Daily Management Review

The EU announced fiscal targets for Spain and Portugal


08/10/2016


EU authorities have established new fiscal targets for Spain and Portugal after cancellation of penalties to these countries for the failure of budgetary obligations.



Eurozone finance ministers said that Portugal should implement consolidation measures in the amount of 0.25% of GDP in 2016. The consolidation should ensure a balanced budget and contribute to economic growth in the country.

Now, Portugal has to reduce the budget deficit from 4.4% of GDP last year to 2.5% this year.

Portugal, who came into the program of financial assistance for the period from 2011 to 2014, drastically reduced the budget deficit from 10% of GDP in 2010 to just over 3% in 2015. Portugal's Ministry of Finance has already announced that the country intends to achieve targets for reducing the budget deficit set by Eurozone officials.

Spain, which lives without a government since December 2015, intends to achieve an objective of 3% budget deficit at the latest by 2018. The new Cabinet of Ministers will have to reduce the deficit from last year's 5.1% of GDP to 4.6% of GDP in 2016, 3.1 % in 2017 and 2.2% in 2018.

Figures published by the Central Bank of Spain in early June also show that the country is on track to achieve its objectives set by Brussels in 2016. Yet, the southern state still needs to boost efforts in the coming years. The Bank of Spain expects that Spain will reach 4.1% deficit of GDP this year, 3.4% in 2017 and 2.9% in 2018.

15 October, Madrid and Lisbon should take effective measures to reduce the budget deficit, and to provide financial report to the EU authorities.

Earlier, the EU Member States followed the Commission's proposal and temporarily turned back punitive measures to be imposed on Spain and Portugal due to their excessive deficit. Tuesday, August 9, the EU finance ministers issued a joint statement in which they set the interframe to remedy the situation. According to the European Council request, Portugal has to eliminate the too high budget deficit before the end of 2016, and Spain - by 2018. Both countries need to present concrete steps in this direction until 15 October.

In mid-July, the EU Council decided that Spain and Portugal have not taken effective measures to reduce the budget deficit below the maximum allowable rate of 3% of GDP. According to EU standards, in this case, a country can be fined up to 0.2% of GDP. However, the European Commission proposed to waive penalties for both states. EU Council supported its proposal on August 8th.

Chairman of the Deutsche Bundesbank Jens Weidmann criticized the European Commission and the EU Council of overly soft decision with respect to Spain and Portugal. According to him, "a violation of the established rules is yet to have consequences".

source: dw.de, wsj.com






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