MEPs oppose ‘immoral’ suspension of EU funds for Spain and Portugal

Jyrki Katainen, European Commission Vice-President for Jobs, Growth, Investment and Competitiveness, at the joint parliamentary hearing on the suspension of ESI Funds. [© European Union 2016 - Source : EP.]

A broad majority of MEPs spoke against freezing EU funds for Spain and Portugal at a European Parliament session late on Monday (3 October), saying such a decision would be “immoral”, “unfair”, “counterproductive” and even “illegal”.

During a joint session of the Economic Affairs and Regional Development committees yesterday evening, legislators strongly rejected the European Commission’s attempt to punish the two Iberian economies for breaking EU fiscal rules.

Dutch conservative MEP Lambert van Nistelrooij (European People’s Party) opened the debate by telling the European Commission that its ire was misplaced. “You did not want to punish the member states, and now you are punishing the cities and the beneficiaries” of EU funds, he said.

The Stability and Growth Pact, which limits public debt and deficits in EU member countries, foresees the suspension of part of their European funds if national governments do not take effective action to meet their fiscal targets.

The EU executive last July decided against slapping a fine on Spain and Portugal for breaching the rules. The fine, to be borne out by the central government, would have amounted to up to 0.2% of GDP.

Commission split on credibility of rules as Spain and Portugal get ‘pardon’

A strong group of commissioners was in favour on Wednesday (27 July) of imposing at least a symbolic fine on Spain and Portugal for breaching the Stability and Growth Pact, but Jean-Claude Juncker opted for a zero penalty – supported by German Finance Minister Wolfgang Schauble.

According to the procedure, the executive must come up with a figure when it comes to putting on hold EU funds, although it would be “significantly” reduced given the high level of unemployment registered in both countries, the executive told MEPs.

Commission Vice-President for Jobs, Growth and Investment, Jyrki Katainen and Corina Crețu, his colleague in charge of regional funds, tried to reassure MEPs, saying the decision would have no impact on both economies, as it would affect EU budget commitments for 2017 (expenditure ceilings but not money being invested in projects).

They insisted that the suspension would end as soon as Madrid and Lisbon submit the adjustments requested to meet their fiscal targets.

Spain must cut its deficit to 3.1% of GDP next year and 2.2% in 2018. To that end, the EU asked for cuts or tax hikes worth €5 billion (0.5% of GDP), both in 2017 and 2018.

Portugal has to bring its deficit below the 3% of GDP threshold this year, by adopting new measures worth 0.25% of its economic output.

‘Legal obligation’

Katainen emphasised that both countries are “willing” to balance their budgets because it is good for their economies. He also underlined that the Commission has “the legal obligation to act”. “It is not a question of political will”, he added.

The former Finnish prime minister argued that the partial suspension of funds is not a “sanction” but an “incentive” for countries to improve their economies so citizens can reap the full benefits of EU funds.

That is why “the conditionality ‘ex ante’ and ‘ex post’ is so important to make the best use of taxpayers’ money,” he said.

The Finn was one of the commissioners in favour of a fine to punish Spain and Portugal last July.

But Brussels’ move to impose new austerity measures on Spain and Portugal comes at a difficult time for both countries.

Spanish political parties failed to form a government after two elections held in December 2015 and in June this year.

A fresh opportunity to break the political deadlock emerged on 1 October after the Socialist leader, Pedro Sanchez, was pushed to resignation by the ‘barons’ of his party.

Embattled Spanish Socialist party hit by leadership 'coup' attempt

Spain’s Socialist party was hit by a “coup” attempt Wednesday (28 September) with half of its leadership quitting in a bid to oust leader Pedro Sanchez and unblock the country’s political deadlock.

Sanchez was strongly opposed to the formation of a new coalition government led by Conservative leader Mariano Rajoy. His staunch opposition would have ultimately triggered new elections for December.

Meanwhile, the Portuguese government revised downwards its growth forecast for this year to  “above one percent”, from 1.8% of GDP, prime minister Antonio Costa said on Monday.

Furthermore, its teetering banking system still is “in critical need of capital increases” to face an immense pile of bad loans, warned Carlos Costa, the Bank of Portugal’s Governor.

Against this backdrop, and the efforts already made by both countries, MEPs from most political groups supported the conservative and the socialist governments in the Iberian economies.

MEPs step in to ease sanctions over deficit rules

The European Parliament’s intervention “would benefit” Spain and Portugal, as they face the freezing of millions in EU funds for having breached fiscal rules, sources told

The new sanctions are “unfair” and “disproportionate” said Spanish MEP and former president of the Committee of Regions, Ramón Luis Valcárcel (EPP)

“You will pass down in history as the people who sabotaged the EU project,” added Portuguese MEP Marisa Matias (United Left), pointing the finger at the two commissioners.

Only the liberals and eurosceptics, as well as a few EPP members from Northern Europe, backed the Commission’s move to suspend EU funds.

The commissioners did not say when they will announce the programmes affected by the sanction, nor did they give a figure.  A proposal to that effect is expected by the middle of November.

If both nations make the efforts requested, the suspension could be lifted. But if new adjustments are not announced by 8 December, Spain and Portugal will face an additional fine of 0.5% of their GDP as part of the infringement procedure for breaking EU fiscal rules.

In 2013, Spain received three extra years to cut its deficit below the mandatory 3% of GDP of the pact.

Despite the fact that this was the third time Madrid had been granted leeway since 2009, the deficit reached 5.1% of GDP in 2015, higher than previously announced.

The European Commission's latest forecast predicts that the Spanish deficit will be 3.9% of GDP this year and 3.1% in 2017.

In April, the executive and the ECB concluded that the needed progress on fiscal consolidation in Spain "has come to a halt, with part of the structural adjustment implemented in earlier years being reversed".

Following the elections on 4 October, a three-party coalition led by the Socialist Party came to power in Portugal. The new government failed to submit its draft budget for 2016 by 15 October, as the EU’s fiscal rules said, and sent the draft proposal only on 22 January 2016.

After assessing the first draft, the Commission concluded that the budget was “in clear breach of the Stability and Growth Pact”, and requested more measures.

Portugal has been in the corrective arm of the Stability and Growth Pact since December 2009 and was asked to bring the deficit to below 3% of GDP by 2015. For 2016, the Council recommended that Portugal should make a structural effort of 0.6% of GDP.

  • 15 October: deadline for member states to submit their draft budgets for 2017.
  • Mid-November: Commission expected to come up with an assessment of the draft budgets and the decision on the suspension of EU funds.
  • 8 December: Spain and Portugal's deadline to submit the fiscal adjustments requested by the Council.

European Commission

  • Opinions on "no effective action" taken by Spain and Portugal to meet their Stability and Growth Pact targets.
  • Country-specific recommendations on Spain and Portugal.
  • Spring economic forecast.

Council of the EU

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