Business Irish

Monday 19 March 2018

Noonan 'not interested' in fining Spain and Portugal over breaches

Portugal’s Finance Minister Mario Centeno with French counterpart Michel Sapin in Brussels yesterday
Portugal’s Finance Minister Mario Centeno with French counterpart Michel Sapin in Brussels yesterday

Sarah Collins in Brussels

Spain and Portugal are unlikely to face fines for breaching EU deficit limits, but will be asked to make extra budget cuts.

Eurozone finance ministers on Monday appeared unwilling to resort to fines given the uncertain post-Brexit environment and lingering problems in Italian banks.

"When you have rules you need to respect them. And, at the same time, we can show that those rules are intelligent, that they are not a punishment, that they are not a constraint," EU economics chief Pierre Moscovici said, adding that the EU was not out to "damage growth and jobs".

Last week the Commission said that Spain and Portugal had not taken "effective action" to reduce their deficits, despite being granted repeated extensions to their deadlines to meet the EU's 3pc of GDP upper limit.

EU finance ministers are expected to confirm that assessment today, giving the Commission 20 days to propose fines of up to 0.2pc of GDP for each country and freeze their regional funding for next year.

However, the fines can be reduced to zero pending written appeals by the two governments, and the regional funds suspension will be lifted once they make extra budget cuts, as was the case with Hungary in 2012.

Spanish finance minister Luis De Guindos said he was "optimistic" that fines would not apply. "Every day I'm more convinced that the sanctions are going to be zero," he said.

Ireland does not support sanctions, but Minister for Finance Michael Noonan said he agreed with the Commission's assessment that the two countries had breached EU rules.

"From Ireland's point of view, it would be sufficient to have the finding that they were in breach," Mr Noonan said. "We're not interested in having sanctions apply to them."

But Jeroen Dijsselbloem, Dutch finance minister and chair of the monthly meetings of finance ministers, said Spain and Portugal would have to come up with more budget cuts to compensate.

"I believe it's a possibility to have zero sanctions," he said. "But the third element is also very important: What will the countries do in this year and the coming years to sort out the problems?

"The more they can put on the table, the more commitment they can give to the Commission, perhaps that could help."

Ministers would not be drawn on solutions for Italy's banks, which are packed with bad loans that are unlikely to be repaid.

EU rules only allow state funds to be injected in exceptional circumstances, and new rules that came into force in January force bank shareholders and bondholders - many of whom, in Italy, are retail investors - to take a hit before taxpayers are called in.

Italian finance minister Pier Carlo Padoan said his government was "making progress" on the issue in talks with the European Commission.

Commission vice-president Valdis Dombrovskis, who will take over the banking portfolio from UK commissioner Jonathan Hill at the end of the week, said there were "a number of ways" to resolve liquidity or capital shortfalls in Italy's banks "with the respect of EU rules and without harming financial stability or retail investors".

Eurozone finance ministers meeting yesterday also held a first discussion on the impact of the UK's Brexit vote last month.

Mr Noonan estimated that Ireland's economic growth will take a 0.5 percentage point hit next year as a result, adding that the long-term impact could be worse, depending on the kind of post-Brexit deal negotiated between the EU and the UK.

"If the relationship comes close to preserving the single market and allowing freedom of movement of capital and people and so on, then the impact will be very little," Mr Noonan said.

"On the other hand, if there's a failure to reach an agreement and it swings back to a position where the United Kingdom will be bound by World Trade Organization rules […] then the impact would be quite severe."

Mr Noonan was downbeat on current prospects for a deal, saying the EU and UK positions "don't meet, and it's hard to see how they'll be reconciled".

EU Economy Commissioner Pierre Moscovici in his first assessment of the Brexit vote's impact said UK growth will fall by 1 percentage point around to 2.5pc by 2017, with EU growth slowing to 0.5pc by 2017.

Irish Independent

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