EU begins sanctions process against Spain & Portugal over breaking budget rules

A cyclist rides past graffiti that reads "Power to the people" on the streets of Lisbon. © Hugo Correia
Eurozone finance ministers have decided to start sanctions procedures against Spain and Portugal for breaching EU spending rules, reports AFP.

Both countries are accused of not making “sufficient effort” to cut their budget deficits which, according to EU fiscal rules, should be no more than three percent of GDP. The criterion was introduced ahead of the euro launch in 1999 and so far no country has been penalized for breaking them.

Sanctions could be a fine of up to 0.2 percent of a country's GDP and the suspension of commitments or payments from EU structural funds of up to 0.5 percent.

Spain was asked by Brussels to lower the deficit to 4.2 percent of GDP in 2015, from 5.9 percent in 2014, but Madrid ended up with a 5.1 percent shortfall instead.

Lisbon's shortfall was 4.4 percent last year, a drop from 7.2 percent in 2014 and from almost 10 percent in 2010.

French Finance Minister Michel Sapin told reporters that Portugal “does not deserve excessive discipline.” He praised the efforts the country has made in recent years. Spanish minister Luis de Guindos said sanctions would be "sheer nonsense".

A decision should come "as soon as possible" in order to give "clarity and certainty", said Eurogroup President Jeroen Dijsselbloem. He and EU finance commissioner Pierre Moscovici added that the rules would be applied "intelligently.”

"It’s a possibility to have zero sanctions," said Dijsselbloem.

Once the decision is made, the Commission will have 20 days to prepare penalties. If the eurozone ministers approve sanctions Spain and Portugal will have 10 days to explain their position and to appeal for clemency.

Both countries are members of the eurozone and have very high unemployment rates which at the end of 2015 reached 22.1 percent in Spain and 12.6 percent in Portugal.

In 2012, Spain received billions of dollars from the European Union to rescue its banking system. The Spanish government then undertook a tough policy of fiscal austerity, prompting popular protests.

Portugal received a loan package from the Eurozone countries in 2011. The European Central Bank (ECB) and the IMF allocated €78 billion to support the country. In return, Lisbon lowered the salaries of state employees, cut social benefits and increased taxes.