The European Commission has let Portugal and Spain off the hook on fiscal targets, partly for fear of aggravating euroscepticism.

Both countries have repeatedly broken EU pacts to keep their budget deficits below 3 percent of GDP, giving the commission the right to propose a fine of up to 0.2 percent of GDP or to withhold payments from the EU budget.

Student or retired? Then this plan is for you.

Dombrovskis (l): "The commission’s intention is to be rigorous on the suspension of funds" (Photo: European Commission)

But on Wednesday (27 July) it recommended that there should be no fines, while leaving the final decision to member states.

It also put off a decision on withholding EU funds, saying that it wanted to consult with MEPs prior to making up its mind.

Defending the soft approach, finance commissioner Pierre Moscovici told press: “We’re at a time in Europe when people are having their doubts about Europe and we have to be careful about how the rules and the implementation of these rules are perceived”.

He said the fact Portugal and Spain had undertaken reforms since the economic crisis, and that they were now growing and reducing unemployment had also been taken into account.

The former French finance minister noted that the EU rules included the option of clemency on fines.

“We have not played fast and loose with the rules, we have applied the rules”, he said.

“I don’t see anything there that goes against the credibility of the rules. It shows that we can be both credible and sympathetic at the same time”.

He said that at the height of the crisis, all the eurozone states had had an excessive deficit, but that since the new rules came in, just four of them are now too far in the red.

“The [fiscal] pact is efficient. It’s not stupid”, he said.

Rigorous approach

Valdis Dombrovskis, a Latvian politician who is the commissioner in charge of the euro, said on Wednesday that he would be “rigorous” on withholding EU funds.

He said Lisbon and Madrid would have to submit their future budgetary plans to the commission by 15 October and that if those plans were not tough enough then the EU funds freeze could enter into force early next year.

“If countries are on track to the new fiscal adjustment path, there is a possibility that these sanctions are lifted and countries don’t need to lose EU funds”, he said.

“But the commission’s intention is to be rigorous on the suspension of funds … to act an as an incentive”, he added.

The suspensions could amount to 50 percent of their EU benefits, but no more than 0.5 percent of their GDPs.

The commission’s “fiscal adjustment path” envisaged that Portugal’s deficit fell below 3 percent by 2017 and that Spain’s got under control by 2018.

It said that Portugal should make additional cuts to government spending worth 0.25 percent of its GDP in 2017. It said Spain should make cuts worth 0.5 percent next year and the same again in 2018.

'France is France'

Spain is in a tricky position because it has been unable to form a government following two inconclusive elections.

Moscovici’s remark on “doubts about Europe” referred to the UK vote in June to leave the EU and to the rise of anti-EU parties in several member states in the wake of the financial crunch and the migration crisis.

France and Italy also got extra leeway on deficits earlier this year.

Commenting in May on French TV, EU commission president Jean-Claude Juncker said France got off the hook “because it’s France”. His unguarded remark indicated the EU’s new rules had no bite when it came to powerful member states.

The EU financial crisis arose, in part, due to the fact that large EU countries had ignored previous fiscal guidelines.