08:06 GMT01 March 2021
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    The European Commission is pushing to fine Spain and Portugal for disobeying the Eurozone's fiscal rules. The prospect of the punishment is exacerbating tensions within the bloc, threatening to deal yet another blow to the EU's integrity.

    The EU runs the risk of alienating its members one by one: regardless of growing discontent with the bloc's economic policies among its members, Brussels is pushing for punitive measures against Spain and Portugal.

    "European Commission President Jean-Claude Juncker is pushing to fine Spain and Portugal for failing to abide by EU budgetary rules, according to officials involved in the discussions. If the College of Commissioners agrees with him on Wednesday, as expected, it will be the first time EU member countries will be punished for repeatedly breaching the bloc's annual budget deficit limit of 3 percent of economic output," Florian Eder of Politico.eu reports.

    In accordance with EU rules, the nations could be fined up to 0.2 percent of their GDP. Furthermore, Brussels could potentially impose its ban on funding the nations' infrastructural projects such as bridges and roads.

    Both countries have missed their fiscal targets, with Spain's deficit standing at 5.1 percent last year and Portugal's at 4.4 percent.

    At the same time, according to the rules, the EU Commission (EC) could reduce or nullify the fines.

    Eder notes that Politico has obtained an internal Commission memo that envisages two options for the countries. While Option 1 proposes the cancelation of the fine, Option 2 "proposes to halve the fine, i.e. to set it at 0.1 percent of GDP." That means, the author continues, that Spain would be fined up to €1.1 billion, while Portugal would have to pay a fine of €179 million.

    Citing an unnamed official with knowledge of the matter, Eder remarks that it will be "very difficult" for the Commission "to let Spain or Portugal off without a fine."

    However, the situation is complicated by the fact that the countries "blame wider Eurozone policy failures for exacerbating their difficulties," Simon Nixon of the Wall Street Journal notes.

    "Spain and Portugal say negative inflation has blunted the effectiveness of spending cuts," Nixon writes, adding that Italy has become the nation's companion in misfortune with its looming banking crisis.

    The question on everyone's lips in Italy is whether the country will be "allowed to inject public money into its banking system without applying EU bail-in rules to bondholders."

    Both the Spanish and Portuguese governments insist that a fine would be completely counterproductive as the nations are making every effort to reform their economies and are acting in compliance with Brussels' tough rules.

    Still, although European Commission President Jean-Claude Juncker is said to be skeptical of the idea of imposing tough sanctions on Spain and Portugal, the EC believes that strict measures are necessary.

    In his July 12 interview with RT, Felix Moreno de la Cova, portfolio manager at RF Trading, remarked that the EC regards Spain and Portugal "as the unruly children that need to be pushed around" by the EU.

    "It has been nine years since the onset of the financial crisis of 2008. And for not one year of those nine has the Spanish government — two different governments — been able to meet European targets for deficit reduction. Not once. And I think the damage from that to our bond markets and to our credibility is much harsher than any damage that could come from a tiny symbolic sanction," Cova noted.

    However, given the tumultuous results of the Brexit vote, the punishment of the two European nations by the EC may acquire a new meaning, exacerbating dissatisfaction within the EU.

    "The European Union's central crisis is one of legitimacy. The EU is primarily a system of legally binding rules agreed among governments and enforced by a supranational court. But what happens when a sizable number of citizens decide EU rules are harmful to their interests-or worse, prevent national governments from fulfilling their duty to protect their citizens?" Nixon asks.

    Commenting on the issue, Eder adds that Spain and Portugal may also face the funding cuts over the summer. That means Madrid and Lisbon stand to lose access to almost €1.2 billion and €500 million in structural funds, respectively.

    The question remains open whether the sanctions will bring more harm than good to the supranational union.


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