Source: ANA-MPA–The finance ministers of France and Italy agreed with Greek counterpart Euclid Tsakalotos on a more flexible treatment for Portugal and Spain during the Eurogroup meeting in Brussels on Monday, government sources said.
Initially, only Tsakalotos supported the two countries but after his speech, Michel Sapin and Paolo Gentiloni eventually used the Greek minister’s argument that after the Brexit, maintaining a hard line on fiscal issues sends a very wrong signal to the markets.
Ahead of the meeting, Prime Minister Alexis Tsipras had told Tsakalotos to “strongly support” Spain, Portugal and Italy.
However, Eurogroup Finance Ministers eventually agreed to officially declare Spain and Portugal in breach of the EU spending rules as neither country had taken sufficient action to correct excessive deficits. This is an important step in potentially imposing unprecedented penalties on the two countries.
The final decision on whether to impose penalties is due to be taken by EU Finance Ministers on Tuesday. The debate will intensify political tensions within Spain and Portugal with Spain still not having a government in place.
“The two countries have veered off track in the correction of their excessive deficits and have not met their budgetary targets,” Valdis Dombrovskis, a commission vice-president, told reporters in Brussels. “Reducing the high deficit and debt levels is a pre-condition for sustainable economic growth in both countries.”
Under the terms of the Stability and Growth Pact the European Commission began formal disciplinary procedures against Spain and Portugal on Thursday for their excessive deficits in 2014 and 2015, which may lead to fines for the two countries before the end of July.
Should the recommendation be approved, the commission would have 20 days to propose fines that could reach as high as 0.2 percent of gross domestic product, and a suspension of some regional funds. The penalties could be reduced or canceled for “exceptional” circumstances.
Ministers at the meeting reaffirmed their commitment to growth-friendly policies, (such as fining countries in financial difficulties) structural reforms (such as wage reductions ) and fixing the banking sector.
Eurogroup head Dijsselbloem stated that there was no acute crisis in the Italian banking system and that he would very strongly resist any proposals that involved spending public money on bank recapitalisations.
German Finance Minister Schaeuble stated that the new European rules provided ample opportunity to react to every situation appropriately.