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Eurozone mulls fines for Spain, Portugal deficits

Published on 11/07/2016

Eurozone finance ministers will on Monday wrangle over whether to inflict penalties on Spain and Portugal for running up excessive deficits against EU rules for years.

A decision by the 19 ministers of the single currency to punish the two countries would be an unprecedented step, and would put attention on overspending France, which is on course to break the rules next year.

French Finance Minister Michel Sapin — whose country was coincidentally beaten by Portugal on Sunday in the Euro 2016 football tournament — said on Monday Portugal does not deserve punishment on its budget and argued for a light touch.

“Portugal has made enormous efforts in the past years. It does not deserve excessive discipline,” said Sapin in Paris ahead of the talks which start at 1300 GMT.

France’s plea for leniency came after Germany recently warned Portugal against making “a serious mistake” of flouting the rules.

Those remarks by German Finance Minister Wolfgang Schaeuble angered Portugal, which summoned Germany’s ambassador to Lisbon in protest.

The European Commission, the EU’s executive arm, last week officially declared Spain and Portugal in violation of budget rules despite fears that austerity orthodoxy by Brussels will further stoke anti-EU populism in the wake of the Brexit vote.

But many EU powers, led by Germany, have long hoped for the commission to crack down on public overspenders, even amid the fallout of the British vote to quit the bloc and a poor economy.

The often-broken rules call for budget deficits not to exceed 3 percent of gross domestic product.

An endorsement by the ministers would give the commission 20 days to prepare penalties, but Spain and Portugal could make an official request for zero-sanctions within 10 days that would include a firm commitment to fix their budget.

– ‘Good sense’ –

Spain on Friday defended its economic policies despite the embarrassing sanctions procedure and said it remained confident that it would avoid a fine.

“It’s a question of good sense. We have made efforts and I believe that will be taken into account,” said Spanish Deputy Prime Minister Soraya Saenz de Santamaria.

Under EU rules, the commission could impose fines of up to 0.2 percent of gross domestic product on eurozone countries that repeatedly ignore the deficit limits — but to date it has not dared using its full power.

Portuguese Prime Minister Antonio Costa warned last week that imposing a fine would only embolden euroscepticism in the wake of Britain’s decision to leave the European Union if Brussels applies sanctions.

Spain and Portugal have been under the EU’s excessive deficit procedure since 2009 because of recurrent fiscal holes following the global financial crisis.

Bailed-out Portugal, long considered a star reformer, sharply cut its budget deficit from close to 10 percent of GDP in 2010 to 4.4 percent last year, but that still overshoots targets and the bloc’s limit.

Spain, while avoiding a eurozone bailout, suffered through six years of recession. In 2015 it reported a deficit of 5.1 percent of gross domestic product (GDP), way off the target of 4.2 percent set by the commission and the normal 3.0-percent limit.

France is now in the firing line for next year after a court of auditors in Paris warned that the French government was likely to miss targets for 2016.

Brussels has warned that France will not be allowed to exceed the three percent deficit target again.