A message from Euractiv
Beyond the Institutions: How Associations Keep Europe Connected
Global uncertainty is testing Europe, but in Brussels, thousands of associations quietly provide stability by linking voices, expertise, and solutions. Euractiv conducted a survey among European Associations collecting insights and data about the sector, its trends, and challenges in 2025.
——————————————————————————————–
Here’s a question: Which beautiful, culturally rich EU country speaks a Romance language, is riddled with political instability, and is a total economic basket case?
If you answered “France”, congratulations – you’re certainly not wrong. But how many of you thought of Romania? (Or, rather, would have thought of it if you hadn’t read this newsletter’s title?)
Indeed, given the torrents of ink that have been spilled over Paris’ soaring budget deficit in recent months, the (relative) lack of European interest in economic developments in Bucharest – which, ironically, is also known as “Little Paris of the East” – is quite astonishing.
For one thing, Romania’s budget deficit was by far and away the highest in the EU last year, at 9.3% of annual GDP. This is more than triple Brussels’ 3% official fiscal limit, and makes France’s 5.8% revenue shortfall look, if not petit, then at least considerably less gigantesque.
For another, Romania’s borrowing costs are well above France’s, with the yield on Bucharest’s ten-year bonds currently hovering around 7.4% – more than twice the 3.6% rate paid by Paris.
Even more insidious, however, is the way in which Romania’s economic troubles – which include deeply entrenched inequality, high levels of corruption, and deteriorating public infrastructure and services – are exacerbating the country’s acute political crisis.
Unlike in France – which is locked in its own increasingly desperate struggle against political extremism – far-right forces in Romania have already won a national election, with the victory of the NATO-bashing, pro-Russian populist, Călin Georgescu, in the first round of the presidential poll last November.
“A significant driver of support for Romania’s far right is the failure of the political establishment to reform the country’s broken economic model,” Veronica Anghel, a professor at the European University Institute, recently noted in Foreign Affairs.
Analysts also warn that the narrow victory of liberal, pro-Western candidate Nicușor Dan over another far-right challenger in the re-run elections in May has only bought the strategically crucial Black Sea nation limited time to get its economic house in order.
“The liberal order in Romania has survived, for now,” Anghel said. “But it stands on alarmingly fragile ground.”
A fiscal fiasco
But can Bucharest’s “broken” economy be fixed? And can its “fragile” political ground be reinforced?
The initial signs are far from promising.
The country’s centrist coalition government, led by the Dan-appointed prime minister, Ilie Bolojan, has been marred by infighting over the scope and specifics of its punishing austerity package, which includes steep VAT hikes on essential products like food, cuts to public investment, and pension and public sector pay freezes.
Despite these measures – which have been fiercely resisted by businesses, labour groups, and many citizens – Bolojan admitted earlier this week that Romania’s deficit will fall to 8.4% this year: well above the 7% target initially agreed with the European Commission.
The announcement, which came after a meeting with EU Commissioner for Economy Valdis Dombrovskis in Brussels, also makes it increasingly unlikely that Bucharest will reach its 6% deficit target next year – thereby heightening the risk of EU financial sanctions and further spooking investors.
Perhaps an even greater danger than the fiscal plan not working, however, is that it works at all.
In particular, the austerity measures could deepen the country’s political crisis by further alienating its already deeply alienated citizenry. In a worst-case scenario, this could spill over and foment anti-EU sentiment in neighbouring Ukraine and Moldova. (The latter, incidentally, is set to hold crucial parliamentary elections this weekend.)
Furthermore, by missing its original deficit target this year, Romania’s fiscal adjustment over the coming months risks being so stringent that it could prove economically self-defeating.
Echoing these concerns, ING Research recently warned that the austerity measures’ impact on growth “could be sharper than expected” and tip Romania “into a technical recession, which would ironically hurt tax revenues and make deficit targets harder to hit”.
For those above a certain age, talk of such a “fiscal self-correction trap” is likely to sound familiar.
Could Romania, in fact, be not just another France, but a new version of Greece – which suffered similar bouts of excessively punishing austerity measures during the eurozone crisis?
Moreover, if Athens almost triggered Europe’s economic collapse in the 2010s, why couldn’t Bucharest in the 2020s?
Ghosts of eurozone crises past
Fortunately, we needn’t be too worried.
First, although Romania’s deficit levels are sky-high, its debt levels remain remarkably low – at least by European standards. Its debt-to-GDP ratio of 55.8%, though climbing rapidly, is well beneath the EU’s 60% official ceiling and the broader EU average of 81.8%. (Greece’s debt ratio, by comparison, was almost 130% at the onset of the eurozone crisis in 2009.)
Second, although Romania’s austerity package is likely to harm growth, it is almost certain to fall well short of the whopping 25% contraction that Greece suffered last decade. (In fact, ING predicts that Romania’s economy will grow by 0.3% this year and 1.7% in 2026.)
Third, and perhaps even more importantly, Romania is not a member of the 20-country eurozone, which gives it extra leverage to tailor its monetary policy to boost economic growth and limits the risk of financial “spillovers” into the rest of the single currency area.
“In my view, Romania’s deficit doesn’t pose any major risks to the EU, and the risks to Romania are somewhat limited,” said Zsolt Darvas, a senior fellow at Bruegel, an EU policy think-tank.
Darvas added that financial markets also don’t appear to believe that a Greek-style collapse is imminent, with Romania’s borrowing costs currently roughly six times lower than Greece’s during the height of the eurozone crisis, when the yield on its 10-year bonds peaked at 44%.
“Financial markets assess that Romania’s debt is costlier than France’s and Italy’s, and obviously Germany’s,” Darvas said. “But they don’t signal that Romania is at risk of imminent fiscal collapse – likely because markets expect that the fiscal adjustment will be made.”
One comparison with Greece during the 2010s, however, is almost certainly appropriate – namely, that Romania’s deficit-slashing efforts are likely to compound its political instability over the coming years.
This dynamic is, of course, also being experienced by the French today.
We should wish them all bonne chance – they’ll certainly be needing it.
Economy News Roundup
Merz urges EU to unlock €140 billion in frozen Russian assets. In a Financial Times editorial, the German chancellor backed Brussels’ proposal to use cash balances associated with immobilised Russian assets held in the EU to fund an interest-free “reparation loan” to Kyiv. The plan, which is expected to dominate an informal EU summit in Copenhagen next week, came as Brussels rejected calls from lawmakers to confiscate the roughly €200 billion in Russian central bank reserves held in the EU. John Berrigan, director general of the Commission’s financial services division, told MEPs on Thursday that the bloc’s plan is instead to “mobilise” the assets without affecting their “ownership”. He also warned that outright seizure would breach sovereign immunity and undermine global financial stability. “Once you break it, it’s broken for all countries,” he said. Read more.
Eurozone business activity rises to 16-month high. The single currency area’s provisional composite Purchasing Managers’ Index (PMI), which measures overall activity in services and manufacturing across the 20-country single currency area, increased from 51.0 to 51.2 between August and September this year – pushing the index further above the 50-point mark separating growth from contraction. “The eurozone is still on a growth path,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB), which compiles the index together with US firm S&P Global. However, de la Rubia warned that the eurozone is “still a long way from seeing any real momentum”, adding that the outlook for manufacturing “is looking a bit cloudy” amid a fall in new orders in Germany and France. He also suggested that this month’s uptick in activity shouldn’t mask the eurozone’s underlying weakness. “Just consider that the Composite PMI … hit a modest 51.2 points and reached this with a 16-month high,” he said. Read more.
Brussels urges EU countries to create “user-friendly” savings and investment accounts. The European Commission recommendation – which will be formally presented by the EU executive on 30 September – comes as part of a broader push to boost retail participation in capital markets and plug the EU’s yawning investment gap with the US and China. EU governments should ensure that financial service providers offer “user-friendly digital interfaces and high-quality customer service” for their SIAs, thus ensuring a “simple, reliable and easily accessible experience for retail investors”, the document notes. It adds that tax incentives could represent a “catalyst” to boost retail participation in European capital markets. “Member states are encouraged to grant the SIA with an advantageous tax treatment, which would be at least equivalent to the most favourable tax treatment available under that member states’ legislation,” it notes. Read more.