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European Commission - Fact Sheet

Stability and Growth Pact: fiscal proposals for Spain and Portugal

Brussels, 27 July 2016

Contents

1. What has the Commission adopted today in the context of the Excessive Deficit Procedure?

2. Why does the Commission need to recommend that the Council sets a new fiscal adjustment path for Spain and Portugal ?

3. What fiscal path has the Commission recommended for Spain?

4. What fiscal path has the Commission recommended for Portugal?

5. Why is the proposal for the suspension of European Structural and Investment Funds (ESIF) commitments not part of today's package?

6. What is the legal basis for the decision related to the fine and the suspension of ESIF commitments?

6.1 Fines

6.2 Suspension of ESIF commitments

7. What are the next steps?

7.1 Voting procedure for the proposals related to the fine

7.2 Voting procedure for a new adjustment path under Article 126(9)

8. When and how will the action to be taken by Spain and Portugal be assessed?

9. Why has the Commission recommended to cancel the fine? What elements did the Commission take into account?

 

1. What has the Commission adopted today in the context of the Excessive Deficit Procedure?

Today's package addresses past fiscal performance as well as the paths Spain and Portugal should now take to correct their excessive deficits.

On 12 July 2016, the Council, acting under Article 126(8) of the Treaty on the Functioning of the European Union (TFEU), found that Spain and Portugal had not taken effective action in response to its recommendations on measures to correct their excessive deficits.

This unanimous Council decision legally obliged the Commission to recommend that the Council give notice to both countries to take measures to reduce the excessive deficit under Article 126(9) and establish a new fiscal path. The Commission therefore today recommended that the Council

  • decides on a new fiscal adjustment path for Spain with a correction of the excessive deficit situation by 2018, while giving notice to Spain to take effective action and to report on the action taken by 15 October 2016.
  • decides on a new fiscal adjustment path for Portugal with a correction of the excessive deficit situation by 2016, while giving notice to Portugal to take effective action and to report on the action taken by 15 October 2016.

As a second consequence of the Council's decision on the absence of effective action, the Commission is legally obliged to present a proposal for a fine. Spain and Portugal submitted to the Commission a "reasoned request" to make their case within 10 days following the Council decision. The Commission is presenting today the results of the analysis of these requests as well as its recommendations.

The Commission recommends today that the Council cancel the fine for Spain and Portugal.

The Council decision also legally obliges the Commission to propose a suspension of part of the commitments of EU Structural and Investment Funds for 2017. The Commission has invited the European Parliament to make use of a structured dialogue before it will present a proposal on this. This proposal will follow separately at a later date.

 

2. Why does the Commission need to recommend that the Council sets a new fiscal adjustment path for Spain and Portugal?

Spain has been in the corrective arm of the Stability and Growth Pact since April 2009 and was recommended to correct its excessive deficit by 2016. The deadline for correction was extended three times. According to the Commission 2016 spring forecast, Spain is expected to miss the headline deficit target for 2016. A revised deadline to correct the excessive deficit underpinned by an adjusted fiscal path is therefore needed. This needs to be specified in a new Council recommendation in the context of the Excessive Deficit Procedure. This recommendation would replace the 2013 Council recommendation addressed to Spain.

Portugal has been in the corrective arm of the Pact since December 2009 and was recommended to correct its excessive deficit by 2015. The deadline for correction was extended twice. Portugal has missed the deadline to correct its excessive deficit with a 2015 deficit of 4.4% of GDP, above the Treaty reference value of 3.0% of GDP and above the 2.5% the Council recommended in 2013. Therefore a new deadline to correct the excessive deficit, including a new fiscal path, is needed. This is done through a new Council recommendation in the context of the Excessive Deficit Procedure.

 

3. What fiscal path has the Commission recommended for Spain?

The Commission proposes for the Council to recommend that Spain puts an end to the present excessive deficit situation by 2018. Spain shall reduce its general government deficit to 4.6% of GDP in 2016, to 3.1% of GDP in 2017 and to 2.2% of GDP in 2018. This improvement in the general government deficit is consistent with a deterioration of the structural balance by 0.4% of GDP in 2016 and an improvement of 0.5% of GDP in both 2017 and 2018, based on the updated Commission 2016 spring forecast. Spain shall also use all windfall gains to accelerate the deficit and debt reduction.

In addition to the savings already included in the updated Commission 2016 spring forecast, Spain shall adopt and fully implement consolidation measures amounting to 0.5% of GDP in both 2017 and 2018. It shall also stand ready to adopt further measures should risks to the budgetary plans materialise.

 

4. What fiscal path has the Commission recommended for Portugal?

The Commission proposes for the Council to recommend that Portugal puts an end to the excessive deficit situation by 2016, and to reduce it to 2.5% of GDP in 2016. This improvement in the general government deficit is consistent with an unchanged structural balance compared to 2015, based on the Commission 2016 spring forecast. Portugal shall also use all windfall gains to accelerate the deficit and debt reduction.

In addition to the savings already included in the Commission 2016 spring forecast, Portugal shall adopt and fully implement consolidation measures amounting to 0.25% of GDP in 2016, and shall stand ready to adopt further measures should risks to the budgetary plans materialise.

 

5. Why is the proposal for the suspension of European Structural and Investment Funds (ESIF) commitments not part of today's package?

Unlike for the fine, there is no legally binding deadline for the Commission to propose the suspension of parts of the ESIF commitments for the following year (2017). The Commission has invited the European Parliament to hold a structured dialogue before presenting a proposal on this. This decision will follow at a later stage.

Structured dialogues aim to establish an open, frank and informal dialogue among partners. This is part of the regular bilateral dialogue between the Commission and the European Parliament, organised on a thematic basis between the Commissioners responsible for a particular policy area and the relevant European Parliament committee.

The idea underlying this macroeconomic conditionality is that the effectiveness of the ESI Funds should not be undermined by unsound fiscal and macroeconomic policies. At the same time, the suspension shall take into account the economic and social circumstances of the countries concerned. (see Annex III of the Common Provisions Regulation for the European Structural and Investment Funds (Regulation).

 

6. What is the legal basis for the decision related to the fine and the suspension of ESIF commitments?

The possible size of the fine and of the suspension of parts of the funding commitments are set out in the relevant regulations and can be reduced if justified.**

6.1 Fines

According to Article 6 of Regulation 1173/2011 as part of the so-called Six-Pack, the default proposal for a fine shall be 0.2% of GDP of the preceding year. However, the Commission can propose to reduce or cancel this amount if a country faces exceptional economic circumstances, or following a reasoned request from the Member State concerned.

6.2 Suspension of ESIF commitments

According to Article 23 of Regulation 1303/2013, the maximum level of suspended ESIF commitments is either 50% of the commitments for the next year, or 0.5% of nominal GDP, whatever level is lower. The scope and level of suspensions are detailed in Annex III of the Regulation.

 

7. What are the next steps?

The Commission makes several proposals to the Council today. It is up to the Council to adopt, amend or reject these proposals. As per Article 136(2) TFEU, only euro area Member States vote to adopt measures specific to euro area Member States. As per Article 126(13) TFEU, the concerned Member State does not vote. As euro area Member States have signed the Treaty on Stability, Coordination and Governance (TSCG), they have also committed themselves to support Commission recommendations on all aspects of Excessive Deficit Procedures on the basis of the deficit criterion for euro area Member States, as long as there is no qualified majority against the recommendations. This is applicable to the two types of proposals the Commission presents today.

7.1 Voting procedure for the proposals related to the cancellation of the fine:

As per Article 6 of Regulation 1173/2011, the Council has 10 days to reject the Commission's proposal by qualified majority of the countries whose currency is the euro (minus the country concerned). The voting rule is the so-called reverse qualified majority.

The Council, acting by a qualified majority, may also amend the Commission’s recommendation and adopt the text so amended as a Council decision.

7.2 Voting procedure for a new adjustment path under Article 126(9):

According to Regulation 1467/97 Article 5, any Council decision to give notice to the participating Member State concerned to take measures for the deficit reduction in accordance with Article 126(9) TFEU shall be taken within two months of the Council decision under Article 126(8) establishing that no effective action has been taken.

As the Council took the Article 126(8) decision on 12 July 2016, the decision under Article 126(9) is due by 12 September.

 

8. When and how will the action to be taken by Spain and Portugal be assessed?

The Council decision to give notice under Article 126(9) TFEU will contain the new fiscal adjustment path and the new deadline for correcting the excessive deficit. The Commission proposes a deadline of 15 October 2016 for both Member States to report to the Commission and the Council on the action taken. The Commission will take this report into account in its assessment of action taken.

The methodology to assess effective action has been endorsed by the ECOFIN Council of June 2014.

 

9. Why has the Commission recommended to cancel the fine? What elements did the Commission take into account?

According to Article 6 of Regulation 1173/2011 as part of the so-called six-pack, the Commission is legally required to propose a fine of 0.2% of GDP of the preceding year. However, this amount can be reduced or cancelled if a country faces exceptional economic circumstances, or following a reasoned request from the Member State concerned. Both Member States have submitted a reasoned request to cancel the fine, while reaffirming their commitment to comply with the rules of the Stability and Growth Pact.**

In consideration of this, and in acknowledgment of the reform efforts of Portugal during its economic adjustment programme as well as in Spain in recent years following the financial assistance programme, the Commission proposed that the Council cancels the fines.

 

 

*Updated on 28/07/2016 at 14:55, changing: "What is the legal basis for the fine and the suspension of ESIF commitments? The maximum amounts of the fine and the partial suspension of funding commitments are set out in the relevant regulations and can be reduced if justified" to "What is the legal basis for the decision related to the fine and the suspension of ESIF commitments? The possible size of the fine and of the suspension of parts of the funding commitments are set out in the relevant regulations and can be reduced if justified."

**Updated on 28/07/2016 at 14:55, changing: "While the Commission assessed that both Spain and Portugal did not experience exceptional economic circumstances, both Member States have submitted a reasoned request to cancel the fine, while reaffirming their commitment to comply with the rules of the Stability and Growth Pact" to "Both Member States submitted a reasoned request to cancel the fine, while reaffirming their commitment to comply with the rules of the Stability and Growth Pact."

 

MEMO/16/2624

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