Romania Risks Losing €770 Million in EU Funds Amid Government Crisis

Romania’s latest political crisis could cost it €770 million in European Union recovery funding, after lawmakers failed to adopt reforms demanded by Brussels.

The European Commission set Aug. 31 as the deadline for measures covering public-sector pay and loss-making state companies. The money comes from pandemic recovery funds that remain available only through the end of this year.

The Social Democrats opposed the legislation and left the governing coalition in May. Since then, the parties have failed to agree on a new prime minister, according to the Financial Times. Siegfried Mureșan, a center-right candidate for the post, called the deadlock a “political truth test” for Romania’s commitment to reforming its financially unsustainable post-communist public sector.

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Reforming the public-sector pay law would correct inequalities, limit politically assigned privileges and unlock €770 million.

“Reforming the public-sector pay law would correct inequalities, limit politically assigned privileges and unlock €770 million,” Mureșan told the Financial Times. He said the dispute had reinforced his National Liberal Party’s opposition to joining any future coalition with the Social Democrats, after the PSD joined the far right to remove liberal Prime Minister Ilie Bolojan.

The PSD has argued that the reforms go too far in imposing austerity and that Bolojan should have negotiated a better agreement with the European Commission. The measures also target patronage networks in public administration and state-owned companies, where jobs, board appointments and subsidies remain political currency, 37 years after the fall of communism.

State companies carry billions of euros in debt. CFR, the largest, said in July that it expected a loss of about €100 million this year, while its debt exceeded €430 million at the end of 2025. Public-sector salaries cost about €30 billion annually, and Romania is trying to contain its finances after last year’s budget deficit reached almost 8% of GDP. Rating agencies are watching closely, with government debt still one notch above junk status.

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Maintaining the status quo in these companies, without any reforms, created black holes in the Romanian economy.