Instead, the European Commission said it “will come back to the situation” in July. “But we will have to come back to this issue in early July”, said Pierre Moscovici, the economic affairs commissioner.
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It was the second time in a year that the European Union executive had bowed to political reality rather than strictly enforce the bloc’s rules on excessive budget deficicts, fuelling doubts over its willingness ever to apply fiscal sanctions.
Portugal has sharply cut its budget deficit from close to 10% of GDP in 2010 to 4.4% previous year, but that still exceeded the bloc’s limit.
The EU granted the government in Rome more leeway in meeting its deficit targets, allowing an extra 0.85 percent of GDP this year beyond its EU target, Dombrovskis and Moscovici said in a letter published on Italy’s Treasury website.
“Spanish elections are not a valid argument”, he said, warning that “we can always find a reason not to act”.
He said that a new deadline was necessary because previous deficit targets were “no longer realistic”. “We propose that each country receives one extra year, and one extra year only”.
The commission’s budget analysts consider they have little choice but to take action against Spain if they are to maintain the credibility of their rules, the people said.
Deferring any sanctions is set to fuel accusations that the EU Commission has no teeth when it comes to enforcing economic rules.
Carsten Brzeski, aneconomist at ING, said the decision on Spain made technical sense, since a new government in Madrid would be needed to implement any possible recommendations from the commission.
“At the current juncture, with most eurozone countries desperately trying to revive growth and tackle unemployment, today’s decision was in our view the right decision”.
In an interview with the Financial Times on Wednesday, Spanish Prime Minister Mariano Rajoy promised new tax cuts – to both corporate and personal income tax rates – to austerity-weary Spaniards if re-elected and fiscal revenues continued to rise.
This was the eighth consecutive year that Spain overshot its fiscal target, making it one of the worst performers in the eurozone.
The refusal to recommend sanctions against the two countries is part of a package of fiscal-oversight decisions that also conclude Italy, Belgium and Finland comply with the EU’s debt limit and Ireland, Cyprus and Slovenia should be removed from the excessive-deficit watchlist.
Italy, whose debt-to-GDP ratio is exceeded only by Greece in the euro area, received its own dose of generosity on Tuesday.
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Although the deficit is well under the three percent ceiling enshrined in the EU’s Stability Pact, Rome is under pressure to cut its annual overshoot on spending compared to revenue as a means of bringing down its huge debt mountain.
