Home News Spain, Portugal face EU sanctions on deficits

Spain, Portugal face EU sanctions on deficits

Published on 12/07/2016

Eurozone finance ministers agreed Tuesday to officially begin a sanctions procedure against Spain and Portugal for doing too little to fix their rule-breaking deficits.

The ministers “found that Portugal and Spain had not taken effective action in response to its recommendations on measures to correct their excessive deficits”, a statement said.

The decision “will trigger sanctions under the excessive deficit procedure.”

Spain and Portugal now have 10 days to lobby the EU to impose no penalty.

The European Commission, the EU’s executive arm, will consider their arguments and must decide on sanctions within 20 days.

Under EU rules, the commission could impose fines of up to 0.2 percent of gross domestic product on eurozone countries that repeatedly ignore the deficit limits — but to date it has not dared to use its full power.

The ministers took the unprecedented step despite fears that too much austerity by Brussels will further stoke anti-EU populism after the Brexit vote.

“The rules are the rules,” said French Finance Minister Michel Sapin, ahead of the talks with his EU counterparts.

However, he said these should only be applied “intelligently” as he urged the EU to take the specific situation of each country into consideration.

The issue is especially sensitive for France, which is widely expected to risk breaking the deficit rules next year.

Triggering the sanctions process has been the long desire of Germany, which was instrumental in giving Brussels the new powers to crackdown on overspenders in the eurozone.

Hit hard by the eurozone debt crisis, 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 and the bloc’s 3.0 percent limit.

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

In 2015 it reported a deficit of 5.1 percent of gross domestic product (GDP), still way off the target of 4.2 percent set by the commission and official limit.

“As long as we don’t have perfected rules we should only apply the rules flexibly,” Gregory Claeys, an economist at the Bruegel Institute in Brussels told AFP.

“Otherwise governments will just point to Brussels and the eurosceptics will accuse the EU of all that’s wrong with Europe,” he said.