The European Council has concluded that Spain and Portugal “did not do enough” to reduce their deficits to below three percent, and therefore will each face a fine of 0.2 percent of GDP – roughly €360m.
Spain’s 2015 deficit was 5.1 percent of GDP, and is unlikely to reach its 2016 target of 2.8 percent, while Portugal’s 2015 deficit was 4.4 percent of GDP.
All EU countries are required to set out policies to bring their budget deficit below three percent of GDP. However, the EU can only fine those countries that use the euro as their currency. Spain and Portugal now have 10 days to submit ‘reasoned requests’ to have their fines reduced.
Spain and Portugal now have 10 days to submit ‘reasoned requests’ to have their fines reduced
The EU found that both countries’ efforts to follow the rules fell “significantly short of recommendations”. The body has recently tightened regulations regarding public finance following the debt crisis in the eurozone, which saw four countries – Greece, Ireland, Portugal and Cyprus – in need of a bailout.
“I am sure that we will have a smart, intelligent result in the end”, said Peter Kazimir, President of the European Council and Minister for Finance of Slovakia, in a meeting in Brussels on Tuesday.
Portugal, which has experienced a turbulent economy for the last six years, was recently named ‘Europe’s next economic disaster’ by Business Insider, following the crash of the country’s leading bank, Caixa Geral de Depósitos. The Portuguese Government had to recapitalise the bank and undertake a cash injection of around $4bn.
The country’s Prime Minister, António Costa, told the BBC that imposing fines would be counteractive for the eurozone. He said: “To propose now that Portugal should be punished because its previous government didn’t take the rights steps would diminish Mr Schaeuble’s credibility and would not strengthen the public’s trust in the running of the eurozone.”
Portugal and Spain are by no means the only or worst offenders when it comes to breaking EU deficit rules – France and Italy have also come under fire repeatedly for breaking deficit rules.