Romania Fails to Present Fiscal Package to EU Amid Political Deadlock

Romanian President Nicusor Dan. Photo: EPA-EFE/DUMITRU DORU.

Less than a month into his term, President Nicusor Dan is facing his first major test after Romania failed to submit a credible fiscal package to the European Commission on Friday, sparking concerns in Brussels and increasing the likelihood of a downgrade in Romania’s credit rating.

At the Economic and Financial Affairs Council, EcoFin, meeting, on Friday, Bucharest was expected to present a plan on cutting the budget deficit to around 7 per cent of GDP by the end of 2025. This is seen as essential for restoring investor confidence and meeting EU commitments.

But political deadlock in Romania has paralysed the reform agenda, with no functional government in place to approve the required measures.

This month, coalition talks between the Social Democrats, PSD, the Liberals, PNL, the right-wing Save Romania Union, USR, and the Democratic Alliance of Hungarians in Romania, UDMR, reportedly stalled amid disagreements over ministerial appointments and spending priorities.

Sources say the parties are struggling to reconcile the need for fiscal discipline with the pressure to deliver voter-friendly social programmes.

Economic approaches differ on reducing the public deficit, which reached 7.5 billion euros last year, or 9.3 per cent of GDP, more than triple the European Union’s recommended ceiling of 3 per cent.

A key proposal to rein in the deficit involves raising VAT from 19 to at least 21 per cent. However, the measure has sparked widespread opposition. Dan pledged during his presidential campaign that VAT would remain unchanged throughout his term. However, Ilie Bolojan, the Liberal Party leader widely seen as the frontrunner for prime minister, insists a VAT hike is essential.

Dan, who ran on a platform of transparency and institutional reform, faces growing criticism for what analysts describe as a passive approach to the ongoing crisis.

“Dan needs to bite the bullet and accept the VAT increase, even if it makes him appear dishonest in the public’s eyes,” said journalist Cristian Popescu.

“At this point, it’s vital that politicians act with reason and responsibility”, he added, so a new government can be formed quickly, and Romania is not pushed further into crisis.

Brussels has given Romania until early autumn to present a revised and credible fiscal strategy or face further action under the EU’s Excessive Deficit Procedure.

As EU finance ministers met in Luxembourg without a delegate authorised to speak for Romania, the country’s credibility in European circles continues to erode. Observers warn that unless the deadlock is resolved, Romania risks deeper isolation and growing economic instability.