Spain, Portugal Face Commission Rebuke on Budget Target Failures

  • Iberian countries are under the corrective arm since 2009
  • European Finance Ministers to decide on possible sanctions

Spain and Portugal may face sanctions from the European Union after the Iberian countries didn’t do enough to meet targets to reduce their budget deficits said Jeroen Dijsselbloem, the Dutch Finance Minister who leads the group of his euro-area counterparts.

“These rules contain some flexibility, but in this case the flexibility has been used up,” Dijsselbloem told lawmakers in The Hague on Thursday. “When I look at the numbers I really have to conclude that Spain and Portugal did too little.”

The EU is weighing the need to enforce its budget rules with a rebuke for Spain and Portugal against a backdrop of wider calls to rally voter support for the bloc following the U.K.’s decision last month to abandon it. Spain’s Acting Economy Minister Luis de Guindos has been adamant that sanctions against his country would be unreasonable as the government continues the task of repairing its economy after the financial crisis.

The European Commission is likely to say Thursday that both countries failed to take effective steps to reduce their budget shortfalls, which are the highest in the European Union after Greece, a person familiar with the matter said earlier this week. Such a declaration would trigger a sanctions procedure against the two countries and EU finance ministers, who meet in Brussels next week, would have to endorse the ruling before the commission decides on the level of penalty.

Spain’s deficit was equivalent to 5.1 percent of its gross domestic product last year, compared with a target of 4.2 percent set by the Commission. Portugal’s shortfall ended 2015 at 4.4 percent, or 1.4 percentage points higher than the 3 percent threshold set by the commission set for countries to included in the public finances’ corrective arm known as Excessive Deficit Procedure. The average budget shortfall for the 28-country bloc was 2.4 percent in 2015, according to the European Union’s statistics agency Eurostat.

Starting a sanctions procedure for the Iberian countries would be a contentious issue. That’s because while other countries including France and Italy have all received warnings in recent years after missing targets on deficit or debt, no country has so far been sanctioned. EU finance ministers have a meeting scheduled for July 12, in which they may discuss whether to enable the commission to go ahead with the penalty procedure.

Since the rules were beefed up in 2011 and 2013 in response to the debt crisis, the commission has stronger powers to push for sanctions against member states including fining countries that persistently breach their deficit commitments by as much as 0.2 percent of their gross domestic product. It also can send troika-style inspectors to scrutinize national accounts and suspend some EU funds.

When Spain entered the EU’s Excessive Deficit Procedure in 2009 it was given until the end of 2012 to bring its shortfall below the 3 percent limit. The bloc already gave extensions to that deadline in December 2009, 2012 and 2013.

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