Spain and Portugal not be fined for their fiscal excesses - BBH

Research Team at BBH, notes that the Eurozone finance ministers have accepted the EC's recommendation that Spain and Portugal not be fined for their fiscal excesses.  

Key Quotes

“A few weeks ago, the EU Commissioner for Economic Affairs, Moscovici explained that punitive actions would strengthen anti-EU sentiment.   However, that consideration did not prevent the EU from threatening to cut off part of the European Structural and Investment (ESI) funds for next year.

The threat of reducing ESI funds can easily be set aside.  Both countries have to move toward compliance with the Stability and Growth Pact and enact the policy recommendations of the EU.  Portugal must take corrective action to bring the budget deficit to the 3% of GDP threshold.  Last year's shortfall was 4.4%.  That seems optimistic, especially if growth is slower than the 1.3% year-over-year pace the government expects.

Spain has until 2018 to bring its budget deficit to 3% of GDP.  The deficit stood at 5.1% in 2015.  While Portugal elected a left of center government last year, Spain has been unable to break the political logjam.  It has held two elections and still has not been able to cobble a government together.   However, a potential breakthrough has occurred.  The new centrist party Ciudadanos has set conditions for its support.

To "demonstrate full compliance with the Pact", Spain is required to make a 0.5% fiscal adjustment and Portugal 0.25%.  The EC is deferring a final decision on suspending structural funds until at least next month.  Effective action is expected to be taken and formally report the details in the middle of October, at the same time as they present the draft 2017 budget plans.  

No country has been fined for the lack of fiscal progress.”