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PM Ciolacu: Brussels authorities flexible in accepting new budget deficit
Prime Minister Marcel Ciolacu declared on Friday, after meeting in Brussels with top European leaders, that there is flexibility at this moment regarding a new plan to adjust Romania's budget deficit, and that a relevant decision will be made by the end of the year.
"It's not the European Commission the one that approves a new budget deficit margin. It is obvious that Romania's effort to support Ukraine and the Republic of Moldova, and evidently as a war-bordering country - we have the longest border with Ukraine, the country ensnared in a totally incorrect armed conflict with Russia - has adverse influences, beginning with insurance and loan interests, because our country is at a higher risk than Austria, for example, which is further away from the Ukraine conflict," Ciolacu said when asked if the European Commission has accepted the increase in Romania's budget deficit.
The prime minister said that "the European Commission understood this entire context and our main argument".
"I am sure you know that Romania is in under an excessive deficit procedure, after a certain government and a certain prime minister who claims to know it all pushed Romania to a deficit of 9.2 percent; we are the only European state under an agreement with the European Commission regarding the cut of the deficit to 3 percent, as per the Maastricht Treaty," Marcel Ciolacu said.
"Following the arguments presented, there is flexibility for devising a new plan for Romania's deficit. As a next step, and also following the reforms we are about to implement in the country, the Commission will propose to the Council a renegotiation. This is the calendar. (...) We are not talking just numbers. The EC President, the Council and the Parliament Presidents are political people just like me. So things move to the technical area to identify the best solutions," the prime minister pointed out.
Asked when a decision will be made regarding the increase of Romania's pledged deficit, Ciolacu replied: "Definitely, until the end of the year."
"As you well know, Romania is represented at the Council by the President of Romania. For this reason, before this trip I had a phone discussion with the President, which I consider was the normal thing to do," Ciolacu added.
Regarding the deficit margin that Brussels could accept, Ciolacu explained: "There's a basic rule. Last year we kept within a deficit of 6.2 percent. Romania cannot come this year with a deficit greater than 6.2 percent, neither can the deficit reduction be less than 0.5 percent."
"We stick to our political pledge: to keep the Defense budget this year at 2.5 percent," the prime minister also said.
Asked what chunk of the deficit does the assistance to Ukraine and the Republic of Moldova account for, Marcel Ciolacu replied that according to Romania's estimates this share exceeds 3.5 percent, but that according to the Commission it is around 1.5 percent, not including Romania's new commitment to increase the Defense budget from 2 to 2.5 percent of GDP.
He added that at his meetings in Brussels with European officials he made it very clear that, in his capacity as head of the government of Romania, he does not agree with the increase of the VAT rate past 19 percent, noting that he also addressed the issue of the budget deficit amid the current geostrategic and security reality.
"I met today with all the European leaders. We had a normal, constructive, and - most of all - integrated dialogue. We discussed the National Recovery and Resilience Plan (PNRR) at length, stressing that Romania has implemented the reforms undertaken in the PNRR without exception. We discussed the amendment of the PNRR because we cannot submit payment request No. 3 without the 2.1 billion euro cut in PNRR grants and the Repower EU chapter. Both chapters were closed. I knew we were going to also have a discussion on special pensions, following the ruling of the Constitutional Court of Romania, that's why I was accompanied today by a technical team from the Justice Ministry and the Ministry of European Funds. As expected, we also tackled the issue of the budget deficit, against the current geostrategic background and security crisis. Without exception, all the European leaders wanted to thank the Romanians, in the first place, for their efforts in supporting the two states, Ukraine and the Republic of Moldova, one engaged in an armed war, the other in a hybrid war," Ciolacu told a press conference at the end of his visit to Brussels.
He mentioned that he will take responsibility in Parliament for the package that will include administrative reform, the combat of tax evasion and "fiscal adjustments".
"The legislative package I will take responsibility for in the Parliament of Romania will be three-pronged, including administrative reform with both central and local components, the fight against tax evasion, which in Romania is currently estimated at 10 percent of GDP, and also the fiscal adjustments," the prime minister added.
Ciolacu also said that "Romania is a credible, responsible and, above all, fair partner of both the Council, the Commission and the European Parliament."
Asked about the cut of the budget deficit, the prime minister said: "The technical commissions remained with Recovery and Resilience Task Force head, Mrs. Céline Gauer, to discuss certain aspects. Technical talks will continue next week as well."
"However, we laid down the principles. I announced very clearly that, as prime minister of Romania, I do not agree that we should raise the VAT rate above 19 percent, a move that would obviously trigger an increase in inflation and an economic downturn. A VAT rise by one percentage point would bring about an inflation of 0.5 percent. It's the first time in almost 2 years that we managed to bring inflation down to a single digit and we will continue to lower it as much as possible, this is the only way we can increase the Romanians' purchasing power," Marcel Ciolacu explained.