Romania, among high class defaulters

After exceeding the 3% budget deficit threshold this year, Romania could fall under the excessive deficit procedure, together with other countries in the European Union, such as Spain, Hungary, or the Baltic countries, according to the Stability and Growth Pact which governs the member states, said Euro Parliament Member Daniel Dăianu. "The European Commission (CE) is aware of the fact that in times of recession state budget earnings are diminished and budget execution must be anti-cyclical in nature (by increasing state budget expenses -ed. note), but it is normal that this procedure be launched, according to the law", Mr. Dăianu said. He explained that a cut in spending at a time like this would affect the economy even more, but there is the risk that countries in the Community persist in using very big budget deficits, and the Commission should prevent this from occurring. "Persisting in accumulating excessive budget deficits could lead to increased overall risk for the Euro area", Daniel Dăianu added.

This year, the European Commission estimates an average budget deficit for the European Union of over 4,4%, and the deficit of countries such as Spain, Ireland or Great Britain, could exceed this average.

The EU"s Monetary and Economic Affairs Commissioner Joaquin Almunia recently states, that whenever the state budget deficit exceeds 3% of the GDP (except for countries where the deficit is a temporary and exceptional situation and is kept close to the limit), the Commission will propose the beginning of budget monitoring to help member states adjust their deficit. This is essential to ensure the credibility of the European Union and investors" trust that the deterioration of public finances and of debts will recover once the crisis is over, he added.

On February 18th, the Commission will examine the stability and convergence programs of the member countries which presents the budget forecasts for the coming years. Amelia Torres, spokesperson for Commissioner Almunia, said: "Only projects which reach the Commission on time will be reviewed".

On the same date, the Commission will initiate the monitoring reports for countries which have an excessive budget deficit. "Romania"s report has not yet reached the Commission, as, right now the priority is the passing of the budget for 2009", the spokesperson said, who added that another group of countries will be reviewed on February 25th.

In 2008, Romania"s state deficit, calculated according to the European standards, reached a record low 5.2% of the GDP, shooting past the 3% threshold that members of the European Union must comply with. The budget deficit scheduled by the Government for this year is 2% of the GDP.

The Romanian Minister of Finance, Gheorghe Pogea, recently said that exceeding the level of 3% of GDP of the budget deficit allowed by the Stability and Growth Pact places Romania in the situation of getting the excessive deficit procedure. The Minister had previously said that if it shown that excessive national budget deficits are found to have been caused by the economic crisis, the countries in question might be given a little leniency. Otherwise, it"s likely that each country will have to bear the consequences, Gheorghe Pogea explained.

• The excessive deficit procedure

The excessive deficit procedure is part of the law that governs the European Union, the Stability and Growth Pact, which provides that all member states must avoid having their deficit exceed 3% of their GDP. The European Commission appraises the status of the budget deficit and the Union"s Council decides whether a certain country has exceeded its deficit or not.

Once a decision is made, and the country gets that procedure, the Council makes a series of recommendations to the country in question, first and foremost for rectifying the situation in a given time frame. If recommendations are not fulfilled, the council can impose a series of steps towards recovery. It can choose to impose penalties upon the state experiencing an excessive deficit and can have the European Central Bank reconsider its policy on lending to the country in question.