Home News EU abandons budget fines against Spain, Portugal

EU abandons budget fines against Spain, Portugal

Published on 27/07/2016

The European Commission on Wednesday backed away from slapping fines on Spain and Portugal for running high deficits, avoiding what would have been a landmark move to impose tough budget rules.

Under bloc regulations, the EU executive could have imposed fines of up to 0.2 percent of national gross domestic product (GDP) against Madrid and Lisbon — but instead showed clemency amid growing anti-Brussels sentiment highlighted by Britain’s Brexit vote.

“Sanctions, even symbolic ones, would not have been understood by the public,” the EU’s economic affairs commissioner, Pierre Moscovici, said at a news briefing.

“It is not the best approach at a time when doubts are widespread about Europe,” he added.

The EU has to date not dared to use its full powers against eurozone overspenders for fear of triggering a populist backlash and given the opposition of chronic offenders such as France and Italy.

Triggering the sanctions process has long been the desire of Germany, which was instrumental in giving Brussels the extra powers needed to enforce strict budget discipline.

The issue is especially sensitive for France, which is in danger of missing the EU’s budget deficit limit of 3.0 percent of annual GDP next year.

– ‘Good news’ –

Portuguese Foreign Minister Augusto Santos Silva welcomed the “very good news for Portugal and for Europe.”

The commission “has assumed its role as the guardian of the European ideal and spirit,” Silva said in Lisbon.

A more muted Mariano Rajoy, Spain’s acting prime minister, said he was “satisfied” by the decision. Spain has been without a fully-functioning government after two rounds of elections failed to give any party an absolute parliamentary majority.

Spain and Portugal have been under the EU’s excessive deficit procedure since 2009 because of recurrent fiscal holes.

Bailed-out Portugal, long considered a star reformer for pushing ahead with stringent austerity measures, slashed its budget deficit from close to 10 percent of GDP in 2010 to 4.4 percent last year, but that still overshoots the EU’s 3.0 percent target.

Spain, after suffering through six years of recession, in 2015 reported a deficit of 5.1 percent of GDP, way off the 4.2 percent target set by the Commission.

– ‘Politics trumps rules’ –

Despite the case for fines, the Commission instead recommended that Portugal puts an end to its excessive deficit this year and that Spain does so by 2018.

“The process was taken to the edge but the final step was not taken,” said Vincenzo Scarpetta, a political analyst at the Open Europe think tank.

“It shows that politics trumps the rules at the end of the day,” he added.

The decision now goes to eurozone ministers for approval and expectations are high that the member states will do so, perhaps with some modifications.

Powerful German Finance Minister Wolfgang Schaeuble earlier this month urged the commission to suspend structural aid for projects in 2017, another sanction possible against Spain and Portugal.

“It is clear that the commission will come with a rigorous proposal regarding suspension for both countries,” said Valdis Dombrovskis, the commission vice president for the euro.

“We will take the formal decision after consulting with the European Parliament,” he added.

These structural funds are used to reddress regional disparities within the 28-nation bloc and their suspension would be an embarrassing blow to the two countries, both big users of EU money.