European leaders have accepted the recommendation to let the countries off with a slap on the wrist, rather than impose a financial penalty which could have been equivalent to 0.2 per cent of GDP.
Under the EU's stability and growth pact, members of the Eurozone are forbidden from running budget deficits in excess of three per cent of GDP. The system is designed to help keep the fiscal policies - tax and spending - of Eurozone countries within the same range, and not drag the single currency higher or lower on the basis of government profligacy.
Spain ran a deficit of 5.1 per cent last year and Portugal's spending was 4.4 per cent above its income.
In July, the EU's technocratic branch, the European Commission, recommended dropping the plans to fine both countries, citing exceptional economic circumstances. That decision was today approved by the European Council, made up of the heads of EU states.
In a statement today, Pierre Moscovici, the EU commissioner for economic and financial affairs said: "Today's decisions reflect an intelligent application of the stability and growth pact. By giving more time to Spain and Portugal to bring their public deficits below three per cent, the Council sets new credible fiscal trajectories, which will contribute to strengthening both their economies and the Eurozone.
"Stability and growth require a strong determination to put public finances in order," he added.
New requirements on the pace and extent of deficit reduction have been set. Spain was ordered to reduce its deficit by 0.4 per cent this year and another 0.5 per cent in 2017 and 2017. Portugal was told to fully implement measures which would bring its deficit down from 4.4 per cent in 2015 to 2.5 per cent this year.
No countries have faced financial penalties under the scheme yet, and the cases of Spain and Portugal were seen as a key test as to how strict the EU intends to enforce the rules.