Commission confirms Spain, Portugal missed budgetary targets

(BRUSSELS) - The European Commission confirmed Thursday that Spain and Portugal will not correct their excessive deficit by recommended deadlines, and that they risk financial sanctions.

Portugal did not correct its excessive deficit by the deadline of 2015 and Spain is unlikely to correct its excessive deficit by the 2016 deadline, the EU executive said today. The deadlines were set by the EU Council in 2013.

Both countries have, the Commission acknowledges, restored some financial stability through fiscal adjustment, and have regained competitiveness through structural reforms to regain competitiveness, despite severe economic and financial crises.

The countries are, because of these efforts, coming back to economic growth, with many new jobs created.

Spain's GDP growth was at 3.2% in 2015, with a growth forecast of 2.6% in 2016, becoming amongst the fastest growing European economies.

While in Portugal, labour market performance remained strong in 2015, says the Commission, and the country is expected to bring unemployment down – from the peak of 16.4% in 2013 – to 11.7% in 2016.

However, Spain and Portugal have veered off track in the correction of their excessive deficits, says the Commission, and have not met their budgetary targets.

Higher growth and lower interest rates, says the Commission, were insufficiently used to reduce deficits and debt.

The Commission is recommending delaying action against the countries, taking the necessary legal steps to give both countries new deadlines for the correction of their excessive deficits, with updated fiscal adjustment paths to be specified.

Euro Commissioner Valdis Dombrovskis said:"We stand ready to work together with the Spanish and Portuguese authorities to define the best path ahead. Reducing the high deficit and debt levels is a pre-condition for sustainable economic growth in both countries."

Economic Affairs Commissioner Pierre Moscovici wanted to underline that the Commission welcomed the improvements show in both countries. "I trust that EU finance ministers will soon confirm our assessment," he added. "The Commission has always acted, is acting now and will continue to act within the rules of the Stability and Growth Pact. These are complex but intelligent rules that must be applied in an intelligent way by the Commission and the Council. We will work with Spain and Portugal to reach a shared understanding of the policy commitments that should be made."

Portugal has been in the corrective arm of the Stability and Growth Pact since December 2009 and was recommended to correct its excessive deficit by 2015. Portugal missed the deadline to correct its excessive deficit since its 2015 deficit came out at 4.4% of GDP, above the Treaty reference value of 3.0% of GDP and above the 2.5% recommended by the Council in 2013. Furthermore, the cumulative fiscal effort implemented by Portugal in the period from 2013 to 2015 is estimated to have fallen significantly short of the one recommended by the Council. This leads to the conclusion that the response of Portugal to the Council Recommendation has been insufficient.

Spain has also been in the corrective arm of the Pact since 2009 and was recommended to correct its excessive deficit by 2016. Spain missed its intermediate headline deficit targets both in 2014 and 2015 and, according to the Commission 2016 spring forecast, it is expected to miss the headline deficit target for 2016 as well. Therefore Spain is not set to achieve a timely and durable correction of its excessive deficit by 2016. Moreover, the cumulative fiscal effort over the 2013-2015 period fell significantly short of the one established in the June 2013 Council recommendation. This leads to the conclusion that Spain has not taken effective action in response to the Council recommendation under the Excessive Deficit Procedure.

Once the Council decides under Article 126(8), the Commission is legally obliged to present within 20 days a proposal for a fine. It must also propose a suspension of part of the commitments of EU Structural and Investment Funds (ESIF). The maximum amounts of this fine and the partial suspension of funding commitments are set out in the relevant regulations and can be reduced if justified.

The recommendations to the Council adopted for Spain and Portugal complement the package of country-specific recommendations proposed by the Commission in May and take into account the latest information available.

These recommendations do not prejudge possible future decisions under Article 126 TFEU. EU finance ministers are expected to discuss these recommendations, while the Commission continues to monitor the implementation of the Stability and Growth Pact.

Stability and Growth Pact: update on the fiscal situation of Spain and Portugal

Overview table of Member States in the European Semester