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26 Jul, 2016 10:03

European Commission wants to suspend funding Spain & Portugal

European Commission wants to suspend funding Spain & Portugal

The European Union should suspend structural funds to Spain and Portugal after they failed to reduce their budget deficits to below prescribed levels, AFP reports citing a letter from the EU’s executive arm.

The eurozone finance ministers decided this month to start sanctions procedures against the two countries for breaching EU spending rules. 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.

European Commission Vice President Jyrki Katainen said "socio-economic factors," including the countries' high rates of unemployment, should be taken into account when deciding how much to suspend.

"We remain at your disposal to participate in a structural dialogue with the European Parliament on the application of these measures, with a view to make a balanced proposal," Katainen said in a letter to the president of the European Parliament, Martin Schulz.

The letter also contained a list of 12 Portuguese and 60 Spanish funds that could be suspended, either completely or in part. Structural funds are used to address regional disparities within the bloc.

German Finance Minister Wolfgang Schaeuble has also proposed the Commission completely or partially suspend structural funds for projects in 2017 as a penalty.

Madrid and Lisbon 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.

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

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

"There is no justification for imposing sanctions for not reaching a target in 2015, when the European Commission itself recognizes that we will reach this year's goal," said Portuguese Prime Minister Antonio Costa. The country is aiming for a budget deficit fewer than three percent of GDP this year.