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IP/10/1146

Brussels, 21 September 2010

Commission concludes effective action was taken by Lithuania and Romania in excessive deficit procedure

The European Commission today assessed the action taken by Lithuania and Romania in response to the Council recommendations of 16 February 2010 relating to the correction of their respective excessive government deficits. The Commission concluded that the authorities have acted in accordance with the recommendations.

"Lithuania and Romania have undertaken adequate steps towards correcting their budget deficits. Both countries are on track to bring their deficits to below 3% by he agreed deadlines, but they need to pursue their efforts to ensure this really happens", said Economic and Monetary Affairs Commissioner Olli Rehn.

The Commission considers that the Lithuania and Romania have taken effective action and that no further steps in the excessive deficit procedure are needed at present.

Lithuania

On 16 February 2010, the Council recommended to implement fiscal consolidation in 2010 as planned in the budget for 2010 and to outline the consolidation strategy towards the correction of the excessive deficit by 2012. It appears that Lithuania has taken effective action.

The Lithuanian authorities have implemented significant corrective fiscal measures as planned in the 2010 budget, estimated to generate savings of above 3% of GDP. The Lithuanian authorities already adopted several measures for 2011 and have outlined in some detail the consolidation strategy that is necessary to progress towards the correction of the excessive deficit by 2012, the deadline recommended by the Council, but substantial adjustment is still needed in the coming years. The 2011 budget to be adopted in autumn should include further significant measures, also replacing temporary measures with more lasting and structural measures, which would contribute to strengthening the quality of the consolidation, thus supporting long-term sustainability of public finances. Furthermore, it would be important for the government to aim at accelerating the consolidation and over-achieving the targets to the extent that economic and budgetary conditions are turning out better than previously expected. The Lithuanian authorities have initiated work to strengthen the enforceability of the medium-term fiscal framework and the budget execution monitoring and also pursued structural reforms, especially of the social security system, which should improve long-term sustainability of public finances. These measures are welcome and the authorities are invited to step up their efforts in these areas.

Romania

On 16 February the Council recommended Romania to put an end to the present excessive deficit situation by 2012. The Romanian authorities should bring the general government deficit below 3% of GDP in a credible and sustainable manner by taking action in a medium-term framework. Based on current information, it appears that Romania has taken effective action.

The implementation of additional fiscal consolidation measures of around 5% of GDP on an annual basis (including a 25% cut in public wages, a 15% cut in social benefits excluding pensions and an increase in the VAT rate from 19% to 24%) has put Romania on track to achieve the 2010 government deficit target of 7.3% of GDP agreed in the context of the multilateral financial assistance programme. In addition, large carry-overs from the 2010 fiscal consolidation measures and the planned additional savings on the expenditure side should allow a further reduction of the deficit to below 5% of GDP in 2011. Moreover, Romania remains committed to reducing its deficit below 3% of GDP in 2012, and this objective appears attainable. The measures taken by Romania following the Council Recommendation are an important step towards restoring a sustainable fiscal position and macroeconomic stability.

Background: the excessive deficit procedure

The excessive deficit procedure (EDP), representing the corrective arm of the Stability and Growth Pact, is regulated by Article 126 of the Treaty and is further clarified in Council Regulation (EC) No 1467/97. Revised in 2005, the Pact allows the economic situation to be taken into account when making recommendations on the timetable for the correction.

When a Member State reports an actual or a planned deficit higher than 3% of GDP, the Commission addresses a report under Article 126(3) to the Economic and Financial Committee (EFC), which formulates an opinion on it under Article 126(4). Next, if the Commission considers that an excessive deficit exists or may occur, it addresses and opinion to the Member State under Article 126(5) and informs the Council. Simultaneously, the Commission will also propose to the Council to decide that an excessive deficit exists under Article 126(6) and recommend the Council under Article 126(7) to issue recommendations to correct the excessive deficit by a given deadline.

In total, 24 EU countries are currently in EDP and have received Council Recommendations under Art. 126(7), setting deadlines to correct their deficit ranging from 2011 to 2014.

All documents relating to excessive deficit procedures are available at:

http://ec.europa.eu/economy_finance/articles/sgp/2010-09-21-edp_en.htm


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