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EU refrains from immediate fine against Spain over budget

BRUSSELS – The European Union refrained Wednesday from imposing immediate fines on Spain and some other member states despite their failure to meet budget targets, opting instead to give them additional leeway to get back on track.

The EU’s executive had been expected to impose sanctions on Spain for not meeting EU-prescribed limits for a fourth year running. Action against Portugal had also been expected.

Instead, the European Commission said it “will come back to the situation” in July.

The EU wants countries to keep their budget deficits below 3 per cent of their annual GDP and has set targets for those not meeting the limit on how to get there. One of the reasons behind Europe’s sprawling debt crisis of the past few years is that the limits were often ignored.

Though countries can be fined up to 0.2 per cent of their GDP if they fail to implement measures to meet the limits, no country has yet been fined.

“This is not the right moment, economically or politically, to take that step,” said EU Financial Affairs Commissioner Pierre Moscovici.

The decision to postpone judgment could be convenient for Spain’s caretaker prime minister, Mariano Rajoy, ahead of June 26’s general election. Even after skirting deficit limits for years, Rajoy has said he still plans to implement tax cuts, raising the spectre of more clashes with the EU on deficit reduction.

Portuguese Prime Minister Antonio Costa said in reaction that the Commission’s decision to postpone fines “means there’s nothing dramatic requiring immediate measures.”

Costa noted his government is aiming for a budget deficit of 2.2 per cent this year, lower than the 2.3 per cent demanded by the Commission.

“We’re comfortable with the measures we have in place to achieve” the target, he told reporters.

Deferring any sanctions is set to fuel accusations that the EU Commission has no teeth when it comes to enforcing economic rules.

Moscovici insisted that despite the delay, the Commission was “resolved to have rules respected.”

Justifying the postponement until July, he noted that Portugal and Spain are “two countries that have got through tough crises — unemployment rates are very high still.”

Both, he added, have “made significant efforts to reform.”

The EU group BusinessEurope Director General Markus Beyrer said despite good advice from the Commission “the problem has been the lack of implementation.”

With any additional time given by the Commission,

Beyrer said that member states should use the additional time granted by the Commission “wisely, looking in particular at the scope to increase the efficiency of public expenditure and reduce tax burdens.”

The Commission also gave Italy some leeway after encouraging economic statistics and commitments from Prime Minister Matteo Renzi to bring the budget back in line. It said it will have a new report on Italy by November.

Overall, the average deficit in the eurozone is to fall to 1.9 per cent of GDP, down from 6.1 per cent in 2010 during the height of the economic crisis.

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Barry Hatton in Lisbon, Portugal, contributed to this report.