaty that a significant observed deviation from the medium-term budgetary objective or from adjustment path towards it existed in Romania. On each occasion, in view of the established significant deviation, the Council issued a Recommendation for Romania to take the necessary measures to address the significant deviation.

               (2)On 4 December 2018 the Council concluded
                  2
                that Romania had not taken effective action in response to the Council Recommendation of 22 June 2018
                  3
               . On that basis, on 4 December 2018 the Council issued a revised Recommendation
                  4
                for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure did not exceed 4.5% in 2018, corresponding to an annual structural adjustment of 1.0% of GDP. It also recommended that Romania use any windfall gains for deficit reduction, and that budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner. The Council established a deadline of 15 April 2019 for Romania to report on the action taken in response to the Recommendation of 4 December 2018.

               (3)On 14 and 15 March 2019, the Commission undertook an enhanced surveillance mission to Romania for the purpose of on-site monitoring under Article -11(2) of Regulation (EC) No 1466/97. After having transmitted its provisional findings to the Romanian authorities for comments, on 5 June 2019 the Commission reported its findings to the Council. Those findings were made public. The Commission report finds that the Romanian authorities do not intend to act upon the Council Recommendation of 4 December 2018. The authorities confirmed to the Commission that the government has no intention to comply with the recommended structural adjustment. They continue to focus on maintaining the headline deficit below the 3% of GDP Treaty threshold, thus aiming to avoid the corrective arm of the Stability and Growth Pact. The 2019 budget targets an accrual deficit target of 2.8% of GDP. According to the government’s own estimates at the time of the mission, that headline would entail a structural adjustment of around 0.1% compared to 2018, significantly short of the Council Recommendation.

               (4)On 20 April 2018, after the deadline established by the Council, the Romanian authorities submitted a report on action taken in response to the Council Recommendation of 4 December 2018. In the report, the authorities reiterated that their targets for 2019 are a headline deficit of 2.8% of GDP and only a marginal decrease of the structural deficit. The fiscal impact of the reported measures falls significantly short of the requirement stated in the Council Recommendation.

               (5)In 2019, based on the Commission spring 2019 forecast, the growth of net primary government expenditure is set to amount to 11.6%, well above the expenditure benchmark of 4.5%. The structural balance is set to deteriorate by 0.7% of GDP in 2019, reaching a deficit of 3.6% of GDP. This is the opposite of the recommended structural improvement of 1.0% of GDP relative to 2018. Therefore, both pillars point to a deviation from the recommended adjustment. The expenditure benchmark points to a deviation of 2.1% of GDP. The structural balance confirms that reading, indicating a somewhat smaller deviation of 1.7% of GDP. The size of the deviation indicated by the structural balance is smaller because of a revenue windfall and a higher GDP deflator. Taking these factors into account, the overall assessment confirms a deviation from the recommended adjustment.

               (6)The projected increase of the deficit compared to 2018 is largely driven, as in previous years, by increasing expenditures on the compensation of public employees. Since the Commission autumn 2018 forecast, which was the basis for the Council Recommendation of 4 December 2018, the authorities have enacted new taxes on the telecommunication, energy and banking sectors. On the other hand, the authorites granted tax cuts in the construction sector and increased some social benefits.

               (7)The above findings lead to the conclusion that Romania's response to the Council Recommendation of 4 December 2018 has been insufficient. The fiscal effort falls significantly short of the annual structural adjustment of 1.0% of GDP for 2019, corresponding to a nominal growth rate of net primary government expenditure that does not exceed 4.5% in 2019,

               HAS ADOPTED THIS DECISION:

               Article 1

               Romania has not taken effective action in response to the Council Recommendation of 4 December 2018.

               Article 2

               This Decision is addressed to Romania.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 323, 19.12.2018, p. 16.

                     (3)

                        OJ C 223, 27.6.2018, p. 3.

                     (4)

                        OJ C 460, 21.12.2018, p. 1.


               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 533 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania
            {SWD(2019) 533 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective

                  in Romania

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular the second sub-paragraph 10(2),  thereof,

               Having regard to the recommendation of the Commission,

               Whereas:

               (1)In accordance with Article 121 of the Treaty Member States are to promote sound public finances over the medium term through the coordination of economic policies and multilateral surveillance in order to avoid the occurrence of excessive government deficits.

               (2)The Stability and Growth Pact (SGP) is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.

               (3)In June 2017
                  2
                and June 2018
                  3
                the Council found in accordance with Article 121(4) of the Treaty that in, respectively, 2016 and 2017, there had been a significant observed deviation from Romania’s medium-term budgetary objective or from the adjustment path towards it. In view of those established significant deviations the Council issued Recommendations for Romania to take the necessary policy measures to address them. The Council subsequently found that Romania had not taken effective action in response to those Recommendations. In its most recent Recommendation, adopted on 4 December 2018
                  4
                the Council recommended that Romania take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  5
                does not exceed 4.5% in 2019, corresponding to an annual structural adjustment of 1.0% of GDP.

                (4)In 2018, based on the Commission 2019 spring forecast and the 2018 outturn data validated by Eurostat, the growth of net primary government expenditure was well above the expenditure benchmark, pointing to a significant deviation by a large margin (deviation of 2.4% of GDP). The structural deficit was not reduced, remaining broadly stable at around 3.0% of potential GDP, also pointing to a significant deviation from the recommended structural adjustment (a deviation of 0.8% of GDP). The size of the deviation indicated by the structural balance is negatively impacted by a revenue windfall, by a higher GDP deflator and by higher underlying estimate of potential GDP growth as compared to the medium-term average underlying the expenditure benchmark. On the other hand, the size of the deviation indicated by the structural balance is positively impacted by low public investment expenditures, which are smoothed out in the expenditure benchmark. Irrespective of that difference, both indicators confirm a significant deviation from the requirements of the preventive arm of the SGP in 2018.

               (5)On 5 June 2019, following an overall assessment, the Commission considered that a significant observed deviation from the adjustment path toward the medium-term budgetary objective exists in Romania and issued a warning to Romania in accordance with Article 121(4) of the Treaty and the first subparagraph of Article 10(2)  of Regulation (EC) No 1466/97.

               (6)In accordance with the second subparagraph of Article 10(2) of Regulation (EC) No 1466/97 the Council is to address a recommendation to the Member State concerned to take the necessary policy measures. Regulation (EC) No 1466/97 provides that the recommendation will set a deadline of no more than five months for the Member State to address the deviation. On that basis a deadline of 15 October 2019 for Romania to address the deviation appears appropriate. Within that deadline, Romania should report on action taken in response to this Recommendation.

               (7)Based on the output gap projections of the Commission 2019 spring forecast, Romania will remain in normal economic times in 2019 and 2020. Romania's general government debt ratio is below the 60% of GDP threshold. Henceforth, the minimum required structural effort prescribed by Regulation (EC) No 1466/97 and the commonly agreed adjusment matrix under the SGP, which factors in the prevailing economic circumstances and possible sustainability concerns, amounts to at least 0.5% of GDP for both 2019 and 2020.

               (8)Romania's structural deficit has gradually increased, from 0.1% of GDP in 2015 to 1.7% of GDP in 2016, 2.9% of GDP in 2017 and 3.0% of GDP in 2018. An additional and persistent effort necessary to correct for the cumulated deviation and to bring Romania back on an appropriate adustment path following the persistent slippages accumulated since 2016 should complement the minimum adjustment requirement. An additional effort of 0.5% of GDP in 2019 and 0.25% of GDP in 2020 seems appropriate given the magnitude of the observed significant deviation from the recommended adjustment path towards the medium-term budgetary objective. Such an effort would be in line with the adjustment recommended for 2019 by the Council on 4 December 2018. It will accelerate the adjustment back towards the medium-term budgetary objective.

               (9)The required improvement of the structural balance by 1.0% of GDP in 2019 and 0.75% of GDP in 2020 is consistent with the nominal growth rate of net primary government expenditure not exceeding 4.5% in 2019 and 5.1% in 2020.

               (10)The Commission 2019 spring forecast projects a further deterioration of the structural balance by 0.7% of GDP in 2019 and by a further 1.2% of GDP in 2020. Therefore, the required structural improvement translates into the need to adopt measures of a total structural yield of 1.7% of GDP in 2019 and additonal measures of a structural yield of 1.95% of GDP in 2020 compared to the current baseline in the Commission 2019 spring forecast.

               (11)The Commission 2019 spring forecast projects a general government deficit of 3.5% of GDP in 2019 and 4.7% of GDP in 2020, which is above the 3% of GDP Treaty reference value. The required structural adjustment seems also appropriate to ensure that Romania respects the 3% of GDP Treaty reference value in 2019 and 2020 with a margin.

               (12)The failure to act upon earlier recommendations to correct the observed significant deviations and the risk of exceeding the Treaty reference value of the corrective arm of the Stability and Growth Pact call for urgent action to put Romania’s fiscal policy back on a prudent path.

               (13)In order to achieve the recommended budgetary targets, it is crucial that Romania adopts and strictly implements the necessary measures and monitors the development of current expenditure closely.

               (14)Romania should report to the Council on action taken in response to this Recommendation by 15 October 2019.

               (15)It is appropriate that this Recommendation be made public,

               HEREBY RECOMMENDS THAT ROMANIA:

               (1)take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 4.5% in 2019 and 5.1% in 2020, corresponding to an annual structural adjustment of 1.0% of GDP in 2019 and 0.75% in 2020, thereby putting the Member State on an appropriate adjustment path toward the medium-term budgetary objective;

               (2)use any windfall gains for deficit reduction; budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner;

               (3)report to the Council by 15 October 2019 on action taken in response to this Recommendation; the report should provide sufficiently specified and credibly announced measures with a view to complying with the required adjustment path, including budgetary impact of each of them, as well as updated and detailed budgetary projections for 2019-2020.

               This recommendation is addressed to Romania.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ C 216, 6.7.2017, p. 1

                     (3)

                        OJ C 223, 27.6.2018, p. 3.

                     (4)

                        OJ C 460, 21.12.2018, p. 1.

                     (5)

                        Net primary government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.


               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 543 final
            Recommendation for a
            COUNCIL DECISION
            abrogating Decision 2009/417/EC on the existence of an excessive deficit in Spain

               Recommendation for a

               COUNCIL DECISION

               abrogating Decision 2009/417/EC on the existence of an excessive deficit in Spain

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 126(12) thereof,

               Having regard to the recommendation from the Commission,

               Whereas:

               (1)On 27 April 2009, following a recommendation from the Commission, the Council decided, by Decision 2009/417/EC
                  1
               , in accordance with Article 126(6) of the Treaty, that an excessive deficit existed in Spain. The Council noted that the general government deficit notified for 2008 was 3,4 % of GDP, thus above the 3%-of-GDP Treaty reference value. The general government gross debt was planned at 39.5% of GDP in 2008.

               (2)On the same date, in accordance with Article 126(7) of the Treaty and Article 3(4) of Regulation (EC) No 1467/97
                  2
               , the Council, based on a recommendation from the Commission, issued a recommendation to Spain with a view to bringing the excessive deficit situation to an end by 2012 at the latest
                  3
               .

               (3)Thereafter, the Council addressed three new recommendations to Spain (on 2 December 2009, 10 July 2012, and 21 June 2013) on the basis of Article 126(7) of the Treaty, which extended the deadline for correcting the excessive deficit to 2013, 2014, and 2016 respectively. In all three recommendations, the Council considered that Spain had taken effective action, but unexpected adverse economic events with major unfavourable consequences for government finances had occurred.

               (4)On 12 July 2016, the Council under Article 126(8) of the Treaty established that no effective action had been taken by Spain in response to the Council recommendation of 21 June 2013. On 8 August 2016, on the basis of Article 126(9) of the Treaty, the Council gave notice to Spain to take measures for the deficit reduction judged necessary in order to remedy the situation of an excessive deficit, thereby setting a new deadline for the correction by 2018. The Council also set a deadline of 15 October 2016 for effective action to be taken and for submitting a report to the Council and the Commission on action taken in response to the Council notice.

               (5)On 16 November 2016, the Commission concluded that Spain had taken effective action in compliance with Council Decision of 8 August 2016 under Article 126(9) of the Treaty.

               (6)In accordance with Article 4 of the Protocol on the excessive deficit procedure annexed to the Treaties, the Commission provides the data for the implementation of the procedure. As part of the application of that Protocol, Member States are to notify data on government deficits and debt and other associated variables twice a year, namely before 1 April and before 1 October, in accordance with Article 3 of Regulation (EC) No 479/2009
                  4
               .

               (7)The Council takes a decision to abrogate a decision on the existence of an excessive deficit on the basis of notified data. Moreover, a decision on the existence of an excessive deficit should be abrogated only if the Commission forecasts indicate that the deficit will not exceed the 3%-of-GDP Treaty reference value over the forecast horizon
                  5
               .

               (8)Based on data provided by the Commission (Eurostat) in accordance with Article 14 of Regulation (EC) No 479/2009, following the April 2019 notification by Spain, the 2019 Stability Programme and the Commission 2019 spring forecast, the following conclusions are warranted:

               –After reaching 3.1% of GDP in 2017, the general government deficit was reduced to 2.5% of GDP in 2018. Compared with the projections in the 2019 Draft Budgetary Plan submitted in October 2018, the 2018 deficit turned out 0.2 percentage point lower, thanks to a 0.3 percentage point higher revenue-to-GDP ratio being only partly offset by a 0.1 percentage point higher expenditure ratio. On the revenue side, both corporate income tax revenues and other revenues turned out higher, whereas on the expenditure side, compensation of employees turned out somewhat higher.

               –The Stability Programme for 2019-2022, submitted by the Spanish government on 30 April 2019, plans the general government deficit to decline to 2.0% of GDP in 2019 and to fall to 1.1% of GDP in 2020. The Commission 2019 spring forecast projects a deficit of 2.3% of GDP in 2019 and 2.0% of GDP in 2020, thus remaining below the 3%-of-GDP Treaty reference value over the forecast horizon.

               –The structural balance, which is the general government balance adjusted for the economic cycle and net of one-off and other temporary measures, remained unchanged between 2017 and 2018. The accumulated improvement in the structural balance since 2016 amounted to 0.4% of GDP.

               –The gross government debt-to-GDP decreased to 97.1% in 2018, from 98.1% in 2017, mainly due to the debt-reducing impact of real growth and inflation more than offsetting the opposite impact of interest expenditure, while the primary balance is close to zero. The Commission 2019 spring forecast projects the debt ratio to decrease to 96.3% in 2019 and 95.7% in 2020 mainly due to high nominal growth that outweighs the impact of debt-increasing stock-flow adjustments and interest expenditure, while the primary balance is improving only slightly.

               (9)In accordance with Article 126(12) of the Treaty, a Council Decision on the existence of an excessive deficit is to be abrogated when the excessive deficit in the Member State concerned has, in the view of the Council, been corrected.

               (10)In the view of the Council, the excessive deficit in Spain has been corrected and Decision 2009/417/EC should therefore be abrogated.

               (11)As from 2019, the year following the correction of the excessive deficit, Spain is subject to the preventive arm of the Stability and Growth Pact and should progress towards its medium-term budgetary objective at an appropriate pace, including respecting the expenditure benchmark, and comply with the debt criterion in accordance with Article 2(1a) of Regulation (EC) No 1467/97,

               HAS ADOPTED THIS DECISION:

               Article 1

               From an overall assessment it follows that the excessive deficit situation in Spain has been corrected.

               Article 2

               Decision 2009/417/EC is hereby abrogated.

               Article 3

               This Decision is addressed to the Kingdom of Spain.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        Council Decision 2009/417/EC of 27 April 2009 on the existence of an excessive deficit in Spain (OJ L 135, 30.5.2009, p. 25).

                     (2)

                        Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

                     (3)

                        All documents related to the excessive deficit procedure of Spain can be found at:
                  https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact/corrective-arm-excessive-deficit-procedure/ongoing-excessive-deficit-procedures/spain_en
                   .

                     (4)

                        Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (OJ L 145, 10.6.2009, p. 1).

                     (5)

                        In line with the “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, adopted by the Economic and Financial Committee on 15 May 2017, available at:
                  http://data.consilium.europa.eu/doc/document/ST-9344-2017-INIT/en/pdf