The European Commission today (18 May) decided to delay potential fines against Madrid and Portugal for failing to meet their budget deficit targets, partly because of the upcoming Spanish elections on 26 June.
The Commission has pushed back triggering the sanction procedures until early July.
“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 on Wednesday (18 May) after the college meeting.
There is a “broad acknowledgement” between the Commissioners on the lack of effective action taken by Madrid and Lisbon to meet their deficit targets, EU officials told EURACTIV.
The Commission had prepared recommendations for stepping up infringement procedures against both countries, which ultimately would lead to imposing fines costing up to 2% of their GDP, the sources added on the eve of the college meeting.
These penalties against EU member state for breaching the EU fiscal rules would have been an unprecedented step by the Commission.
But European Commission President Jean Claude Juncker was wary of the “political consequences” that such a decision could have caused days before the Spaniards go to the ballot box and the in-or-out referendum in the United Kingdom to be held on 23 June.
“These are not easy decisions to take,” admitted Moscovici. “Whatever you do, you could be criticised from the other point of view,” he added.
The French Commissioner explained that the Commission took into account the global economic slowdown. In light of this, the executive wants to support a budgetary policy that could support growth, he said.
He also pointed out to the lack of a government in Spain capable of taking “the necessary measures”. The acting executive, in place because no new coalition has been formed since December’s elections, has limited powers.
Moscovici recalled that Spain and Portugal have gone through a “tough crisis” and both “have made significant efforts when it comes to reforms”.
But he stressed that the institution will enforce the rules when the time comes.
“I want to reassure you. We are resolved to have the rules respected in the Commission,” he said.
A Commission official argued that the postponement of the recommendation is legally sound, as there is no deadline included in the EU rules as for when to take such a decision, according to the executive’s legal service.
The decision did not surprise some officials involved in the dossier, as all options were possible before the college of Commissioners meeting started on Wednesday morning.
A source inside the room insisted that the decision was “consensual” and every commissioner agreed on applying the rules “intelligently”.
The delay represents a small victory for Spanish Prime Minister, Mariano Rajoy, who lobbied Juncker over the last days to postpone stepping up the infringement procedure by stressing the efforts made over his mandate to balance the public accounts.
But, despite the postponement on launching the sanction procedure, officials agree that the “numbers are very clear”, indicating that the recommendation to sanction Spain and Portugal would ultimately come.
For the time being, the college of Commissioners agreed on a new calendar for the Iberian economies to cut the deficit below the mandatory 3% of GDP.
Accordingly, both countries will get an additional year to fulfil the fiscal rules.
Spain should have met the deficit target by 2016. Instead, the Commission expects the deficit to reach 3.9% of GDP this year and 3.1% in2017.
Spain is now required to improve its structural effort by 0.25% of GDP this year and 0.5% of GDP in 2017 to fulfil the EU rules. This would represent an additional adjustment of about €8 billion.
Portugal failed to reduce the deficit below the 3% threshold in 2015 as agreed with the EU. The Commission granted one more year to the Portuguese government to reduce the deficit by adding measures worth 0.25% of GDP.
The extra efforts requested and the looming sanctions run against Rajoy’s offensive to convince Spanish voters to support him in the ballot box.
The Spanish leader, criticised due to his lukewarm reaction to the numerous corruption scandals affecting his party, told the Financial Times on 17 May that he was eyeing more tax cuts if he was re-elected.
Euro Commission Vice-President Valdis Dombrovskis, said that it is up to the Spanish authorities what adjustments to make as long as Spain meets the new deficit targets.
Meanwhile, the college of Commissioners decided not to launch an excessive deficit procedure against Italy, despite its deviation from the agreed fiscal path to reduce the mastodontic public debt of 132% of GDP. An excessive deficit procedure is a punishment for breaking EU fiscal rules.
The Commission granted Rome more leeway to accommodate the extra spending caused by the refugee crisis.
The institution also took into account the written commitments made by the Italian government to reach a deficit of 1.8% of GDP in 2017. The executive warned that it will remain vigilant and will check in autumn Italy’s progress once its draft budget for 2017 is submitted to Brussels.
The Commission also recommended closing the excessive deficit procedure on Ireland, Cyprus and Slovenia.