Europe Decides Against Fines for Spain and Portugal

http://www.nytimes.com/2016/07/28/business/eu-spain-portugal-budget-fines.html

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BRUSSELS — European Union officials, facing the rise of populist movements across the region, opted against hitting Spain and Portugal with sanctions on Wednesday for breaking the bloc’s rules on government spending.

The refusal to impose fines highlights how the 28-nation bloc is struggling with divergent strains of populist and anti-European forces across a region where one member state, Britain, has already voted to leave. The failure to issue penalties will also raise new questions about whether the European Commission, the executive arm of the European Union, has the political will to enforce its own rules.

Many economists have called on Brussels to ease the fiscal straitjacket, whereby countries face punishment if they run budget deficits beyond 3 percent of gross domestic product, to stimulate spending and to accelerate anemic economic growth across the region.

Nevertheless, the commission faced pressure to act against Spain and Portugal from some lawmakers in countries like Germany and the Netherlands who argue that a common currency needs commonly enforced rules to avoid the sort of sovereign debt crisis that was set off by the discovery of a large hole in Greece’s finances.

In the end, the commission was wary of forcing more austerity on ordinary Spaniards and Portuguese who have already endured years of spending cuts. A more punitive approach could have further complicated efforts to form a new government in Spain; and in Portugal, it could have forced a breakup of the center-left coalition.

“Even symbolic sanctions would not have allowed us to correct what happened in the past and would have been hard to understand by populations who have undertaken significant efforts in recent years,” Pierre Moscovici, the European commissioner for economic and financial affairs, told a news conference.

Mr. Moscovici said that the commission had “not played fast and loose with the rules.”

“A punitive effect we didn’t feel would be most appropriate at a time when people are questioning Europe,” he added.

European officials apparently feared that any penalty, however symbolic, would have fueled anti-European movements, concerns that have only been exacerbated by last month’s British vote to leave the bloc.

A fine for Spain and Portugal could also have set a precedent, obliging Brussels to mete out similar treatment to other offenders, like France. But that could risk further strengthening the popularity of Marine Le Pen, who leads the populist National Front in that country. Ms. Le Pen rejects interference from Brussels and wants a British-style referendum on membership of the bloc.

Had the authorities imposed fines, it would have been the first time countries using the euro had received formal penalties for breaching their budget deficit limits since the single currency came into use in 1999. The penalties can be as high as the equivalent of 0.2 percent of gross domestic product. That would have amounted to about 2 billion euros, or about $2.2 billion, for Spain and around €350 million for Portugal.