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Overspending Spain and Portugal await EU fate

Published on 27/07/2016

The European Commission will decide Wednesday on whether to hit Spain and Portugal with huge fines for failing to fix years of high deficits in violation of EU rules.

A decision to impose penalties would be an unprecedented step in EU history, made in the face of rising anti-Brussels sentiment as demonstrated by Britain’s vote to leave the bloc.

Under bloc rules, the EU executive can impose fines of up to 0.2 percent of national gross domestic product (GDP) — but to date it has not dared to use its full power against eurozone overspending for fear of triggering a populist backlash.

Spain faces a fine of up to nearly 2.2 billion euros ($2.4 billion), while Portugal is on the hook for 360 million euros, based on GDP data for 2015.

The 19 ministers from the eurozone agreed to launch the unprecedented process earlier this month, but expectations are high that the EU executive will show leniency given the political context.

“Be patient, we are hours away from a decision,” said Commission spokesman Margaritis Schinas at a news briefing on Tuesday, refusing to confirm rumours that Brussels would show clemency.

The commissioners, who meet until about 1030 GMT, can also decide to suspend EU structural funds to Spain and Portugal.

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

But the Commission must agree on this step with the European Parliament — and that discussion will take place only after the summer recess, a European source told AFP.

– ‘Not legal’ –

Madrid and Lisbon, hit hard by the eurozone debt crisis, have firmly argued the accusations were unfair but vowed to do whatever was necessary to win a reprieve from their EU partners.

“We belive there is no justification, nor any legal basis to apply penalties on targets that weren’t reached in 2015,” said Portuguese Prime Minister Antonio Costa on Saturday.

“It would be counterproductive when the Commission knows we are meeting our agreed targets this year,” he added.

According to a report in Spain’s El Pais newspaper, these arguments are not falling on deaf ears with Madrid and Lisbon expected to escape fines and win extra time to bring their deficits in line.

The debate is far bigger than just Spain and Portugal, but draws an ideological line across Europe between the fiscal hardliners to the north and a easier attitude to big budgets in the south.

Triggering the sanctions process has been the long desire of tough-minded Germany, which was instrumental in giving Brussels the new powers to crack down on overspenders.

The issue is especially sensitive for France, which is widely expected to miss its promise to meet the EU’s budget deficit limit of 3.0 percent of GDP next year after repeatedly failing to do so.

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, sharply cut its budget deficit from close to 10 percent of GDP in 2010 to 4.4 percent last year, but that still overshoots targets.

Spain, while avoiding a eurozone bailout, suffered through six years of recession.

In 2015 it reported a deficit of 5.1 percent of GDP, still way off the target of 4.2 percent set by the Commission and the official limit.