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30th Apr 2017

Spain and Portugal avoid fines, get new fiscal targets

  • Spain has been without a government since December 2015. The EU commission fears that sanctions could fuel anti-EU feelings. (Photo: cuellar)

Fines looming over Spain and Portugal have been definitively cancelled after EU finance ministers rubber-stamped Commission recommendations.

The European Commission declared on 12 July that Spain and Portugal had broken EU rules to keep budget deficits below 3 percent of GDP. The EU executive had the option to punish the two with fines of up to 0.2 percent of GDP and the suspension of commitments or payments from structural funds up to 0.5 percent.

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Instead, the commission suggested on 27 July to scrap the fines; Eurozone finance ministers rubber-stamping the recommendation on Tuesday (9 August).

Under its new fiscal path, Portugal should reach the 3 percent limit by the end of this year, down from 4.4 percent of GDP in 2015; Lisbon confirming its commitment to meeting the targets in a statement on Tuesday.

Spain was given until 2018 to bring its budget deficit in line with the 3 percent limit. The shortfall amounted to 5.1 percent in 2015.

Anti-EU feelings

EU commissioner for economic affairs, Pierre Moscovici, last month argued for clemency on behalf of the member states, saying that punitive actions could spark off anti-EU feelings.

“We’re at a time in Europe when people are having their doubts about Europe and we have to be careful about how the rules and the implementation of these rules are perceived,” he then told the press.

He highlighted a challenging economic environment and pointed to both countries’ reform efforts and commitments to comply with EU stability and growth rules.

But German press reported that the decision to spare the two from fines came after an intervention by German finance minister Wolfgang Schaeuble to EU commission president Jean-Claude Juncker.

No county has ever been fined for breaking against the EU growth and stability pact.

A strong proponent of austerity in the case of Greece, Schaeuble allegedly took a softer stance on Madrid in solidarity with the care-taker prime minister Mariano Rajoy who belongs to the same centre-right political family. Spain has been unable to form a government since December 2015, despite a follow-up election.

Some critics say that the move undermines credibility in EU rules. Moscovici, however, argued the rules give room to cancel the fines. He also highlighted that many more countries respect the rules today than when the rules were introduced.

The commission can still recommend that underperforming countries lose some of their structural and investment (ESI) funds for 2017. If it does, it will make any proposal after discussing with the European Parliament in early September, after the summer recess.

To avoid a suspension of ESI funds, both Spain and Portugal will need to demonstrate that they took action to comply with the pact. They are expected to submit reports detailing their commitments before 15 October, at the same time as presenting their draft budgetary plans to the commission.

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