Brussels, 07/07/2016 (Agence Europe) - On Thursday 7 July, the European Commission sent the Council of the EU a draft recommendation calling upon it to note that Spain and Portugal have not taken effective actions to correct the deviation from their budgetary trajectories between 2013 and 2015. By taking this step, it is asking the Council to take position on the possibility of sanctioning the two Iberian countries.
The Commission was called upon to “verify whether the nominal deficit and structural deficit targets had been achieved in the past”, said the Commissioner for Economic and Financial Affairs, Pierre Moscovici. It should be noted that the “same diagnosis” should be forthcoming for both Spain and Portugal: there is an “absence of effective actions both for the nominal deficit and for the structural effort” (not including conjunctural effect: Ed), he added.
Portugal was supposed to have corrected its excessive nominal deficit in 2015 (EUROPE 11488). However, this stood at 4.4% of GDP last year. “The shortfall is mainly due to the rescue of the bank Banif, but even without that, the deficit would have been slightly above 3% of GDP”, Moscovici observes. As regards the structural deficit between 2013 and 2015, the Commission noted a gap of 1.4% of GDP between the effort made (1.1%) by the Portuguese authorities and the effort agreed upon (2.5%) at European level.
Spain is supposed to bring its nominal public deficit below 3% of GDP mark in 2016 (EUROPE 11558, 11535). However, the Spanish deficit stood at 5.1% of GDP in 2015. According to the Commission, the discrepancy between the structural effort made by Madrid ( 0.6%) and the effort agreed upon at European level (2.7%) stood at 2.1% of GDP between 2013 and 2015.
Door open to possible sanctions
By making a recommendation to the Council to take a further step in the excessive deficit procedure opened against the two Iberian countries, the Commission is opening the door to the possibility of imposing, for the first time ever on eurozone countries, financial sanctions or a suspension of the structural funds. Giving in to pressure from those in favour of a strict application of the Stability and Growth Pact, it is reminding the member states of their responsibilities, after a waiting period.
“Today is not about sanctions, we are just commenting the past. So no speculation today from anybody. It is up to the Council to decide”, Moscovici stressed. However, he acknowledged that if the finance ministers adopt the Commission's recommendation on Tuesday 12 July, it will be obliged to make a proposal for a financial penalty (of a maximum of 0.2% of GDP) and for the suspension of the structural funds. He took pains to stress, however, that any such penalty could ultimately be reduced to zero.
When asked about the difference in treatment between these two countries and France, which has been given extra time on a number of occasions to correct its deficit, for instance when Moscovici was its finance minister, he rejected any comparison: the absence of effective measures has never been observed in France.
Putting the dossier to bed before the summer
The Slovakian Presidency of the Council sent out a clear signal: the dossier is on the agenda of the meeting of the national ambassadors to the EU on Friday 8 July. According to a source from a member state, it has already been the subject of a “robust” discussion at the Economic and Financial Committee (EFC), the body tasked with preparing the meetings of the Ecofin Council, but ultimately, the decision will be a “political” one.
The Commission's aim is to put the dossier to bed before the summer break, more specifically at the meeting of the College of Wednesday 27 July, according to a source close to Commissioner Moscovici. This source went on to add that the two member states in question would have 10 days from the time of any decision made by the Ecofin Council to challenge not the principle of the sanctions, but the amount.
Calling for the 'intelligent' application of the Pact, the Commission highlights the budgetary efforts already made by Spain and Portugal, even though both countries have taken the full force of the financial crisis. In the view of the Commissioner for the Euro, Valdis Dombrovskis, the Spanish and Portuguese public finances have improved significantly thanks to “major” budgetary consolidation and structural reform efforts. “These efforts should not be underestimated and are paying off”, he said, congratulating Spain on being a driving force behind Eurozone growth and Portugal on the thousands of jobs created in the country. He went on to stress that according to the Pact, sanctions may be reduced to zero.
Budgetary trajectories to be amended
In mid-May, the Commission suggested that Lisbon and Madrid be given an extra year to bring their deficit back within the bounds of the Pact, making it 2016 for Portugal in 2017 for Spain (EUROPE 11575). However, this suggestion was not made in the framework of the excessive deficit procedure.
Moscovici said that “both countries would require new deadlines to meet their targets”. He went on to say that the Commission would act “before the summer break”, once the Council has returned its decision. (Original version in French by Mathieu Bion with Elodie Lamer)