Spain and Portugal avoid EU fines over breaching budget rules

Spain and Portugal have escaped EU fines despite repeated breaches of the bloc’s budget rules.

The move follows appeals from Madrid and Lisbon for leniency after the commission announced earlier this month that it was legally obliged to impose fines of up to 0.2% of GDP.

A majority of the EU’s 28 commissioners yesterday decided to cancel the fines, in line with EU rules, over fears it would send the wrong message to markets and an increasingly eurosceptic public.

A symbolic penalty of 0.01% of GDP had been mooted, which would have amounted to around €100m for Spain and €10m for Portugal, but only four commissioners, from Germany, Sweden, Finland, and Latvia, were in favour.

“Even symbolic sanctions would not have allowed us to correct what was done in the past and would have been hard to understand for people who have made enormous sacrifices over the last few years,” EU economics chief Pierre Moscovici said.

“We didn’t feel that the punitive approach would be the most appropriate one at a time when people are questioning Europe.”

The decision is subject to approval from EU finance ministers, who are likely to follow the commission’s lead.

The commission told Spain and Portugal earlier this month that they had not taken “effective action” to reduce their deficits below the EU’s 3% of GDP limit, despite repeated deadline extensions.

Spain now has until 2018 to do so, and Portugal hasuntil the end of 2016.

But both governments will have to make extra budget cuts to meet their new targets, or face losing up to 50% of EU regional funding for next year.

It is here the commission really intends to bite, with vice-president Valdis Dombrovskis saying he would come forward with a “rigorous” proposal to freeze both countries’ EU funding following talks with MEPs in September.

The move highlights the quandary facing the EU.

While there is little appetite to sanction already cash-strapped states, especially given the fallout from the Brexit vote, there is a need to ensure the bloc’s budget rules actually bite.

Brexit has had an effect on the UK’s share of EU regional funding, with the British government suspending certain payments from its EU envelope following the June 23 referendum.

EU budget chief Kristalina Georgieva said yesterday it was too early to tell what impact the UK leaving will have on the EU budget.

The UK, along with several other countries, Ireland included, pays more to the EU than it gets back in grants.

Much will depend on whether the UK will have to pay to access the EU’s single market.