Following the Council decision of 12 July 2016 that Spain and Portugal did not take effective action to correct their excessive deficits, the Commission today recommends a new fiscal adjustment path for both countries. The College of Commissioners also recommends that the fine be cancelled for both countries, a recommendation which the Council will need to approve, amend or reject. The Council is not bound by the Commission recommendation but can increase the fine to up to 0.2% of GDP under EU rules.
Today's recommendations follow the revisions of EU fiscal rules of recent years, which the European Parliament and Member States have agreed. Under these rules, the Commission also has to propose a suspension of part of the commitments of European Structural and Investment (ESI) Funds for 2017. The College decided today to make such a proposal at a later stage following a dialogue with the European Parliament. To lift a suspension of ESI Funds, both Member States will need to demonstrate full compliance with the Stability and Growth Pact, including when presenting their Draft Budgetary Plans this autumn.
Following the Council's unanimous decision under Article 126(8) that neither Spain nor Portugal had taken effective action to correct their excessive deficits, the Commission was legally obliged to present within 20 days a proposal for a fine. The default amount established by the legislation is 0.2% of GDP, but this can be reduced on the grounds of exceptional economic circumstances or following a reasoned request by the Member State concerned. Both countries submitted such reasoned requests.
Acknowledging the reasoned requests, the challenging economic environment,both countries' reform efforts and their commitments to comply with the rules of the Stability and Growth Pact, the Commission recommends to the Council to cancel the fine.
Taking account of the economic and fiscal situation, the Commission recommends that Portugal puts an end to its excessive deficit by 2016 and that Spain does so by 2018, at the latest. This is in line with commitments both Member States have already announced and reflects the Commission's prudent approach in the current environment.
For both countries, the deadline for taking effective action and reporting on it will be 15 October 2016.
On 12 July, the Council, acting under Article 126(8) TFEU, found that Spain and Portugal had not taken effective action in response to its recommendations on measures to correct their excessive deficits. According to Regulation 1467/97, the Council has to adopt a decision to give notice to act under Article 126(9) TFEU within two months of the decision on the absence of effective action. The Commission is today making the relevant recommendations for a Council decision giving notice to Spain and Portugal to take the measures to reduce their deficit to the extent necessary to remedy their excessive deficits. The Commission is also legally obliged to present a proposal related to a fine within 20 days, which it is doing today. Both countries were entitled to submit a reasoned request to the Commission within 10 days. Both countries submitted this request, asking for the fine to be cancelled, while reaffirming their commitment to comply with the rules of the Stability and Growth Pact.
Overall, the state of public finances across the European Union and the euro area in particular has improved in recent years. The general government deficit in the euro area as a whole decreased from 6.3% of GDP in 2009 (EU: 6.7%) to 2.1% of GDP in 2015 (EU: 2.4%) to a forecast 1.9% in 2016 (EU: 2.1%) and 1.6% in 2017 (EU: 1.8%). The debt-to-GDP ratio meanwhile is forecast to continue declining gradually from 94.4% in 2014 to 91.1% in the euro area in 2017 (EU: 85.5%). There are now only six EU Member States (four Member States in the euro area) in the corrective arm of the Stability and Growth Pact, down from 24 Member States in 2011.
It is up to the Council to adopt, amend or reject today's recommendations.
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.
For the recommendations relating to the fine, the Council has 10 days to adopt it. It can also amend or reject the 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 (Article 6 of Regulation 1173/2011). The Council, acting by a qualified majority, may also amend the Commission’s recommendation and adopt the text so amended as a Council decision.
For the proposal of a new adjustment path, the 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 (Regulation 1467/97 Article 5).
The Commission will also come back to the suspension of part of the commitments of Structural Funds for 2017 following the structured dialogue with the Parliament.
For more information:
Situation of Member States with regard to the Stability and Growth Pact
Box. Situation of Member States with regard to the Stability and Growth Pact, as of 27 July 2016
No Excessive Deficit Procedure
Austria, Belgium, Bulgaria, Czech Republic, Denmark, Cyprus, Estonia, Germany, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, the Netherlands, Romania, Slovakia, Slovenia, Sweden, Malta, Poland, Finland
Ongoing Excessive Deficit Procedure
Croatia, France, Greece, Portugal, Spain, the United Kingdom