The European Commission will decide Wednesday whether to issue fines to Spain and Portugal for exceeding the EU’s budget deficit limit of 3 percent of GDP.
The college of commissioners may impose fines, which can be set at a maximum of 0.2 percent of GDP, delay its decision, or give the countries more time to meet targets.
At last week’s college meeting, a majority of commissioners “agreed that both countries are candidates for stepping up the procedures,” a source in the room told POLITICO.
The EU has never used its power to sanction countries for breaching deficit rules since the creation of the eurozone, but Spain and Portugal have repeatedly failed to follow rules.
Spain in particular has a tough case to answer, with a headline deficit of 5.1 percent of GDP in 2015. While the country had managed to cut the deficit from 5.9 percent in 2014, it was still above its forecast and exceeded the 4.2 percent target set by the EU. In addition, during the country’s election campaign, several parties advocated doing less to try to reach EU targets.
Spain’s caretaker Prime Minister Mariano Rajoy may have made things worse Tuesday, telling the Financial Times in an interview he would cut taxes if elected next month.
“If tax revenues continue to rise, as they are doing now, we can plan another tax cut,” Rajoy said. “We lowered the deficit by 4.3 percentage points in four years, even though we spent two years in recession … No one can say Spain is not willing to comply with the rules of the game and do things well.”
António Costa, the new Portuguese prime minister, argued last week his country shouldn’t be sanctioned. He said the EU had praised the previous government for austerity, and the new government could not be blamed for any fiscal gap its predecessor failed to fill.
The college of commissioners will also consider fining Italy, but the country is likely to be spared because it has taken steps to improve its budget deficit. The Commission is ready to grant Italy an “unprecedented amount of flexibility,” according to a letter sent by Vice-President Valdis Dombrovskis and Commissioner Pierre Moscovici to Italy’s Finance Minister Pier Carlo Padoan on Monday.
“It is our intention in principle … to recommend to the college to grant the full 0.5 percent available under the structural reform clause, 0.25 percent under the investment clause, 0.04 percent for the increase in costs this year related to migrant inflows and 0.06 percent for exceptional costs directly related to the security situation,” Moscovici and Dombrovskis wrote, adding: “This amounts to 0.85 percent of GDP.” In exchange, they asked for “a clear and credible commitment” that Italy will respect the rules in 2017.
The Commission has previously considered issuing fines to countries that fail to meet EU targets, but has pulled back. Last year, France looked likely to be penalized for missing the deficit target but was given more time to meet the EU budgetary requirement.