Spain, Portugal in line for penalties on budget deficits

Ministers have given potential sanctions the go-ahead, but the Iberian countries may persuade the Commission to be lenient.

EU finance ministers have given the European Commission the green light to pursue potential sanctions against Portugal and Spain for failing to meet the bloc’s budgetary rules.

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The ministers made the decision today after scrutinizing an assessment by the Commission, which concluded that the Iberian countries had failed to take “effective action” to correct their budget deficits last year.

EU member countries must keep their budget deficits below 3 percent of economic output, as set out by the so-called Stability and Growth Pact.

Spain and Portugal’s deficits hit 5.1 percent and 4.4 percent, respectively, last year.

The Commission will now have 20 days to deliberate the severity of the sanctions for the two countries, which face fines of up to 0.2 percent of their GDP. Spain, as a result could face a maximum fine of €2 billion, whereas Portugal could be fined €360 million.

The EU’s executive arm could also choose to restrict EU funding — cash that is used for infrastructure projects like bridges and roads — to the two countries as further punishment.

It will now be up to Commission President Jean-Claude Juncker, his deputy Valdis Dombrovskis, and Economy Commissioner Pierre Moscovici to agree on the severity of the EU sanctions.

“I am sure that we will have a smart, intelligent result at the end,” said Peter Kažimír, the finance minister of Slovakia and ECOFIN president.

But over the next 10 days, Portugal and Spain have the chance to convince the Commission that the fines should be significantly decreased, or even cancelled.

If the Commission is sufficiently persuaded by Iberian efforts to reduce their deficits through reforms, targets, and fresh initiatives, they could recommend EU finance ministers back down as well.