EU Sanctions Controversy: Commission Considering Fines To Punish Spain And Portugal Budget Deficits

The European Union's administrative arm will begin procedures to sanction Spain and Portugal for failing to do enough to cut their budget deficits, EurActiv reported Wednesday. Both countries were hit especially hard by the 2008 economic crisis and have struggled to recover in the nearly eight years since.

A continentwide economic crisis in 2008 sunk the euro and sent national deficits and unemployment soaring. Spain and Portugal — among other nations, such as Greece and Ireland — exchanged European cash bailouts for austerity measures like tax hikes and budget slashing.

While Spain and Portugal have exited the bailout program, high deficits persist. Sanctions could be issued over the Stability and Growth Pact of the European Commission, created two decades ago, which stipulates each member state must keep government budget gaps below 3 percent of gross domestic product (GDP). That figure was 5.1 percent in Spain and around 4.4 percent in Portugal by the end of 2015.

Spain has done its best to reduce its deficit in a short period of time and should not be penalized for some shortcomings, according to its prime minister. “Just four, five years ago, we were a big problem. You need to look at how Spain was then and how we’re leading growth now,” Prime Minister Mariano Rajoy said earlier this month, Bloomberg reported. “No one can call into question Spain’s fiscal efforts.”

The fine could be as high as 0.02 percent of each nation's GDP, or billions of euros in the case of Spain and in the hundreds of millions in Portugal, but sources close to the case said that sum will likely be much lower. The move is more symbolic, as Spain and Portugal would be the first member states to be punished by the Stability and Growth Pact despite other countries — including France and Germany — having violated it.

"There is a chance that the Commission could recommend sanctions and at the same time recommend that they are reduced to zero percent," one official told Reuters.