EU Commission begins deficit sanction procedure for Spain, Portugal

Thu Jul 7, 2016 2:27pm EDT
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By Francesco Guarascio

BRUSSELS (Reuters) - The European Commission began formal disciplinary procedures against Spain and Portugal on Thursday for their excessive deficits in 2014 and 2015, which may lead to fines for the two countries before the end of July.

Both had deficits greater than the European Union's limit of 3 percent of gross domestic product in the past two years and failed to correct the deficits quickly enough, the Commission said.

That triggered a process that may further complicate both the fiscal and the political situation in each country. Or it may not - the sanctions have never before been applied, and it's not clear whether they will be imposed this time.

Spanish Economy Minister Luis de Guindos said his country should escape any sanction and would instead work with Brussels on a new deficit-cutting path.

"I am convinced this sanction will not happen, because Spain is the fastest-growing economy in the euro zone and it has passed more reforms than anybody else. It would be a nonsense," De Guindos told journalists at an event in Madrid.

"From there, a new fiscal path can be agreed and this is what is going to happen in the next few weeks," he said.

Even if the fines are canceled, some of the EU funds committed to Spain and Portugal are likely to be suspended for at least a year in the event of a sanction decision, an EU executive document said. So the two countries may have to do with less funding just as they are trying to make ends meet.

And both are coping with fragile political situations. Spain is trying to form a government after a second indecisive election in six months. Portugal's minority government faces huge political hurdles to cut its public expenses as it relies on the support of leftist parties.   Continued...