EC starts process to fine Spain for excessive public deficit

Brussels (CNA).- The European Commission (EC) took this Thursday the first step in order to fine Spain for its excessive public deficit. Brussels considered that Spain’s fiscal effort fell “significantly short” of what was recommended and that “the fiscal stance was even relaxed in 2015”. “Spain did not reach the intermediate target for the headline deficit in 2015 and is not forecast to put an end to its excessive deficit by 2016”, stated the report, which will have to be discussed by the Ministers of Economy of the Member States at their Ecofin meeting. The fine process foresees that 20 days after this meeting, the EC could present the suggested fine, which could equal 0.2% of Spain’s GDP. Spain closed 2015 with a 5.1% deficit, far beyond the 4.2% target established by Brussels. 

According to the EC, the cumulative change in the structural balance over the 2013-2015 period amounted to 0.6% of GDP, “thus falling significantly short” of the 2.7% of GDP recommended by Brussels.

The report also points out that during 2014 and 2015 “a low interest rate environment and a stronger-than-expected economic recovery, also thanks to reforms undertaken in response to the crisis, the successful completion of the financial assistance programme and favourable labour market developments” helped Spain to reduce its general government deficit.

However, windfall gains, especially in 2015, “were not used to accelerate the deficit reduction. Instead, fiscal policy was relaxed, in particular through the tax reform and dynamic expenditure growth”.

Moreover, it considers consolidation measures, for instance in the context of the reforms of the public administration and the pension system, “insufficient to offset the impact of some expansionary measures implemented in 2015”.

This leads to the conclusion that “the response of Spain to the Council Recommendation of 21 June 2013 has been insufficient” and that “the fiscal effort falls significantly short of what was recommended by the Council, and the fiscal stance was even relaxed in 2015”.

A fine which could reach 0.2% of GDP

Once the Ecofin has assessed and approved the report, the EC will design a fine proposal and present the partial suspension of the European Structural and Investment Funds. The fine could be a maximum of 0.2% of Spain’s GDP and the amount could be reduced, and even cancelled, if the EC and the European Council consider this the best course of action. In this vein, during a press conference, both Vice President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, and Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, opened the door to this possibility. “Indeed, there will be the possibility within the process for the countries to present an argued petition in order to reduce the eventual fines or probably reducing them to zero”, stated Dombrovskis. In a similar vein, Moscovici nuanced that “the sanctions or the financial consequences could equal zero; and this is not a creative interpretation but part of the rules”. He also warned that the process which started this Thursday was “about documenting the past” and that the Council will go onto further discussions. “Please, no speculations today”, he added

A necessary measure to get back on track

Vice President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, stated that Spain has come “a long way since the beginning of the crisis, thanks to important fiscal adjustments and major reforms to regain competitiveness” but pointed out that lately it has “veered off track in the correction of its excessive deficits” and has not met its “budgetary targets”. Dombrovskis committed to “working together” with Spanish authorities “to define the best path ahead” since “reducing the high deficit and debt levels is a pre-condition for sustainable economic growth”.

Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici assured that he “trusts” that the EU finance ministers will soon confirm the EC’s assessment. “The Commission has always acted, is acting now and will continue to act within the rules of the Stability and Growth Pact”, he stated and added that “these are complex but intelligent rules” which “must be applied in an intelligent way by the Commission and the Council”.