Spain, Portugal sanctions on the table despite Brexit, EU warns

Commissioner for Economic Affairs, Pierre Moscovici, said that postponing the negative opinion was not forgiving Spain and Portugal. [CONSILIUM]

The European Commission will make a final decision next Tuesday (5 July) on whether to launch sanction procedures against Spain and Portugal for breaching EU fiscal rules, officials told

Britain’s shock decision to leave the EU in a referendum last week has not altered the Commission’s plans to sanction both countries, EU officials said.

The numbers simply don’t add up for Spain and Portugal, the officials commented.

The executive prepared a negative verdict on the Spanish and Portuguese budgets and was ready to recommend sanctions on 18 May, the sources added.

Commission to punish Spain and Portugal, ‘pardon’ Italy, on deficits

Spain and Portugal will get only one extra year to fulfil EU fiscal rules on their defecits, once sanctions against both countries are adopted, while Italy will escape an infringement procedure, has learned.

According to the Juncker Commission, Madrid and Lisbon did not take “effective action” to cut their deficit below 3% of GDP on time.

If the Council backed this assessment, both countries will be imposed fines of up to 0.2% of their GDP and see part of their EU funding blocked. The Council of the European Union is the institution representing the 28 EU member states.

Spain and Portugal narrowly avoided sanctions in May this year when the Commission decided at the last minute to postpone its decision. The executive did not want to trigger sanctions for the first time, only weeks before the Spanish general elections and the UK referendum on EU membership.

“We have concluded that this is not the right moment economically or politically to take this step,” European Economic Affairs Commissioner Pierre Moscovici told reporters at the time.

Moscovici insisted that the postponement did not imply that the Commission would neglect its obligations in regards to the Stability and Growth Pact, the EU’s fiscal rules.

Spanish elections delay potential budget deficit fines

The European Commission today (18 May) decided to delay potential fines against Madrid and Portugal for failing to meet their budget deficit targets, partly becuase of the upcoming Spanish elections on 26 June.

Controversial step

As part of its decision, the executive also decided to grant both countries one extra year to balance their public accounts, raising eyebrows among some EU member states who questioned the procedural step used by the College of Commissioners to give more leeway to Madrid and Lisbon.

The Council’s legal service said the European Commission could not alter the time frame to meet fiscal targets by setting new dates for the country-specific recommendations package, a  procedure mainly for structural reforms.

Unclear outcome

Despite the negative assessment on Spain and Portugal, the executive’s ultimate decision regarding sanctions is hard to predict.

Commission indecisiveness could be fuelled by the current political and economic context, which is highly volatile after Britain’s decision to leave the EU last week.

“You never know with this Commission,” an official commented speaking on condition of anonymity.

As it happened: First EU summit post-Brexit

Following the UK’s historic decision to leave the EU, member states convened in Brussels to begin the unprecedented decision of discussing the terms of its divorce. Follow EURACTIV’s live blog below for all the developments as they happened.

Meanwhile, Prime Minister Mariano Rajoy, underlined the efforts made by his government to cut the Spanish budget deficit from 9 to 5% of GDP between 2011-2015.

“I hope things will be done in a reasonable way,” Rajoy told reporters after an EU summit this week where leaders discussed Europe’s future direction after the Brexit vote.

Italian Prime Minister Matteo Renzi also opposed sanctioning the two economies given the tense political and economic situation.

“It’s absurd not to use common sense,” Renzi said after the European summit, held in Brussels on 28-29 June.

According to El País daily, a majority of EU leaders are against sanctioning both countries.

However, German Finance Minister Wolfgang Schäuble and Eurogroup President Jeroen Dijsselbloem, underlined the importance of a strict application of EU fiscal rules in order to ensure their credibility.

EU finance ministers will have the final word on the Commission’s recommendation when they discuss the executive’s proposal on 12 July. If they back the negative opinion, the executive would have 20 days to decide on the size of the fine, which could potentially amount to more than €2 billion for Spain (0.2% of GDP).

However, EU sources did not expect that the executive would impose the maximum fine and will instead opt for a symbolic amount.

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. According to Portugal's national budget and the Commission's winter forecast, the general government deficit is expected to have been 4.2% in 2015.

  • 5 July: European Commission's college meeting.
  • 12 July: EU Finance Ministers' meeting.

Subscribe to our newsletters