The European Commission will not fine Spain and Portugal for breaking the EU's budget rules, despite calls for the EU to take a hard line against the two countries.
Spain and Portugal both ran budget deficits which exceeded Eurozone guidelines which prohibit states in the single currency area from running shortfalls of more than three per cent of GDP. EU members can be subject to a fine worth 0.2 per cent of GDP for running excessive deficits under the terms of the stability and growth pact.
In the system of Brussels ping-pong between the institutions, the European Council, made up of the heads of state of EU members and led by Donald Tusk, judged earlier this month the pair "had not taken effective action" to bring the deficits under control. This notification was then passed to the Commission, the EU's executive arm made up of commissioners appointed by the member states, to make a recommendation to the Council over potential punishment.
Silly end 2 a fine mess. Taken 2 edge but not willing 2 enforce €0 fine. Hard 2 see rules as binding in any way now https://t.co/zGJ61A1Cae— Raoul Ruparel (@RaoulRuparel) July 27, 2016
In a statement this afternoon, the Commission said it did not advise pushing ahead with punishments, stating it: "The Commission recommends that the fine be cancelled for both countries."
Spain's deficit in 2015 came in at 5.1 per cent of GDP, while Portugal's was 4.4 per cent - larger than both EU rules allow and higher than their governments had previously committed to.
Commission president Jean-Claude Juncker was thought to favour a hard line against the pair to show it intends to uphold the rules and use the powers to set an example, but that was rejected today.
The commission added that fines "can be reduced on the grounds of exceptional economic circumstances or following a reasoned request by the member state concerned.
"Both countries submitted such reasoned requests. Acknowledging their reasoned requests, the challenging economic environment, both countries' reform efforts and their commitments to comply with the rules of the stability and growth pact, the Commission recommends to the Council to cancel the fine."
"The decision to recommend or not sanctions was always going to be a political one. This is why we only put a 60 per cent probability that the EU Commission would impose sanctions on Spain and Portugal," said Societe Generale's senior euro economist, Yvan Mamalet, pointing out that the new targets would be a challenge for both Portugal and Spain to meet.