Europe’s Black Sheep: EC Activates Payment Suspension Procedure for Romania under the Recovery and Resilience Plan

The European Commission announced on March 25 that it had activated the payment suspension procedure for part of Romania’s third payment request under the National Recovery and Resilience Plan (PNRR). This decision follows the failure to meet six key milestones and targets, including the milestone related to reducing special pension expenditures.

While Hungary was recently the EU’s black sheep because Prime Minister Viktor Orban opposed the EU’s policies regarding Ukraine, Romania is taking its place economically.

Rating institutions degrade Romania’s outlook, while the US has paused the country’s entrance into the Visa Waiver Program. Now, the EU is hitting the country again, making it less attractive for investments. Also, Romania’s democracy was labelled flawed in The Economist’s most recent assessment, which speaks for itself about the Romanian authorities’ interference in the democratic process.

The recent scandal with the annulment of the presidential elections in November and the lack of evidence to support this decision made Romania lose points of international trust. And, while the country’s “bold” decision to cancel the election is praised publicly, investors and institutions know that this drags the country back by at least a decade.

The coming Presidential elections in May could ease the pressure on the markets and get the country back on track; until then, though, Romania will be seen as Europe’s black sheep.

Background of the Decision

Romania’s third payment request, valued at 2 billion euros, includes 74 milestones and targets. Six have not been fulfilled, prompting the Commission to initiate the payment suspension procedure. The uncompleted milestones include:

• Milestone 215: The entry into force of the legislative framework for reducing special pension expenditures.
• Investments in Rail Infrastructure: Modernization of rail infrastructure.
• Development of the Subway Network: In Bucharest and Cluj-Napoca.
• Performance-Based Management Reforms: In the transportation sector.
• Corporate Governance Improvements: For state-owned energy companies and operationalising corporate governance policies for state enterprises.

Implications and Next Steps

This procedure allows Romania to receive partial payments for completed milestones while providing additional time to finalize the remaining ones. The Commission has forwarded its preliminary positive assessment of the completed milestones to the Economic and Financial Committee (EFC), which has four weeks to provide its opinion. Romania has one month to submit comments to the Commission.

The Commission will adopt a payment decision after receiving the EFC’s opinion and reviewing Romania’s comments. If the milestones are unmet, part of the payment will be temporarily suspended. Romania will have six months to correct the identified deficiencies, after which the Commission will reassess the fulfillment of the milestones.

National Recovery and Resilience Plan

With a total budget of 28.5 billion euros, the PNRR represents a significant opportunity for Romania to implement strategic reforms and investments. The plan focuses on green and digital transition, sustainable transport, energy renovation, and other key areas. Successfully implementing these measures is crucial for Romania’s economic and social development.

The European Commission’s decision highlights the importance of fulfilling all milestones and targets to fully benefit from the available funds and ensure a sustainable and equitable recovery of the Romanian economy.