Monday 5 December 2016

EU imposes '€0' fines on Spain and Portugal

Sarah Collins in Brussels

Published 28/07/2016 | 02:30

Both countries were told earlier this month that they had failed to take
Both countries were told earlier this month that they had failed to take "effective action" in the last two years to bring their budget deficits below the EU's 3pc of GDP limit. Photo: PA

The European Commission has shied away from punishing Spain and Portugal for flouting the bloc's budget rules, in a sign austerity hawks have softened their tone following the Brexit vote.

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Both countries were told earlier this month that they had failed to take "effective action" in the last two years to bring their budget deficits below the EU's 3pc of GDP limit.

EU finance ministers endorsed that analysis, legally obliging the European Commission (EC) to propose fines.

Many in the EC were in favour of a relatively small but symbolic penalty of around 0.01pc of GDP, which would have amounted to around €100m for Spain and €10m for Portugal. The maximum possible would have been 0.2pc of last year's GDP.

However, following appeals from Madrid and Lisbon, including pledges to make more budget cuts, the EU executive agreed to hold off on the fines, saying the timing wasn't right.

"Even symbolic sanctions would not have allowed us to correct what was done in the past, and would have been hard to understand," said EU economics commissioner Pierre Moscovici.

"We didn't feel a punitive effect would be the most appropriate at a time when people are questioning Europe."

The two countries have been asked to come forward with new austerity measures by October to get their deficits down, and have been given more time to meet the 3pc of GDP limit: Spain until 2018 and Portugal until the end of this year.

But they will still face financial penalties in the form of a suspension of up to 50pc of EU regional funding for 2017, which will be lifted if Spain and Portugal live up to their budget commitments. This is the sanction that could bite, as regional governments, NGOs, entrepreneurs and farmers rely heavily on EU money.

"This is an important instrument to ensure that the countries have additional incentives to comply with the new adjustment path we are proposing now," said Commission vice-president Valdis Dombrovskis.

It indicates a change in tone following the Brexit referendum, which the Commission has predicted will knock the EU economy by between 0.1 and 0.6 percentage points between now and the end of 2017.

The Commission this week appointed Frenchman and former financial services commissioner Michel Barnier to lead the Brexit negotiations on its behalf and to "develop a new partnership with the United Kingdom after it will have left the European Union".

The negotiations can't start until the UK has made an application to leave under article 50 of the EU treaty, which British Prime Minister Theresa May has indicated is unlikely to happen before the end of the year. However, the practical effects of Brexit are already being felt, with the UK suspending payments from its EU regional funds envelope following the June 23 vote.

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