BRUSSELS – The European Union’s executive refrained Wednesday from calling for heavy fines against Spain and Portugal for breaching budget rules and sought instead to set “new fiscal paths” for the two countries.
It gave both nations until Oct. 15 to find new measures to curb their budget deficits over the coming months and years, a deadline that could be tough for Spain considering its political paralysis following inconclusive elections.
Even though it said it was within its rights to call for heavy fines, EU Commissioner Pierre Moscovici cited the current anti-EU mood in parts of the 28-nation bloc as a reason to hold back.
“To sanction would not have corrected the past and would have been counterproductive at a time when people doubt Europe,” Moscovici said. “Our decision is politically and economically the most appropriate.”
The EU Commission could have called on member states to sanction the two nations — which would have been a first — for allowing their budgets to be above the EU limit of 3 per cent of GDP for years. Fines could have gone as high as 0.2 per cent of each country’s annual GDP and EU funding could have been blocked from the start of next year.
Instead, it said there were attenuating circumstances. The Commission said that considering “the challenging economic environment, both countries’ reform efforts and their commitments to comply with the rules,” it suggested there be no fines. Instead, the countries should take steps to lower their deficits, it said.
The Commission wants to give Spain until 2018 to bring its deficit within 3 per cent of GDP while Portugal should be given until the end of this year to lower its deficit to 2.5 per cent.
The Commission only recommends what member states should do, but it is unlikely that countries would fundamentally go against the EU executive.
“Spain and Portugal have come a long way. The two countries experienced severe economic and financial crises,” said EU Commission Vice-President Valdis Dombrovskis. “They have managed to restore financial stability thanks to major fiscal adjustment. And they have turned their economies around through structural reforms to regain competitiveness. These efforts should not be underestimated.”
Spain’s acting deputy Prime Minister Soraya Saenz de Santamaria welcomed the decision, saying the decision showed a “recognition of the reforms carried out and the effort made to control the deficit in seriously difficult times.”
Portugal in particular had feared fines and Foreign Minister Augusto Santos Silva said the decision was “very good news.” The government had sent a request for leniency and Santos Silva told a news conference in Lisbon “We are in the right.”
He said the Portuguese had “made huge sacrifices … which deserve understanding and support” to reduce its debt load after needing a 78-billion euro ($86 billion) bailout in 2011. The Portuguese budget deficit has been on a downward trend, he noted.
The Portuguese government had vowed to fight any fines at the European Court of Justice. The government forecasts the deficit will fall from 4.4 per cent of GDP last year to 2.2 per cent this year and 1.4 per cent in 2017.
Spain’s deficit last year was 5.1 per cent, well above their target of 4.2 per cent.
Barry Hatton in Lisbon and Ciaran Giles in Madrid contributed to this report.