The European Commission warned Romania on Wednesday to eliminate price capping on gas. Otherwise, it risks facing potential legal action regarding this policy, which the EU Executive stated violates the rules of the bloc’s energy market.
Economist Adrian Negrescu stated that Romanians are facing „four waves of price increases” that will lead the economy into recession:
- the one caused by the depreciation of the national currency,
- the second one we will feel as a result of energy price hikes,
- the third will be generated by the increase in gas prices,
- the fourth will be associated with tax increases, especially VAT
The economic consultant specifies that there will be "a true tsunami of price hikes" that will be strongly felt in the economy and will "reinforce Romania's position as a European champion in price increases."
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"We are facing four waves of price increases that will lead the economy into recession. The warning from the European Commission confirms that price capping on energy and gas has violated European legislation and has created multiple unpredictable economic effects. One of these will be felt from July 1 when, with the removal of price caps on electricity, a large part of the population will end up paying double energy bills.
Additionally, we are facing a new wave of inflation because companies will also pay a much higher price for energy, compared to the capped price of 1 leu/kwh, and this additional cost will be reflected in all products and services in the economy," economist Adrian Negrescu stated on Thursday for News.ro.
According to him, beyond the wave of inflation generated by the rising energy costs for which the government currently has no solution, liberalizing the gas market will generate an additional surge in prices.
The economic consultant says that the most severe sanction for Romania would be the blocking of non-repayable European funds and that, given that over 80% of state investments depend on EU money, it would be "a suicidal mission" to give up European funds just to "cling to gas prices."
The specialist states that, essentially, the new government, whoever forms it, will have to abandon gas price capping, and the effects will be widely felt in the economy.
"Unfortunately, this decision will generate a new wave of inflation, in addition to those already anticipated. The first will be caused by the depreciation of the national currency, the second we will feel as a result of energy price hikes, the third will be generated by the increase in gas prices, and the fourth will be associated with tax increases, especially VAT. In other words, we are facing a true tsunami of price increases that we will strongly feel in the economy and that will reinforce Romania's position as a European champion in price hikes," Negrescu mentions.
According to the economic consultant, the decline in purchasing power will intensify, and companies will increasingly struggle to withstand an economic environment "hit by price hikes and tax increases."
"The effects are inherent - Romania risks entering a recession, and an agreement with the IMF seems to be, day by day, the lifeline that authorities will cling to in order to avoid a major crisis," Negrescu further states.