World Economy

Spain, Portugal Violate EU Budget Rules

Spain, Portugal Violate EU Budget RulesSpain, Portugal Violate EU Budget Rules

Eurozone finance ministers have agreed Spain and Portugal are in violation of budget rules. Any potential penalties are likely to be soft in order to avoid an anti-EU backlash or hamper economic growth.

Eurozone finance ministers on Monday agreed that Spain and Portugal are in violation EU budget rules, potentially setting the stage for unheard of penalties being imposed on the euro currency users, DW reported.

The eurogroup finance ministers agreed with an assessment issued last week from the European Commission, the EU’s executive, that Madrid and Lisbon failed to live up to their commitments to slash their budget deficits.

The 28-member bloc will vote (by late Tuesday) to support “the commission’s recommendation unanimously”, said Jeroen Dijsselbloem, who heads the 19 finance ministers from EU countries that use the euro currency.

Once the decision is made, the commission will have 20 days to prepare penalties.

Spain and Portugal are expected to submit a request for no sanctions within 10 days. Such a request would come with pledges to improve their budget outlook.

Following the UK vote to leave the 28-member bloc, there is pressure on the EU to avoid stoking euro-scepticism by penalizing Madrid and Lisbon.

Portugal is considered a strong reformer, while Spain has been embattled by two recent elections and political uncertainly. The political environment within both countries has made it difficult to push through further budget cuts. The two Iberian nations had enacted extensive austerity measures as part of bailout agreements reached during the eurozone crisis, and have since faced widespread popular resistance.

Under EU rules, the bloc’s executive may impose fines of up to 0.2% of GDP if a eurozone member repeatedly ignores the 3% of GDP deficit limit. It has never slapped sanctions on a country, even as other countries have gone over the budget cap.

Defending his country’s deficit slashing, Spanish Finance Minister Luis de Guindos said he was optimistic the commission would avoid “the sheer nonsense that a fine against Spain would signify.”

Spain has cut its budget hole in half from nearly 10% in 2012. However, it remains off the 4.2% target set by the commission and above the 3% EU threshold.

Portugal slashed its budget from nearly 10% of GDP in 2012 to 4.4% last year, but that also misses targets and the 3% limit.