Romania is currently facing a severe budget crisis, prompting the government to implement stringent austerity measures. These measures, including tax hikes and public sector wage freezes, have ignited widespread protests and political instability. The nation’s high budget deficit, the largest in the EU, has led to warnings from the European Commission and concerns about a potential credit rating downgrade.

Romania’s Fiscal Crisis Deepens

Romania’s budget deficit reached an alarming 9.3% of GDP in 2024, the highest in the European Union. This critical financial situation has triggered urgent action from the newly formed pro-European government, led by Prime Minister Ilie Bolojan. The government’s primary objective is to reduce the deficit to below 6% of GDP by next year, a move deemed essential to avoid a credit rating downgrade to junk status and potential EU sanctions.

Austerity Measures and Public Backlash

To tackle the soaring deficit, the government has introduced a comprehensive fiscal package. Key measures include:

  • An increase in the Value Added Tax (VAT).
  • Higher excise duties.
  • An increase in dividend tax.
  • A freeze on public sector wages and pensions through the end of 2026.
  • Spending caps across the public sector.

These austerity measures, while aimed at fiscal consolidation, have been met with significant public resistance. Trade unions representing healthcare and education sectors have organized protests, with further large-scale mobilizations, including potential general strikes, threatened for the beginning of the school year in September. Employers and unionists alike have criticized the new tax hikes, which are projected to generate 9.5 billion lei ($2.21 billion) in 2025 and 35 billion lei ($8.14 billion) in 2026.

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Political Turmoil and No-Confidence Vote

The government’s decision to fast-track the fiscal package through parliament has escalated political tensions. Prime Minister Bolojan’s use of a procedure that allows for a no-confidence vote has prompted the opposition, particularly the hard-right Alliance for Uniting Romanians (AUR), to announce their intention to file such a motion. The AUR, now Romania’s second-largest party, has seen a surge in popularity, with recent polls indicating they could win 40% of votes in an election, significantly outpacing the ruling Social Democrats.

Key Takeaways

  • Romania’s 2024 budget deficit of 9.3% of GDP is the highest in the EU.
  • The government’s austerity package includes VAT hikes, increased excise duties, and public sector wage/pension freezes.
  • Widespread protests from healthcare and education unions are ongoing, with threats of further action.
  • The government faces a no-confidence vote over the fiscal measures.
  • Former officials were reportedly warned about the escalating deficit as early as August 2024, but measures were not taken during the 2024 electoral year.

Warnings Unheeded and EU Scrutiny

An investigation by Europa Liberă Romania revealed that former President Klaus Iohannis and former Prime Minister Marcel Ciolacu were reportedly warned about the impending budget crisis as early as August 2024. Confidential documents indicated a risk of default if urgent measures were not taken. Despite these warnings, officials seemingly prioritized the 2024 electoral year over addressing the country’s financial woes. Romania’s failure to submit its annual progress report under the EU’s Excessive Deficit Procedure by the April deadline led to updated recommendations from the European Commission in June. The current government hopes the new fiscal package will demonstrate commitment to fiscal discipline, thereby averting further EU sanctions and a credit rating downgrade.

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Sources

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Emre Emehet
Emre Emehet
Emre Emehet is a 45-year-old journalist from the Balkans, best known for his dedication to telling stories that reflect the everyday lives of people in his region. Growing up in a small town in northern Bosnia, Emre always had an interest in local history and storytelling, which drew him to pursue a degree in journalism and communications at the University of Sarajevo. He wasn’t the top of his class, but his professors admired his practical approach and natural curiosity, qualities that would later define his career.

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