The European Commission has decided to punish Portugal and Spain for their budget deficits and the general lack of effort displayed to rein in public spending to correct the poor figures.
Stiff fines and the threat of sanctions are now very much on the cards as the process is passed to Ecofin, the European Union members’ finance ministers group, which is due to meet on Tuesday July 12th .
If Ecofin votes for sanctions and fines, the Commission then makes a final proposal to punish Portugal and Spain which could however involve the fine being set at zero, depending on responses to the charges.
After much wrangling, the Commission finally has issued its position on Portugal’s debt and demands that the 2015 deficit is corrected, noting that sufficient effort has not been made to keep spending within the agreed limits.
Portugal’s Prime Minister, António Costa, sent a letter to European Commission president, Jean-Claude Juncker, stating that sanctions for Portugal could encourage anti-European feelings amongst the natives.
The PM said that "there are strong economic and political arguments" for concluding that there was "effective action to correct the excessive deficit in 2015 and, so to put aside the possibility of imposing sanctions."
António Costa stressed that in addition to financial issues, there are social consequences if the sanctions are applied, "It would not be understood by the Portuguese, who have gone through a hard economic recession and suffered austerity measures, it could encourage anti-European feelings."
Portugal’s deficit in 2015 was 4.4% of GDP, due in part to the costs involved in the collapse, refinancing and sale of Banif bank. Portugal had agreed that its deficit would be 3% of GDP or below for 2015.
The main concern for Portugal's government is not the fine, which could be up to 0.2% of GDP, but the suspension of access to the EU’s structural and investments fund of €454 billion available between 2014 and 2020.
This money aims “to deliver investments to key EU priority areas, to respond to the needs of the real economy by supporting job creation and by getting the European economy growing again in a sustainable way.”
If Portugal is denied its share of this massive hand-out, the domestic economy is likely to stagnate, unemployment remain as is and growth struggle or fall.
