EU ministers back sanction procedure against Portugal and Spain

As many predicted, European Union finance ministers have approved a sanction procedure against Portugal and Spain due to their failure to meet deficit targets.

The news was made official today (July 12) following a meeting between the EU ministers in Brussels.

The decision was already expected after the European Commission said last week that Madrid and Lisbon “had not done enough to correct their excessive budget deficits last year and in 2014”.

As Reuters points out: “The two countries now risk fines of up to 0.2% of their gross domestic product (GDP) and the partial suspension of EU structural funds, but can submit requests to reduce or cancel the penalties in the next 10 days.”

Portuguese prime minister António Costa has confirmed Portugal will protest the decision, which he considers “unjustified” and “highly counterproductive”.

Indeed, Costa says many “disagree” with the procedure – France’s minister of finance said on Monday that Portugal should be spared from the sanction (click here) – but that a “wrong idea has been created that the decision was unanimous”.

“At the Eurozone meeting, there were many that supported Portugal’s stance, but the rules are that the group must act as one, even when some disagree,” he explained.

Portugal’s finance minister Mário Centeno added that the country will try to prove the sanctions are unfair, and ensure the process will not have any negative consequences on the country’s finances.

Jeroen Dijsselbloem, the head of the Eurogroup of euro zone finance ministers, said a “lenient stance by the Commission was more likely if Spain and Portugal took further action to reduce current and future deficits”.

In other words, Portugal may be pushed into more austerity measures to bring deficit levels into what the EU deems fit.

However, Brussels may propose that “no fines are applied if Madrid and Lisbon can prove exceptional circumstances made them breach fiscal rules. EU states will then have to endorse the proposal”.

“Certainly there will be a possibility within this procedure for the countries to put forward motivated requests to reduce potential sanctions or probably even bring them down to zero,” said Valdis Dombrovskis, the EU commissioner responsible for the euro.

For now, however, the Portuguese can only wait to see if their government will be able to convince its EU partners to “forgive” their deficit failure.

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