#Spain and #Portugal: Council agrees not to punish excessive deficits

The European Commission welcomed today's (9 August) Council decisions not to sanction Spain and Portugal for exceeding the deficits limits laid out in the Growth and Stability Pact. The Council has cancelled the fines for both countries and set "new credible fiscal trajectories".

Economic and Financial Affairs, Taxation and Customs Commissioner Pierre Moscovici said: "Today's decisions reflect an intelligent application of the Stability and Growth Pact. By giving more time to Spain and Portugal to bring their public deficits below 3%, the Council sets new credible fiscal trajectories, which will contribute to strengthening both their economies and the euro area. Stability and Growth require a strong determination to put public finances in order. I trust that Spain and Portugal will respond accordingly to the collective decisions by the Commission and the Council.”

Had the Council stuck to their decision of 12 July, the Commission would be legally obliged to propose a fine, the amount of which could be up to 0.2% of GDP. However, Moscovici said that taking a rigid approach would be "counterproductive and punitive". He recognized the enormous efforts made by both countries to reach the targets. Instead, the Council calls on Portugal to put an end to its excessive deficit by 2016, and that Spain does so by 2018 at the latest.

Nevertheless, the Commission will make a proposal to the European Parliament in September to suspend European Structural and Investment funds. The proposal could be seen by some, to borrow the words of the commissioner, as ‘counterproductive and punitive’. It will be interesting how combative the European Parliament feel after their holidays.

In the meantime, Spain has failed to form a government, following general elections in December (2015) and June. If Spanish Prime Minister Mariano Rajoy's Partido Popular (PP) cannot construct a coalition by September, a further election will be called.

In his initial announcement in July, Moscovici said it would be inappropriate to impose sanctions when people were questioning Europe. He added that the political consensus was against sanctions. Finally, the Juncker Commission, which claims to be a political commission rather than a technocratic one, took a pragmatic and intelligent approach to the economic problems of the EU. Whether this is as a direct result of the UK’s referendum, or the political instability in Spain, is unclear. Whatever the reasoning, the decision is welcome and it is hoped that it is a small sign that the EU might be willing to turn the tanker around and start acting in a way that will drag the EU and all who sail in her out of troubled waters.

Background

The Commission will make its proposal on the suspension of part of the commitments of ESI Funds for 2017 after a dialogue with the European Parliament, which is set to take place shortly after the Parliament's summer recess. To lift a suspension of ESI funds, both Spain and Portugal will need to demonstrate full compliance with the Pact, as expressed in the recommendations adopted today by the Council. Both member states are expected to take effective action and report on it by 15 October 2016, at the same time as presenting their Draft Budgetary Plans this autumn.

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