EU may fine Spain, Portugal for deficits
Move could be first ever in Eurozone history
BRUSSELS, July 26, (RTRS): The European Commission is likely to propose on Wednesday to fine Spain and Portugal for not effectively cutting their budget deficits and to give them new, longer deadlines to reduce their shortfalls to EU limits.
If the Commission decides to propose the fines, it would be the first time it does since the creation of EU budget rules 20 years ago. No country so far has ever been fined, even though some have broken EU budget rules repeatedly, such as France.
“The college (of Commissioners) will return tomorrow to the fiscal situation of Spain and Portugal,” Commission spokesman Margaritis Schinas told a regular news briefing on Tuesday.
“It will consider tomorrow steps that have become necessary following the Council decision that neither country has taken effective action to correct their excessive deficit,” he said.
Under EU rules, governments cannot run budget deficits higher than 3 percent of gross domestic product, a legal safeguard to ensure that excessive government borrowing does not undermine the common euro currency.
If the gap goes above 3 percent, the Commission and EU ministers set a deadline for its reduction. If a government fails to take steps to meet the deadline, it can be fined.
Portugal was to cut its deficit below 3 percent last year, but the gap turned out to be 4.4 percent. Spain was to cut the deficit below 3 percent this year, but is likely to remain above 3 percent also next year, according to Commission forecasts.
Finance
Because a council of EU finance ministers said on July 12 that Madrid and Lisbon had failed in the requested deficit steps, the Commission must now, under the rules, propose a fine for each country equal to 0.2 percent of their respective GDPs.
This would mean around 2.16 billion euros for Spain and around 358 million for Portugal. Possibility But the rules also give the Commission the possibility of reducing the fine or cancelling it altogether, depending on the circumstances. Both countries have sent the EU executive arm letters with arguments why it should be lenient.
“This is very tricky. I don’t believe there will be a full fine. The only thing that is clear on fines is that it is not going to be 0.2 percent because of mitigating factors — this part is very fluid,” one EU official said.
Some in the Commission argue the fines should be cancelled altogether while others push for a reduction to 0.1 percent of GDP or even less, to a symbolic 0.02 percent of GDP.
The issue is politically highly sensitive. Spain has been without a proper government since the inconclusive elections in December 2015 and can therefore argue it was and is unable to quickly implement spending cuts.
Moreover, there is rising anti-EU sentiment across Europe and heavy-handedness from Brussels on budget rules, at a time when many economists call for more spending to stimulate economic growth. A dispute could fuel this further.
On the other side of the argument is the need to uphold EU budget rules, called the Stability and Growth Pact, which underpin the euro to prevent another sovereign debt crisis.