Romania suffers from the twin deficiency syndrome  »

If Romania will not diminish the budget deficit considerably could lose confidence in the lion, we could attend capital outings in the country, there would be high pressures to the depreciation of the national currency, it is shown in the introduction of the report of the convergence ‘Romania-Euro Monitor’ area, no. 18 of 2025 ‘the transatlantic relationship at great anxiety. What will the EU do? ‘

‘If the annualized impact of the recalculation of pensions is considered, the budget deficit in 2024 exceeded that of the pandemic year (out of 2020) – when it was 9.2% of GDP! This denotes budget executions sprinkled with reckless budget construction and considerable skids, underestimating the need for fiscal consolidation ‘, is said in the introduction signed by the academic Daniel Dăianu.

According to the quoted source, at the end of 2024 the public debt of the country had exceeded 54% of GDP and its growth speed is fast.

‘Those who with great lightness show that other EU states have considerably superior public debts go on an erroneous argumentation; Romania is not in the euro area, there is currency risk, and high budget deficits make access to financing, can induce nerve reactions of markets. Those who say that other states have large budget deficits and we should not be worried do not judge the whole picture. For example, Poland had a budget deficit of 6.6% of GDP in 2024, but also a current account deficit of under 1% of GDP – which in Romania was over 8% in 2024. Moreover, defense expenses in Poland were 4.7% of GDP in 2024. 5% of GDP. Such figures are grieving. The precarious state of the public budget of Romania, with very low tax revenues (including contributions) (26-27 percent of GDP, compared to over 40% in the EU, compared to 34-35% in the countries in the region), is a huge handicap, « says Daniel Dăianu.

The author specifies that to make a correction of great amplitude when the international environment is more than unfavorable, when you are obliged to allocate more resources for defense, it is an extremely difficult mission.

According to the report, fiscal consolidation can not be done only on the expense side; a considerable increase in tax revenues is required.

‘It is repeated, fiscal consolidation is necessary and because Romania suffers from the’ twin deficits’ syndrome; To the very high budget deficit is added a very high current account. In 2024, as mentioned above, the latter exceeded 8% of GDP and over 60% of the financing was through borrowed resources. Romania’s current account deficit is among the largest (as a percentage of GDP) in the EU and is singular in the region; The Czech Republic, Hungary, Poland, what are the countries with which we traditionally compare ourselves, have much inferior deficits. The very large budget deficit largely explains the current account deficit. If we do not diminish the budget deficit considerably may lose confidence in Leo, we could attend capital outings in the country, high pressure would occur to the depreciation of the national currency. The increasingly unfavorable international context complicates the local economic situation. It must be understood that the NBR cannot be a factotum, that it cannot ensure the macroeconomic stability of Romania alone, « says Daniel Dăianu.

The economist also mentions that the new derogatory clause set in motion (with reference to defense) does not exempt Romania of fiscal consolidation in the coming years, as some could think.

‘We get to imagine what the public debt would look like after such an interval if very large budget deficits were perpetuated. The clause does not change the economic reality. Markets will not accept such conduct in managing public finances and will force a correction. Romania allocated for defense last year just over 2% of GDP, at a cash deficit of 8.64% of GDP. The target for Romania is to carry out the deficit under 3% in seven years. Other unchanged conditions, the macroeconomic correction, if the defense expenses (either gradually) were increased, would not be about six percent of GDP, but over seven percent of GDP. It is possible to reach a compromise in NATO and the minimum target of defense expenses as a weight in GDP will be between three and four percent. For Romania, state officials have announced a target of three percent of GDP in the next two years. We must have higher tax revenues and restrict as much of the expenses as possible, to spend as efficiently as possible. A state reform must also be operated on, which will materialize in stronger institutions and use the maximum European funds’, says Daniel Dăianu.

He states that the way in which the absorption of European funds has been treated, especially in recent years, is incomprehensible; There was no sense of emergency.

‘We are in a position to lose many billion euros from the PNRR. Romania has to do everything possible to recover as much of the lost time. BID (the Romanian Bank for Investments and Development) can play a similar role in the Romanian economy with that of the EU in the EU. The intense absorption of European funds can depreciate from the shock produced by the commercial war. The need to increase defense expenses can lead to a change in PNRR, which will reduce pressure on the public budget, « says Daniel Dăianu.

According to the report, the multilateral financial framework (CFM) will probably allocate less resources in Romania in the new exercise. The new CFM will change given the challenges for the EU related to competitiveness and defense/security. Romania has acquired a ‘addiction’ of the European funds that can return as a boomerang when these resources will inevitably diminish – after 2026 it ends, and the money from the CFM will be reduced in the next financial year. The massive decrease in European resources would influence the budget execution, public investments, pay balance and potential GDP. This perspective is a strong argument for macroeconomic adjustment to occur in a reasonable time, through credible measures. Even if the proposal of not taking into account the increase of defense expenses in estimating the budget deficits will win, the situation of the public budget of Romania would remain very complicated as it would not change the real situation of the public budget; Fiscal consolidation must be achieved.

‘In Romania can be allocated more for defense and through a contribution of citizens, of the business environment. And for the EU budget you can consider this. The alternative would be to reduce a lot of expenses in other fields, which would involve very difficult economic and social policy decisions, « believes Daniel Dăianu.

According to the author, it is in the interest of Romania and the other European countries that the Union be more cohesive and to develop its own defense capacity (weapons industry), and NATO not to lose weight. The defense industry in Romania must develop and offset arrangements would support this goal. But the Romanian defense industry should not be designed outside the conjugated actions at European level (EU).

‘The importance of the EU for Romania is difficult to underestimate, because the Union was mainly born as a peace project – so not only for economic reconstruction. A more divided, fragile union would be bad for European security, we could return to an blackened history of Europe, the interwar period. The remark is also valid for NATO ‘, wrote Daniel Dăianu.