Stability and Growth Pact: Council adopts recommendations on Spain and Portugal

These decisions follow entirely the Commission's recommendations of 27 July. Following its decision on 12 July that Spain and Portugal did not take effective action to correct their excessive deficits, the Council has now cancelled the fines for both countries and has set new fiscal paths to each of them, as recommended by the Commission.

The decision of the Council of 12 July on the absence of effective action legally obliged the Commission to propose a fine, the amount of which could be up to 0.2% of GDP. However, making use of a possibility provided for in the Pact, the Commission recommended to the Council on 27 July to cancel the fine, acknowledging requests by both Member States, the challenging economic environment, both countries' reform efforts and their commitments to comply with the Pact. The Council was not bound by this recommendation, but chose to follow it.

Following the Council's decision on non-effective action, the Commission also has to propose to the Council a suspension of part of the commitments of European Structural and Investment (ESI) Funds for 2017.

Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, said: "Today, following the Commission's recommendations, the EU finance ministers decided to cancel financial fines for Spain and Portugal. They also confirmed the new budgetary adjustment paths for both countries. Effective action by Spain and Portugal will be a necessary condition to lift the suspension of commitments under the European Structural and Investment Funds."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Today's decisions reflect an intelligent application of the Stability and Growth Pact. By giving more time to Spain and Portugal to bring their public deficits below 3%, the Council sets new credible fiscal trajectories, which will contribute to strengthening both their economies and the euro area. Stability and Growth require a strong determination to put public finances in order. I trust that Spain and Portugal will respond accordingly to the collective decisions by the Commission and the Council.

The Commission will assess the action taken by Spain and Portugal in the coming months in the context of both the Excessive Deficit Procedure and the analysis of the Draft Budgetary Plans for 2017".

As the Commission recommended, the Council calls on Portugal to put an end to its excessive deficit by 2016, and that Spain does so by 2018 at the latest.

The Commission will make its proposal on the suspension of part of the commitments of ESI Funds for 2017 after a dialogue with the European Parliament, which is set to take place shortly after the Parliament's summer recess. To lift a suspension of ESI Funds, both Spain and Portugal will need to demonstrate full compliance with the Pact, as expressed in the recommendations adopted today by the Council. Both Member States are expected to take effective action and report on it by 15 October 2016, at the same time as presenting their Draft Budgetary Plans this autumn.

Background

The Council calls on Spain to reduce its headline deficit to 4.6% of GDP in 2016, to 3.1% of GDP in 2017 and to 2.2% of GDP in 2018, consistent with a deterioration of the structural balance by 0.4% of GDP in 2016 and a 0.5% of GDP improvement in both 2017 and 2018. The adjustment also requires that Spain adopts and fully implements consolidation measures for the amount of 0.5% of GDP in both 2017 and 2018.

The Council calls on Portugal to reduce its headline deficit to 2.5% of GDP in 2016. To this end, Portugal shall adopt and fully implement consolidation measures for the amount of 0.25% of GDP in 2016. In particular, Portugal shall implement fully the consolidation measures incorporated in the 2016 Budget, including the additional expenditure control in the procurement of goods and services highlighted in the Stability Programme.

The Council also requires Spain and Portugal to stand ready to adopt further measures if necessary.

IP/16/2761