Tuesday, February 9, 2010

EU backs Romanian fiscal effort, extends deadline

BRUSSELS, Feb 8 (Reuters) - The European Union executive told Romania on Monday the country is on track with fixing its finances and extended by a year to 2012 the deadline Bucharest has to cut its budget deficit below the bloc's ceiling.

The European Commission made its assessment as part of the EU's budget disciplinary procedure, under which countries receive deadlines to reduce their fiscal gaps to below 3 percent of gross domestic product.

The Commission said in a statement that Romania, which has been granted conditional aid from international lenders after being hit hard by the economic crisis, had taken effective action to reduce its fiscal gap.

The assessment bodes well for the disbursement of loan tranches from the International Monetary Fund and the EU that had been frozen due to political turmoil in the Black Sea country.

"Romania has made a serious effort to limit the deterioration of its budget deficit and to preserve macroeconomic stability during the past year," EU Monetary Affairs Commissioner Joaquin Almunia said in a statement.

But since recession in the new EU member state had been worse than initially thought, the Commission recommended giving Romania until the end of 2012 rather than 2011 to correct its deficit.

"The worsening of the economic situation since the initial recommendations were made justifies extending the deadline by one year. But the consolidation effort must continue," Almunia said.

Romania's economy shrank by some 7 percent in 2009 instead of the 4 percent once forecast by the Commission.

The recommendation must be approved by EU finance ministers to take effect, but this is not expected to be a hurdle.

The Commission said Romania had met its fiscal austerity commitments by reducing the public wage bill and cutting public expenditure on goods and services in 2009.

The 2010 budget includes a package of measures cutting expenditure by around 2 percent of GDP and raising revenue by around 0.5 percent of GDP, the Commission noted.

The IMF last month successfully completed a review of the 20 billion euro ($28 billion) aid package, recommending its board unlock tranches halted last year due to political turmoil in mid-February.

The country now has a new cabinet in place, but it faces a tough task in enforcing fiscal cuts given its fragile parliamentary majority and the risk of mounting discontent over mass lay-offs to cut the bloated administration. (Editing by Dale Hudson)

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