Portugal, Spain Once Again Escape Fines for Deficits

The two countries keep failing to meet their budget targets.

Portugal and Spain won more time on Tuesday to bring their deficits in line with European fiscal rules as other European countries once again balked at imposing fines.

The European Commission reported last month that the two had failed to take “effective action” to bring their shortfalls under the bloc’s 3-percent deficit ceiling. But it passed the buck to the member states when it came to recommending penalties.

The commission has the power to impose financial punishments worth up to .2 percent of national economic output, which would be €300 million for Portugal and €2 billion for Spain. But it has never used that power.

Member states had until the end of Monday to raise objections to clemency. None did. As a result, Portugal and Spain have once again got away with breaking the rules.


It’s hardly the first time they have won respite.

As recently as May, the European Commission gave both countries more time to submit revised budget plans when their original proposals failed to curtail deficit spending.

It seems the Iberians always find another reason to delay budget cuts, as I lamented here last year:

When their economies were in the tank, they couldn’t cut public spending because it would only make the situation worse. Now their economies are showing signs of growth and they can’t cut because it would nip the recovery in the bud.

It’s not like Portugal and Spain have used all this extra time to rush through reforms.


In the case of Portugal, it’s not just that its deficit has been continuously over target; it’s that its economic reforms have so consistently underwhelmed.

For years, the European Commission has urged Lisbon to lift regulatory barriers that hamper business growth. For years, it has warned that Portugal’s justice system is inefficient, that licensing requirements are excessive, that unpredictable administrative procedures deter investors. None of this has changed.

To be fair, the country has done labor reforms that are helping to bring down unemployment. But they were enacted under the previous, right-wing government. Prime Minister António Costa’s left-wing coalition is actually overturning some of the liberalizations and cuts that his predecessor made.


Spain has done better and there’s a good chance the right will stay in power there, so the austerity program of Prime Minister Mariano Rajoy isn’t canceled.

Growth has returned and unemployment is falling now that businesses and consumers are regaining their confidence. But one in five Spaniards is still out of work and the economy is still 4 percent smaller than before the crisis.

Rajoy’s conservatives had good reason not to push too hard in their first term. The reforms they enacted — allowing companies to opt out of sectorial bargaining agreements, for example, and reducing severance payments — were controversial.

But that’s why Spain wasn’t made to suffer the consequences of its high deficit spending in the past.

Now that the economy is recovering, there is no excuse anymore for putting off the hard work of cutting spending.