ON August 9 the European Commission tweeted “Following our recommendations, EU finance ministers cancel fines for Spain & Portugal. We welcome this decision.” confirming that those two countries had escaped significant fines for the way in which their finances have been managed.
Very simply, EU rules require that no member of the Union should run an annual deficit in excess of 3 per cent of gross domestic product (GDP) although only those countries who are members of the Eurozone can be fined for breaching this.
In the case of Spain, its excess was a whopping 5.1 per cent and Portugal was close behind at 4.4 per cent and the originally proposed fines would have been the first ever to be levied since the Eurozone was created but on this occasion, the EU quoted ‘exceptional circumstances’ for the decision to suspend the fines.
Portugal has been given until the end of 2016 to get its house in order and reduce its deficit to 2.5 per cent and Spain has been given a little longer with the expectation that it will reduce to 4.6 per cent by the end of 2016, 3.1 per cent by the end of 2017 and 2.2 per cent by the end of 2018 whilst both must give a detailed explanation of how they will achieve this by October of this year.
There is a general dichotomy of opinion on the decision as some argue that it is pointless to fine a country thus worsening its financial situation whilst others argue that it completely devalues the rules of the organisation if they are not imposed. France was in a similar position last year when it also had a potential fine waived.
One argument is that the Commission fears that with the British referendum result and general discontent with many of the activities of the Union, that by cancelling the fines there will be less negative comment from the two Nations, but as they both receive more funds than they put into the EU, it hardly seems that their own exit would be imminent regardless of the decision.
“The EU finance ministers decided to cancel financial fines for Spain and Portugal. They also confirmed the new budgetary adjustment paths for both countries. Effective action by Spain and Portugal will be a necessary condition to lift the suspension of commitments under the European Structural and Investment Funds,” said EU Commissioner Valdis Dombrovskis.
Economic & Financial Affairs Commissioner Pierre Moscovici said “I trust that Spain and Portugal will respond accordingly to the collective decisions by the Commission and the Council.”
Whilst Spain still continues to search for a government, this is at least one less worry for the interim government for the time being, although the problem will not simply go away and will have to be addressed in the coming years.