European Commission to Rule on Spain, Portugal Budget Deficits
July 01 2016 - 11:10AM
Dow Jones News
BRUSSELS—The European Commission will say next week that Spain
and Portugal didn't take sufficient measures in 2015 to bring their
budget deficits within European Union rules, triggering a process
which could eventually lead to financial sanctions.
But the commission, the EU's executive arm, will likely propose
later this summer that the two countries receive a symbolic fine of
zero, or close to it, according to two EU officials.
That would be a sign that while it acknowledges they have failed
to stick to the bloc's rules, it is not willing to substantially
penalize them at a time of economic instability in the region,
further worsened by the U.K.'s vote to leave the bloc.
A move to impose zero fines could offer some relief to Lisbon
and Madrid, but it may also raise concerns in other European
capitals, including Berlin and Amsterdam. They have long argued
that countries should be punished for not following the rules that
call for budget deficits not to exceed 3% of gross domestic product
and that no government should receive special treatment.
"We cannot have double standards in Europe," Slovak Finance
Minister Peter Kazimir told reporters in Bratislava on Thursday,
when asked about possible sanctions for the two countries.
The decision on the amount of the fines will be taken at a later
stage, after EU finance ministers endorse the commission's view at
a meeting later this month. The commission is also likely to
propose that some of the EU funding for the countries for next year
is temporarily blocked, until they commit to new measures, the
officials said.
At a summit of EU leaders in Brussels earlier this week, the
Portuguese and Spanish leaders spoke against sanctions for their
countries, cautioning that they wouldn't be good for the economy,
particularly at a time of turmoil in the markets following the
U.K.'s vote to leave the EU, according to three diplomats with
knowledge of the discussion.
Italian Prime Minister Matteo Renzi, a frequent critic of EU
rules he says are too rigid, supported his Iberian counterparts
saying the EU should use common sense and not sanction the two
countries now, the diplomats said.
Some EU officials also say it would be counterproductive to fine
Portugal at a time when the country's sovereign debt is under
pressure from markets, and its access to the European Central
Bank's bond-buying program, which has kept bond yields low and
relatively stable, hinges on its investment-grade rating by
Canadian firm, DBRS Ltd.
Portuguese politicians from both the left and the right have
united against the sanctions. Prime Minister Antó nio Costa said it
would be "ridiculous" to sanction Portugal over missing a budget
target by 0.2 percentage points of GDP and at a time when Europe is
struggling with much bigger issues, including Brexit, terrorism and
the migrant crisis.
One of his allies in parliament, the Left Bloc, even said a
referendum on Portugal's EU membership should be called if
sanctions were imposed.
In Madrid, parties are negotiating to form a government after a
second round of elections again proved inconclusive. But each of
Spain's four major political parties agree that Brussels should
loosen the time frame for the country to meet its deficit targets,
in a sign of likely clashes ahead with Brussels over further fiscal
belt-tightening.
The commission said already in May that the two Iberian
countries, should take more measures to reduce their budget
deficits in 2016 and 2017, and gave them an extra year to get their
deficits within 3% of GDP. The deadline for Portugal is now 2016
and for Spain 2017.
The commission can impose fines of up to 0.2% of gross domestic
product on eurozone countries that repeatedly ignore
recommendations to fix their budget problems. Any sanction for
countries in breach of the EU's budget rules would ultimately have
to be signed off by the bloc's finance ministers.
The EU hasn't fined a country for breaching its fiscal rules
since the creation of the euro.
Spain has struggled to meet its budget deficit targets over the
past few years despite robust economic growth. Last year, with the
economy expanding 3.2%, Spain reported a budget gap of 5.1% of GDP.
The commission had set a target of 4.2%.
Portugal has sharply cut its budget deficit from close to 10% of
GDP in 2010 to 4.4% last year, but that still exceeded the bloc's
limit.
Excluding a capital injection into a failed lender in December
and smaller one-time items, Portugal's 2015 deficit would have been
slightly over the 3% limit, the commission has said.
Patricia Kowsmann in Lisbon and Laurence Norman in Bratislava
contributed to this article
Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com and
Valentina Pop at valentina.pop@wsj.com
(END) Dow Jones Newswires
July 01, 2016 10:55 ET (14:55 GMT)
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