In
reversal, Juncker backs sanctions on Spain and Portugal
Commission
president finds way to punt tough call to the EU finance ministers.
By
Florian Eder
7/27/16, 5:34 AM CET
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.
EU rules stipulate
fines of up to 0.2 percent of a country’s GDP that the Commission
and EU finance ministers in turn are free to reduce or even cancel.
Another possible sanction involves restricting EU funds used for
infrastructure projects such as bridges or roads to both countries,
but that won’t be on the agenda Wednesday.
Juncker had earlier
this summer been opposed to a Commission-imposed fine but has pivoted
in recent weeks, say people familiar with his thinking. The shift
reflects his view that EU governments must be made to take ownership
of the decision to punish fellow eurozone countries rather than pass
the fraught call to the Commission. Since the final call rests with
finance ministers, an EU diplomat said, Juncker figures that
proposing serious sanctions will put them on the spot — to either
agree or disagree with him.
When commissioners
arrive for their last meeting before summer break, they will find on
the table two draft papers for each country, one with recommendations
for the governments on the “fiscal path” to follow to reduce
their deficits and the other on sanctions.
The latter lists two
options for the commissioners to pick from. Option 1 “proposes to
cancel the fine,” according to an internal Commission memo sent to
cabinets that POLITICO obtained. Option 2 “proposes to halve the
fine, i.e. to set it at 0.1 percent of GDP,” or up to €1.1
billion for Spain and €179 million for Portugal.
It will be “very
difficult” for the Commission to let Spain or Portugal off without
a fine, one official said, adding that the likelier outcome is a
reduced fine of under 0.1 percent of GDP.
Whatever they
decide, it’s going to be a highly political decision, given the
divergence of opinion among EU governments and commissioners on the
issue.
Juncker will meet
with the two key commissioners in charge of overseeing member
countries’ compliance with EU fiscal rules — Valdis Dombrovskis
and Pierre Moscovici — in the morning to put them on the same page
before all College members (minus the U.K. commissioner) gather,
according to aides.
Deep thought
“The president
meditates,” an aide to Juncker said last weekend, referring to the
fact that the Commission chief is exploring the uncharted territory
of having to fine countries for their governments’ lack of
budgetary discipline.
What Juncker
actually was meditating on over the last few weeks, the EU officials
said, is how to balance politics and personal frustrations with other
significant political and economic players such as France and Germany
that have pulled him in opposite directions.
Having been head of
the Eurogroup of eurozone finance ministers, Juncker is said not to
be a deep believer in the deterrent effects of fines or sanctions on
governments. In addition, people familiar with his thinking said
Juncker is skeptical of the idea that it’s economically right for
the EU to make Spain and Portugal pay now after having first bailed
them out during the euro crisis. And all the more so since the
current Socialist-led Portuguese government came into office only
late last year and wasn’t responsible for causing the excessive
budget deficit. Meanwhile, Spain still doesn’t have a government in
place after two inconclusive votes.
But rules are rules,
and both countries have clearly violated the EU budgetary law: With
Spain’s deficit at 5.1 percent last year and Portugal’s at 4.4
percent, the EU finance ministers declared on July 12 that both
countries had failed to take “effective action” to bring them
down.
According to
officials, Juncker hates to be criticized for being either too soft
or too hawkish on governments that don’t abide by EU rules. He has
been targeted by EU finance ministers such as Michel Sapin of France
who defended Portugal, while his German counterpart Wolfgang Schäuble
accused the Commission of not doing enough to enforce the rules.
As EU rules say the
final decision on sanctions is in the hands of the Council of EU
finance ministers, this may tempt Juncker “to revive the narrative
that it’s for the Council to decide,” an EU diplomat said. That
is, by recommending tougher sanctions than expected, which the
ministers would have to further debate before deciding to reject or
amend, Juncker would put the ball in their court.
Spoiling summer?
The beauty of this
approach is that the commissioners can turn on their heads a
complaint often heard in Brussels that ministers want the Commission
to be tough so they themselves can show mercy on their colleagues.
With a high probability that the Council of ministers will want to be
lenient with their Spanish and Portuguese colleagues, Commission
sources say Juncker has a mischievous appetite to propose more fines
than the ministers are ready to impose on both countries.
If so, the Council
would have to arrange what the Council’s legal service, in an
internal briefing that POLITICO has obtained, called an “explicit
act” to reject or amend the Commission recommendation through
either a physical meeting or a written procedure.
The Commission’s
thinking, according to officials, goes like this: The Council would
have to schedule an emergency meeting and debate any
tougher-than-expected Commission proposal, rather than okaying it in
a silent procedure in the case of zero fines — which is still what
the ministers are expecting to emerge from the College on Wednesday,
diplomatic sources said. One EU diplomat noted that it’s hard for
him to imagine organizing a qualified majority of EU countries that
Portugal and Spain would need to vote down the sanctions without a
physical meeting.
Incidentally, the
next regular meeting of the Council “is not scheduled before the
second half of September,” as the legal service duly notes.
Parliament claims
say
Meanwhile, according
to a letter that Martin Schulz, the president of the European
Parliament, sent to Juncker on Monday, the Parliament intends to make
the best use of a provision found in the thicket of the EU’s
economic governance rules and claim the right to have a say on the
potential freezing of EU infrastructure funds to both Spain and
Portugal as part of the sanctions.
“By the means of
this letter … I invite the Commission to a structured dialogue,”
Schulz wrote in his missive, a copy of which POLITICO obtained. The
regulation in question — 1303/2013, for those who care — entered
into force only at the end of 2013, and it would be the first time
that the Parliament gets a say in an affair that’s otherwise for
Commission (to propose) and EU governments (to adopt) only.
But Schulz wrote
that the talks about a freeze of payment commitments could start “at
the earliest possible opportunity after the summer recess.” As his
statement implies, a potential suspension of EU infrastructure
funding to Spain and Portugal will not be put before the
commissioners on Wednesday.
Instead, the
Commission will prepare a proposal on the funding cuts over the
summer, said an EU official involved. Spain stands to lose access to
as much as €1.2 billion and Portugal €500 million in structural
funds, according to an EU diplomat. The endangered funds and loan
programs for Spain fill three A4 pages.
Presidents only
It’s worth noting
that Schulz addressed his letter to Juncker, rather than responding
to the Commission’s representative who had written to him on July
14 to inform him of the Parliament’s right to intervene in the
Spanish-Portugal case. This happened to be the Commission’s
fiscally hawkish Vice President Jyrki Katainen, whom Schulz did
bother copying in his response.
In return for the
Parliament claiming its say in the EU’s budgetary affairs, it’s
offering to team up with the Commission not to cut off funding for
Spain and Portugal. Given the strong personal and working
relationship between Juncker and Schulz, whatever funding-cut
proposal the Commission eventually makes to the two EU countries,
more likely to be soft than tough, it will need Schulz’s stamp of
approval.
Authors:
Florian Eder
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