Brussels, 12/07/2016 (Agence Europe) - On Tuesday 12 July, the European finance ministers entered uncharted waters in the excessive deficit procedures against two eurozone countries, when they opened, for the first time, the prospect of financial sanctions against Spain and Portugal. In a move to ensure the credibility of the Stability and Growth Pact, however, they will take pains to avoid crippling the two Iberian countries, out of concerns of attracting more Euroscepticism.
“The Council has adopted two decisions” to the effect that “Spain and Portugal failed to take effective measures” between 2013 and 2015 to comply with the budgetary trajectory agreed at European level, said the President-in-exercise of the Ecofin Council, the Slovakian minister, Peter Kazimir. He said that the adoption of these two decisions had been the subject of “no voting drama” and proves that “we are ready to face the problem”. The day before, the Eurogroup had given its unanimous green light to the adoption of Commission's recommendations (EUROPE 11591).
This unprecedented move to the next stage of the excessive deficit procedure (article 126.8) in place against two eurozone countries is likely to satisfy the countries - such as Germany, the Netherlands and Finland - which set great store by abiding by the budgetary rules in order to preserve their credibility. A number of observers also see it as a warning to other eurozone countries under an excessive deficit procedure, such as France.
Kazimir confirmed that the decisions made by Tuesday's Ecofin Council could lead “automatically to sanctions”, although his preferred solution is for the two Iberian countries to adopt measures allowing them to reposition themselves on an appropriate budgetary trajectory.
The European Commission now has a maximum of 20 days to make a proposal to the Council to impose sanctions against Spain and Portugal. These sanctions will take the form of financial penalties of up to 0.2% of GDP and the freezing of European structural funds. The eurozone countries (not including the countries concerned) will then have 10 days to oppose the adoption of sanctions by qualified majority.
Before the Commission submits its proposals, Madrid and Lisbon will have 10 days to state their positions. “The main thing will be the quality of the two countries' responses”, observed the Commissioner for Economic and Financial Affairs, Pierre Moscovici. The Commission is also soon to submit new trajectories to correct the Spanish and Portuguese excessive public deficits.
“Our country intends to fight and lay out its arguments aiming to ensure that this process does not lead to consequences of any kind for Portugal's budgetary efforts, which are already significant”, said the Portuguese minister Mario Centeno, who feels strongly that the Ecofin Council's decision against his country does not take sufficient account of the budgetary efforts made by the Portuguese. Every day “more confident that there will be no sanctions” against Spain, the Spanish minister, Luis De Guindos, said that his country would invoke a number of circumstances which have had the effect of complicating adherence to the budgetary rules, such as “negative inflation, the calculation of the output gap and the structural effort is made”.
Towards sanctions of a symbolic nature
Stressing the efforts made by Madrid and Lisbon in the period in question, in other words between 2013 and 2015, the European Commission and a number of ministers anticipate that this dossier will make rapid progress and lead to sanctions of a largely symbolic nature. Hence their appeal for a 'smart' application of the European budgetary rules.
“There is a signal which would be the wrong one and that is that there are no rules any more. There is another signal which would be wrong, and that is sanctioning for the sake of sanctioning”, said the French minister, Michel Sapin. Edward Scicluna of Malta said that “there is a very thin line between unravelling the rules, thus making them ineffective, and being Draconian and encouraging Euroscepticism”.
The Commissioner for the Euro, Valdis Dombrovskis, stressed that Spain and Portugal had come back from the brink to cleanse their public finances and relaunch their economies (EUROPE 11589). He pledged that in its assessment, the Commission would take account of the budgetary efforts already made and of the “severe” financial crisis experienced by both countries in recent years. (Original version in French by Mathieu Bion)