EU Commission Starts Deficit Penalties on Spain, Portugal

The European Union’s current mandatory limit on deficits is maximum 3% of gross domestic product which Spain and Portugal failed to comply with.
 
The two countries now risk fines and the suspension of EU funds if they cannot show the rules were breached because of “exceptional economic circumstances”. Fines up to 0.2% of GDP may be imposed if the excessive deficits are not reduced, although sanctions so far have never been applied.
 
Portugal’s left government argued it is unfair to start this procedure since it has already been on track of correcting the country’s deficit for 2016. Spain suffered a prolonged period without on a political deadlock which could repeat itself after the last general election on June 26.
 
The Council of EU finance ministers will decide on the Commission's recommendation at their regular meeting on July 12, a spokeswoman for the EU's Slovak presidency told Reuters. After the Council’s decision, the European Commission has 20 days to propose appropriate sanctions. Therefore, Spain and Portugal may be fined by July 27, the last meeting of the European Commission before the summer break.
 
Ministers could reject the Commission's assessment only with a qualified majority of its members, making it very unlikely that the Council may oppose the Commission's recommendation.
 
Both Portugal and Spain have been under EU's excessive deficit procedure since 2009 because of surging fiscal gaps following the 2007-08 global financial crisis. In line with the procedure, the Commission set annual targets to gradually reduce their fiscal gaps. But in 2014 and 2015, Spain and Portugal missed the agreed objectives, maintaining deficits well above the 3% limit. They are not the only member states struggling with the Commission’s rules; France is also one of them, among others.
 
Last year, Spain had a 5.1% deficit, higher than the required 4.2%. Portugal was required to cut its deficit to 2.5% of GDP in 2015, but instead had a 4.4% deficit.
 
Meanwhile, at the European Parliament on Thursday the GUE/NGL political group staged a protest against the European Commission’s sanction which will inevitably lead to another round of austerity measures.

In the aftermath of the UK referendum to leave the European Union, there have been voices against the sanctions. However, Germany and other member states insist on the rigid application of rules.