Brexit Haunts EU Decision to Penalize States With Excessive Deficits

In the run-up to the EU's possible decision on Tuesday to slap sanctions on Spain and Portugal for missing their deficit targets, Brussels remains in hot water, the Russian news website Gazeta.ru reported, saying that the introduction of sanctions may strengthen the position of eurosceptics, while a free pass for the noncompliant states will damage the position of the EU as a financial regulator.

Spain is expected to reduce its deficit from 5.1 percent in 2015 to 2.5 percent in 2017, while Portugal has to reduce its deficit from 4.2 percent to 2.3 percent by the end of 2016, as the previous extension expired in December.

In this vein, Gazeta.ru quoted the US news agency Bloomberg as saying that "the EU has three broad options which involve different strategic considerations."

Despite being determined to act in strict accordance with the rules, the European Commission faces the risk of the sanctions being criticized by eurosceptics, who have repeatedly lashed out at what Bloomberg called the EU's supranational powers, which skeptics claim are on the rise in Europe.

 

In addition, the restrictive measures may prove to be counterproductive, as Europe is still trying to ride out the debt crisis, according to Bloomberg.

The second option is the risk of the EU losing its credibility as a fiscal inspector in the event that it fails to impose sanctions against Madrid and Lisbon, something that would also affect the Stability and Growth Pact, which is believed to be the EU's fiscal framework.

The third option is a compromise, with the European Commission expected to refer to "exceptional economic circumstances" or use a "reasoned request" by the targeted country to suggest that the penalty be lowered or even canceled.

Last week, Reuters quoted Organization for Economic Co-operation and Development chief Angel Gurria as urging the European Commission to forgo launching sanctions against Portugal and Spain. According to him, the sanctions were "the last thing we need" amid Europe's efforts to cope with Brexit and other challenges.

In May, Eurogroup President Jeroen Dijsselbloem said that the restrictive measures against Madrid and Lisbon were "absolutely a possibility."According to him, "when you look at the current situation in Portugal and Spain there was a serious reason to look at sanctions."

Earlier this month, European Commission Vice-President Valdis Dombrovskis recommended triggering Article 126(8) of the Treaty on the Functioning of the European Union to extend the deadline for the countries to "get back on a sustainable track."

The rule gives a 20-day window for the European Commission to propose a fine or a suspension of structural and investment funds.

Juan Aguilar, member of the European Parliament and former Spanish Justice Minister, said in turn that Madrid's willingness to meet the EU's requirements "will have devastating consequences" for the country, according to RIA Novosti.

For his part, Portugal's Prime Minister Antonio Costa pledged that the government "will fight until the last minute and will do its best" to help the country avoid sanctions.