BRUSSELS — Romania’s fledgling government is made up of the country’s most pro-European politicians, but that hasn’t stopped them citing Brussels as a key reason why they need to impose a drastic set of tax hikes and spending cuts to avert financial collapse.

For the past five years, Romania has been spending way beyond its means — in the words of new President Nicușor Dan, eating a large pizza while only paying for a medium-sized one — and has a projected budget deficit of around 9 percent of economic output this year, the highest in the European Union. 

That record of poor fiscal management has provoked repeated reprimands from the European Commission, which Prime Minister Ilie Bolojan now says can no longer be ignored. This week, ministers from EU countries will vote to decide on a strict plan setting out exactly what Romania must now do to restore order to its public finances. 

Even before Tuesday’s vote in a meeting of EU economy and finance ministers, Romania’s new prime minister is pushing through a dramatic package of austerity measures that will deal a blow to economic growth, as well as hammer the government’s popularity. 

But without action now, Bolojan argues, the country will face the wrath of the Commission and — worse than that — the prospect of a downgrade from credit rating agencies, potentially reducing Romanian government debt to “junk” status. That would risk a spiraling financial meltdown, and the prime minister has warned of the risk to salaries and pensions if the country’s creditors lose faith. 

“Access to European funds is conditional on fiscal reform; without it, we would lose access to these funds,” Bolojan told reporters last week. “Think about what it would mean if we could not continue half of the investments currently underway, in major highways, rail lines, and projects in every locality across Romania. This would place us at risk of being downgraded again into so-called junk status, making our country unattractive to investors.”
He added: “We cannot let our country end up in a situation like Greece.”

Speaking in an interview with the Antena 3 CNN channel, Bolojan said Romania’s previous approach of promising its creditors and the EU that it will reduce its deficit, only to keep spending more than it can afford, resembled the fable of the boy who cried wolf. “Given that you often announce that it will happen and it doesn’t happen, when that thing really happens, no one believes you that it will happen and no one helps you anymore,” he said. 

‘Autumn of discontent’

The fiscal crisis is a huge test for the new administration of Dan, the centrist former mayor of Bucharest, who was elected president in May. He saw off a challenge from far-right populist George Simion to win the presidency, promising to clean up corruption, keep Romania on its pro-Western path supporting Ukraine, and to tackle the country’s ballooning debts. 

Dan said before he was elected that he was opposed to raising VAT, but Bolojan’s package of reforms envisages large increases in these taxes, including on food, alongside other painful measures such as capping public sector pensions and salaries, requiring teachers to work longer hours, increasing excise duties on fuel, alcohol and tobacco, and taxing gambling winnings and bank profits. 

The first tranche of these reforms is due to come into force in August, with the second phase starting Jan. 1 next year. Bolojan must pass his reforms through Romania’s parliament, though most observers believe the four-party coalition will remain united and that this legislative step will not prove to be a major hurdle for the prime minister. 

The public reaction is another matter.

“We will see the PM and the parties of government fall in the polls,” said Radu Magdin, a former Romanian government adviser who is now CEO of Smartlink Communications. While riots are “less likely,” public protests may follow the next fiscal packages, he said. “The advantage the government has is that it’s summertime. The disadvantage is the autumn of discontent coming in September, after the holidays.”

On Tuesday, the EU’s finance ministers will set the parameters for what Brussels wants to see from Bucharest’s reform plans, though it’s not likely that they will have had a chance to take account of Bolojan’s latest austerity blueprint. Romania will then have until Oct. 15 to produce a budget that meets the EU’s requirements for reducing its deficit. 

According to Daniel Dăianu, chair of the Romanian Fiscal Council, which advises the government on spending, the country must bring the deficit down to below 6.5 percent of gross domestic product by 2026. 

“Expenditures cuts and tax increases will affect GDP growth, but they are unavoidable,”  Dăianu said in a recent presentation.