EXCLUSIVE / The European Commission will launch a sanctions procedure against Spain and Portugal or the first time, as the college concluded on Tuesday (10 May) that the two countries have not made “sufficient effort” to cut their deficits, euractiv.com has learned.

The college held an orientation debate on how to deal with the most difficult cases under EU fiscal rules and the country-specific recommendations for member states.

The Commission will unveil a package of fiscal and structural reforms recommendations on 18 May.

During the orientation debate, there was a “broad acknowledgement” that Spain and Portugal are cases for stepping up the procedure, an EU source told EURACTIV.

Sanctions loom over Spain for breaching fiscal rules The fourth largest economy in the eurozone is about to become the first country to be punished for breaking the EU’s Stability and Growth Pact, EURACTIV.com has learned.

In recent weeks, Spain has tried to persuade the executive not only about its efforts to cut the deficit from 9% of GDP to 5% of GDP, but postpone making a decision about its deficit given the exceptional political situation in the country.

Spain will go to the polls again on 26 June, after the Socialists failed to form a coalition government, following the inconclusive elections held on 20 December.

But EU sources explained that the “data is very clear” and shows that neither Madrid nor Lisbon made the structural efforts required to cut their deficit below the mandatory 3% of GDP.

Moreover, Commissioner for the Euro, Valdis Dombrovskis, wants a single approach in order to avoid complaints from Portugal about favourable treatment given to larger member states like Spain.

Once the executive adopts its decision next week, the recommendation for stepping up the procedure will pass to the Ecofin Council.

Before next week’s presentation, Dombrovskis, and Commissioner for Economic Affairs Pierre Moscovici, will determine which additional intrusive measures are to be taken in order to guarantee that Spain and Portugal will fulfil the fiscal rules.

Both Commissioners should agree on the new calendar given to the capitals and whether to impose a fine for breaching the rules.

Only when the member states endorse the Commission’s recommendation, will the institution decide on how to enforce the decision and the size of the potential fine.

According to EU rules, the fine could be up to 0.2% of GDP, but EU sources reiterated that it could be reduced.

In May 2015, Spain was also the first country to be sanctioned for “serious negligence” in handling statistical data in the Valencia region. Even though the punishment could have amounted to 0.2% of GDP, the executive took into account various mitigating factors and finally hit Spain with a €19 million fine.

In regards to the calendar for Spain, Dombrovskis and Moscovici disagree on how much time the country would need to meet the fiscal targets.

While the former prime minister of Latvia wants only one year, the French politician prefers granting an extra two years to the Spanish government.

Italy

Both Commissioners are to discuss the Italian situation further. Although the country also represents another difficult case for the Commission, as it is of a different nature given that the Italian economy is not under the excessive deficit procedure.

However, the executive is considering whether to launch a new procedure against the country, given its failure to reduce its high level of public debt (132.7%).

Italian Prime Minister Matteo Renzi is fighting tooth and nail to get additional flexibility from Brussels to rein in its debt in light of the additional costs brought on by the refugee crisis.

The Juncker Commission is reluctant to grant more flexibility, given that this would not be the first time and “some numbers don’t add up”, EU sources explained.

Political uncertainty

The first sanctions to be imposed under the fiscal rules will come against the backdrop of the most difficult period since the EU was founded more than six decades ago.

The United Kingdom’s membership referendum on 23 June, the refugee crisis and the unraveling of Schengen, the terrorist threat, the sluggish economic recovery, the rise of populist forces and tensions with Russia all threaten the European project.

The week when Europe was hit by a perfect storm The result of the Dutch referendum was the latest in a series of serious setbacks for the European project. The second week of April could be remembered as the moment when all the fronts in Europe’s multifaceted crisis started to converge, writes Jorge Valero.

Commission President Jean-Claude Juncker told Commissioners on Tuesday (10 May) that the political consequences of any decision about Spain, Portugal and Italy should be factored in before making any final recommendations to the Council.

Speaking on condition of anonymity, another European source emphasised that this is a “highly political” issue, and that the debate held in the college was therefore “very important”.