Romania has the highest inflation in the EU: a Bulgarian perspective on the austerity measures of its northern neighbor

Nova, August 25, 2025

We remain on the topic of the economy, but we are changing the subject slightly. We turn our attention to our northern neighbor, Romania, which has the highest inflation rate in the EU—almost 8%.

This is an extremely interesting case, as Bulgaria can learn from it. We discuss this topic live on Viber. On the line is Vladimir Mitev, journalist and founder of the Bulgarian-Romanian blog The Bridge of Friendship. Hello, Mr. Mitev, and thank you for accepting our invitation.

Hello.

Mr. Mitev, 8% inflation for a country that is not part of the eurozone. And we thought inflation was high in the eurozone. What is going on?

There are several factors contributing to this rise in prices in Romania. One of them is, of course, related to the measures introduced by the government to balance the budget. Some of these measures consist of a 2% increase in VAT.

But there are other factors too – for example, on 1 July 2025, electricity prices were liberalized. Previously, the state paid subsidies to keep them at a lower level. Now, many people’s bills have gone up, and the cost of electricity is included in the price of many products. In addition, excise duties on fuel have also increased. All these factors have led to a rise in inflation.

Central Bank Governor Mugur Isărescu even said that inflation could exceed 9% by the end of the year. There is a view that it could reach this level as early as September.

Mr. Mitev, before going into detail about the reasons for the economic restrictions imposed by the government, tell us how Romanians are reacting to high inflation. Are we witnessing a phenomenon where residents of nearby Romanian cities are coming to shop in Bulgaria?

I think this has happened in the past too. For example, in the case of cigarettes, there is well-known “tourism” because excise taxes on cigarettes in Bulgaria are traditionally lower. So, yes, there is such a movement.

In addition, fuel is slightly cheaper in Ruse, for example, than in Giurgiu or Bucharest.

We are looking into this issue because we want to learn lessons for Bulgaria. If I may use a metaphor, Romania is now suffering from a hangover after the long “party” of government spending in recent years. Tell us – why is the country effectively in an excessive deficit procedure, what does this mean and how did it come about?

As far as I know, Romania has been in an excessive deficit procedure for years and had an agreed plan to reduce it. The plan was to reduce the deficit to more acceptable levels by 2030. The problem that came to a head at the end of last year is that, instead of 7.9% of GDP as planned, the budget deficit reached 9.3% of GDP. This required urgent measures.

Last year was a “super-electoral” year – Romanians had local, European, presidential, and parliamentary elections within a year. Under such circumstances, the government was not motivated to cut spending and introduce austerity measures. On the contrary, there was an interest in spending.

In addition, Romania had long followed a growth model based on income growth – that is, the economy was not only supported by export industries such as the automotive industry, but also by strong domestic consumption. There were incentives, such as reducing VAT on food, increasing wages, and various allowances, to enable people to spend more and the economy to grow faster.

What measures is the government currently taking to reduce the deficit and inflation? Apart from increasing VAT, are wages and pensions being frozen? These are usually the most radical measures.

Yes, wages and pensions will be frozen from 2026. In education, for example, teachers’ working hours have been extended by two hours, which means fewer jobs because fewer teachers will be needed.

This has already sparked protests.

There are also measures against the gambling industry, with tax increases in the pipeline. A new package under discussion includes a special tax for subsidiaries of multinational corporations in Romania. The idea is to increase tax collection, a problem that has existed for years.

In fact, Romania ranks second in the EU in terms of lowest budget revenues, after Ireland. For years, there has been talk of improving the efficiency of tax administration.

It is interesting to note that Bulgaria is often cited as an example of a country with more efficient VAT collection.

It is unclear to what extent these new measures will be useful. Many believe that the cuts will generate relatively little revenue, which will not cover the large budget deficits.

A more effective solution would be to increase tax collection, something that Romania has acknowledged for years that it is not doing well.

Mr. Mitev, have government spending in recent years yielded results? Did Romanians become richer before inflation reversed the process?

Perhaps this is less visible in Sofia, but every resident of Ruse is accustomed to the constant presence of Romanians. Romanians are probably the most well-traveling nation in the region. I think this is due to the relatively strong middle class in Romania, at least compared to Bulgaria.

Various policies to stimulate income and consumption have contributed to this. For example, there were even incentives for tourism—teachers received something similar to vouchers that allowed them to spend their vacations in Romania. There were various similar gestures that ultimately increased Romanians’ ability to consume more.

And I think this is felt at least in the resorts in Bulgaria – on the coast, in Bansko, etc.

In conclusion, what is your opinion? Was it all worth it, given the current restrictions, excessive deficit procedures, and the freezing of pensions and salaries? I ask this question because in Bulgaria there is also the view that government spending can enrich the population through redistribution. However, we see that everything comes back like a boomerang. What would Romanians prefer?

I think Romania has a slightly different model from Bulgaria. On the one hand, because Bulgaria has a monetary council. On the other hand, because Romania is a larger country and consumption may play a more important role there.

It is difficult to say for sure. In my opinion, Romanians periodically follow the model of growth through income growth. This was also the case before the 2008 financial crisis. But then there was a sudden hard landing. Perhaps this is specific to the management model there.

There is a view that what is happening now is not necessarily gloomy and negative. Rather, it is a correction. After a long period of income growth and public investment, including in infrastructure such as roads, we are now seeing the results. It is simply time for a correction. In other words, it is normal for some things that were planned to be abandoned. They need to be controlled and balanced in some way.

Okay, thank you very much. Vladimir Mitev, journalist and founder of the Romanian-Bulgarian blog The Bridge of Friendship, was my guest.

You heard what he said. And according to experts in recent weeks, the party in Romania is over. The country is facing 8% inflation, wages and pensions are frozen, VAT is being increased, and taxes are being raised. Now Romania has to pay the price for the spending of recent years.

We will now take a commercial break. Then we will return to the studio with the answer to the question: did Donald Trump tell Ukraine to strike hard at Russia?

Photo: (source: YouTube)

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