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European Commission - Fact Sheet

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

Brussels, 7 July 2016

What has the Commission recommended today for Spain and Portugal?

As announced in its Communication of 18 May, the Commission came back today to the fiscal situations in Spain and Portugal. The College of Commissioners confirmed that Portugal did not correct its excessive deficit by the deadline of 2015 and that Spain is off-track to correct its excessive deficit by the 2016 deadline. These deadlines were recommended by the Council on 21 June 2013.

The College therefore adopted recommendations for a Council decision under Article 126(8) of the Treaty on the Functioning of the European Union establishing the absence of effective action by Spain and Portugal in 2014 and 2015. This is a necessary step to give Spain and Portugal new deadlines for the correction of their excessive deficits, including updated fiscal adjustment paths.

What happens next?

The assessment of effective action only looks at the past (years 2014 and 2015 in particular) and does not prejudge possible future decisions under Article 126 of the Treaty.

The Commission intends to continue to work closely with the two Member States concerned to gather all information necessary and to propose new fiscal adjustment paths, once the Council has decided on the assessment presented by the Commission.

Are these financial penalties? Why not?

No. The recommendations adopted today are about the past. Any proposal for financial penalties may only come at a later stage, after the Council has decided that there has not been effective action (see below).

How is this different from the country-specific recommendations of 18 May and how does this link with the Council conclusions on the European Semester Spring Package?

Today's recommendations complement the set of country-specific recommendations and decisions under the Stability and Growth Pact already proposed by the Commission on 18 May. These recommendations provide guidance to Member States on how to boost jobs and growth, while maintaining sound public finances.

On 17 June, the Council approved these draft recommendations and decisions and indicated it would finalise the texts for Spain and Portugal at a later date. It is up to the Council to decide when it returns to these texts. The European Council of 28 June also generally endorsed the country-specific recommendations, as discussed by the Council.  

Is the fiscal path proposed by the Commission on 18 May still valid? What does the Commission intend to propose?

The detail of a possible new fiscal path may need to be reassessed to take account of the latest data on budgetary execution in the course of 2016. The underlying economic forecast underpinning the new fiscal trajectory will also need to reflect latest developments. The deadline to correct the excessive deficit, including the new fiscal paths, will be specified in a recommendation to the Council giving notice to these Member States to act, under Article 126(9) of the Treaty. Our aim is to work with the two Member States to define an appropriate fiscal adjustment path that can be effectively implemented.

Why does the Commission come now with its assessment? Why not before?

We are applying the rules with the political and legal discretion which they foresee, also to ensure that the specificities of every situation are taken into account. There was no obligation to adopt such decisions back in May.

Against which targets is the "effective action" of the two countries being measured?

Spain

The Council decided in April 2009, following a recommendation from the Commission, that Spain had an excessive deficit and issued a recommendation to correct the excessive deficit by 2012. Since then, the Council has issued three new recommendations to Spain (on the basis of Article 126(7) of the Treaty): on 2 December 2009, 10 July 2012 and 21 June 2013, extending the deadline for correcting the excessive deficit to 2013, 2014 and 2016 respectively. In each case the Council considered that Spain had taken effective action, but unexpected adverse economic events with major unfavourable consequences for government finances had occurred.

Based on general government deficit and debt data provided by Eurostat on 21 April 2016, the general government deficit was 5.9% of GDP in 2014 and 5.1% of GDP in 2015, above the intermediate deficit targets set by the Council of 5.8% and 4.2% of GDP respectively. Based on the Commission 2016 Spring Forecast, the cumulative change in the structural balance over the 2013-2015 period amounted to 0.6% of GDP. This falls significantly short of the 2.7% of GDP recommended by the Council.

According to the Commission 2016 Spring Forecast, Spain's general government deficit is expected to narrow to 3.9% of GDP in 2016 and to 3.1% in 2017. Spain is therefore not projected to correct its excessive deficit by the 2016 deadline recommended by the Council. Furthermore, the structural deficit is expected to increase by 0.2% and 0.1% of GDP in 2016 and 2017 respectively. According to the Commission 2016 spring forecast, the debt ratio is expected to peak at 100.3% of GDP 2016.

As Spain has achieved neither the headline deficit targets nor the required fiscal effort in 2014 and 2015, the Commission recommends to the Council to establish that Spain has taken no effective action in response to the Council recommendations within the period laid down (as per Article 126 (8) of the Treaty).

Portugal

The Council decided in December 2009, following a recommendation from the Commission, that Portugal had an excessive deficit and issued a recommendation to correct the excessive deficit by 2013.

On 9 October 2012, the Council extended the deadline by one year, to 2014. On 21 June 2013, the Council concluded that effective action had been taken to reduce the excessive deficit, but that unexpected adverse economic events with major unfavourable consequences for government finances could be considered to have occurred in Portugal. The Council therefore adopted a revised recommendation in accordance with Article 126(7) of the Treaty and recommended that Portugal correct its excessive deficit by 2015 at the latest.

The assessment of the action taken by Portugal to correct the excessive deficit by 2015 leads to the following conclusions:

Based on general government deficit and debt data provided by Eurostat on 21 April 2016, the 2015 deficit was 4.4% of GDP, above the Treaty reference value of 3% of GDP.

The cumulative improvement in the unadjusted structural balance in the period from 2013 to 2015 is estimated at 1.1% of GDP, significantly below the 2.5% of GDP recommended by the Council. General government gross debt has broadly stabilised since the June 2013 Council recommendation, reaching 129.2% of GDP in 2013, 130.2% of GDP in 2014 and 129.0% of GDP in 2015.

As Portugal has neither corrected its excessive deficit by the 2015 deadline nor delivered the recommended fiscal effort, the Commission recommends today that the Council establish that Portugal has not taken effective action in response to the Council's recommendations within the period laid down (as per Article 126(8) of the Treaty).

What about possible fines? What about the suspension of EU funds?

These are not decisions for today. If the Council takes a decision under Article 126(8), the Commission is legally required to present a proposal for a fine as well as a suspension of commitments of a part of the European Structural and Investment Funds (ESIF) for the country concerned. The maximum amounts of this fine and the suspension of funds are set out in the relevant regulations and can be reduced if justified.

For the fine in particular, the Commission may recommend that the Council reduce the amount or cancel it altogether. This can happen on the grounds of exceptional economic circumstances or following a reasoned request by the Member State, which would need to be submitted to the Commission within 10 days of the Council's adoption of its Article 126(8) decision.

As regards EU funds, the Commission is legally required to propose a suspension of a part of the ESIF commitments for the following year. Once it considers that the Member States are again fully compliant with the Pact, it is for the Commission alone to lift the suspension.

MEMO/16/2377

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