Romania's Government is trying to convince the European Commission to accept a higher budget deficit target this year than the 4.4% of GDP level previously agreed. Finance minister Marcel Bolos pleaded for a deficit of 5.5% of GDP in a meeting with European Commission representatives in Brussels on August 29.

Romania's argument is that the country has incurred large and unpredicted expenses because of the war in Ukraine.

"There was an expectation from the Commission that the target of 4.4% of GDP was hard to meet. We also showed the causes, which were both internal and external in nature. These included the expenses on energy compensation for the population and the business environment as well as the expenses with the refugees from Ukraine, both along the lines of direct costs and indirect costs that we had. We also had costs with military spending – Romania increased its budget allocation from 2% to 2.5%," the Romanian finance minister told Digi24.ro.

He added that summing up these extraordinary expenses, Romania's GDP would come up 1.1% of GDP higher than the initial target for this year.

However, according to sources from the ruling coalition quoted by Libertatea, Romania's arguments and the measures proposed by the Government to reduce the budget deficit haven't convinced the EC officials.

"The European Commission doesn't trust Romania any more. A lot was promised and not fulfilled. They insisted on the lack of measures in the last year. This is Romania's main problem, the lack of trust," government sources told Libertatea.

Apparently, the EC officials also suggested some alternatives through which Romania could bring down its budget deficit, such as eliminating the reduced VAT rates for some categories of products, including food, increasing the dividend tax from 8% to 10%, and tightening the taxation of SMEs. Another potential solution is increasing the VAT rate from 19% to 21%, according to Ziarul Financiar.

A significant fiscal slippage in Romania could determine the European Commission to block the disbursement of EU funds. Prime minister Marcel Ciolacu will have a decisive meeting with EC president Ursula von der Leyen on Friday.

andrei@romania-insider.com

(Photo source: Inquam Photos/George Calin)