MEPs step in to ease sanctions over deficit rules

Martin Schulz has attended the Davos forum every year since he became European Parliament President. [European Parliament]

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 Juncker Commission is expected to impose the first-ever sanctions against countries for breaching the Stability and Growth Pact on 27 July. Though the Parliament is not part of the sanctions procedure, the institution is aware of the “political opportunity” to raise its voice.

EU declares Spain, Portugal in violation of deficit rules

The European Commission on Thursday (7 July) officially declared Spain and Portugal in violation of the EU rules on government overspending, the first step towards unprecedented penalties against members of the 28-country bloc.

In light of this, Parliament President Martin Schulz told the executive on Wednesday (20 July) that the institution wants to have a say, at least in one of the penalties contemplated by the EU rules: the freezing of EU structural funds.

The rules stipulate that MEPs have the right to request a “structural dialogue” any time there is a proposal to suspend EU funds.

Parliament sources explained that the proposal that would come out of this dialogue will be “different” from the European Commission’s proposal. The sources added that the result would be beneficial to Madrid and Lisbon, given the parties ruling the Iberian countries, and the majority in the European Parliament. Otherwise, “it would not make political sense”.

The two largest groups in the Parliament are in power in both nations. Portugal’s prime minister is the Socialist Antonio Costa. Meanwhile, Partido Popular leader Mariano Rajoy is in talks to be reelected as Spain’s premier in the next few weeks.

According to the rulebook, once the countries are blamed for “lack of effective action” to meet their deficit targets, the suspension of the EU funds could be up to 50% of the commitments (EU funds assigned), or 0.5% of GDP.

Fine not for MEPs

The Parliament’s request will alter the Commission’s plans to put forward its proposal for the penalties. The College of Commissioners is expected to adopt a fine for both countries on 27 July, where the MEPs cannot play any role. But the decision on the suspension of the funds, expected also for that day, will come in the autumn, since it will be discussed with legislators.

Regarding the fine, it could amount to 0.2% of GDP, around €2.1 billion in the case of Spain and €346 millions for Portugal.

Spain and Portugal pledge new measures to avoid EU deficit fines

Both Spain and Portugal have submitted their arguments to the European Commission in a bid to avoid penalties for breaching the fiscal rules, expected to be announced on 27 July.

On Wednesday (20 July), the executive held a discussion on this issue. EU sources ruled out that the Commission would use the full potential of the fine, although all options remain open. Speculations said that the fine could be from zero to a few hundred euros.

Two years for Spain?

On 27 July, the College is expected to give an extra year to Portugal (until 2016) to cut the deficit below the 3% of GDP, as the Stability and Growth Pact mandates.

In the case of Spain, the decision is not clear yet. In May, commissioner for Economic Affairs, Pierre Moscovici, proposed one year also for Madrid. But EU sources told this website that Moscovici, proposed two years more during the debate on 20 July, given the fall of public revenues and the political deadlock in the country after two inconclusive elections.

Sources explained that Schulz sent a proposal to the presidents of the Parliament’s political groups, in order to endorse participation in the sanctions procedure, including the  committees that should take the lead in the discussion beginning in September (Economic Affairs and Regional Policy).

Officials did not clarify how long the dialogue between the executive and the MEPs will take, as this will be the first time that the two sides will have engaged in the structural dialogue contemplated by the rules.  But they do not expect it could last for months.

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.

  • 27 July: Expected date for Commission's announcement of the fines.

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.

European Council

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