Roundup: EU refrains from fining Spain, Portugal over breaches of state budget rules

The European Commission proposed not to impose financial sanctions on Spain and Portugal over their excessive deficits but set out a new fiscal adjustment path for both countries, it was announced Wednesday.

Taking into account the efforts from Spain and Portugal and the current challenging economic environment, the college of EU commissioners suggested cancellation of the fine for both countries, Valdis Dombrovskis, vice president of the Commission, told a press briefing.

"Spain and Portugal made substantial efforts over the past six, seven years. Both countries consolidated substantially their public finances and undertook ambitious structural reforms. And we see that these reforms work. They bring about recovery, economic growth and job creation," said Dombrovskis.

Besides, both countries face "profound social challenges," he added. "Although jobs are being created, the unemployment levels -- especially youth unemployment -- are still too high."

"However, we also see that recently both countries lessened their budgetary efforts and therefore missed their budgetary targets," Dombrovskis warned.

Although Spain and Portugal could escape the fines, they have to await another possible punitive measure.

The Commission, the bloc's executive arm, is set to discuss with the European Parliament after the summer break on whether to suspend the structural funds supporting infrastructure construction in both nations.

It also hinted that the suspension could be lifted under certain circumstance.

The suspension, if it enters into force, will only begin next year. If countries remain on track with the new fiscal adjustment path, there is a possibility the suspension could be lifted and nations would not lose any EU funds, said Dombrovskis.

The Stability and Growth Pact, a set of EU rules aiming to prevent members from encountering fiscal problems, requests governments to keep their deficits below 3 percent of gross domestic product (GDP).

If deficits go beyond 3 percent, the Commission and the Council of the EU set deadlines for reduction. But if governments fail to take effective action to meet the deadline, they could be fined.

Portugal was expected to cut its deficit below 3 percent of GDP last year, but the gap turned out to be 4.4 percent in 2015. Spain was expected to cut the deficit below 3 percent this year, but is predicted to remain above 3 percent also in 2017.

After Wednesday's decision, both countries will be set new deadlines.

The Commission said Portugal could gain one extra year to fulfill its deficit goal, meaning Lisbon has to cut its deficit below 3 percent by the end of this year. Madrid was granted another two years to address its excessive deficit by the end of 2018.

Meanwhile, both countries have to take effective action and report on it by Oct. 15.

The Commission said it would present its proposal to EU economic and finance ministers for a final decision. "We believe these paths are realistic and both countries will be able to succeed in reaching them," Dombrovskis said.

The Commission's decision came as Europe faces multiple crises and anti-EU sentiment following the British vote to leave the bloc in a referendum.

Experts cautioned that possible financial sanctions would fuel eurosceptic leanings, particularly in Madrid and Lisbon. Besides, the EU ruling would seem "unfair" to both countries as France, which has repeatedly broken EU budgetary rules, was not faced with fines.

On July 12, the EU announced that Spain and Portugal had not taken effective action to correct their excessive deficits. According to EU rules, the two countries could have faced fines of up to 0.2 percent of GDP.

Both countries later submitted requests asking for the fine to be cancelled, while reaffirming their commitment to complying with the rules. Endit