COUNCIL IMPLEMENTING DECISION imposing a fine on Portugal for failure to take effective action to address an excessive deficit

Recommendation for a

COUNCIL IMPLEMENTING DECISION

imposing a fine on Portugal for failure to take effective action to address an excessive deficit

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area, and in particular Article 6 thereof,

Whereas,

(1)The Council, by decision adopted on 12 July 2016, established that no effective action has been taken by Portugal to correct the excessive deficit in response to the Council recommendation of 21 June 2013 under Article 126(7) of the Treaty .

(2)Following the Council's decision under Article 126(8) of the Treaty that Portugal has not taken effective action to correct the excessive deficit, the Commission should recommend the Council to impose a fine.

(3)The fine to be imposed on Portugal should in principle amount to 0.2% of its GDP in the preceding year but its amount may be reduced or cancelled on grounds of exceptional economic circumstances or following a reasoned request by the Member State concerned.

(4)The GDP of Portugal in 2015 was EUR 179.37 billion. 0.2% of that GDP corresponds to EUR 358 738 200.

(5)In accordance with Article 2(3) of Regulation (EU) No 1173/2011, ‘exceptional economic circumstances’ means circumstances where an excess of a government deficit over the reference value is considered exceptional within the meaning of the second indent of point (a) of Article 126(2) TFEU, as specified in Regulation (EC) No 1467/97. According to the latter Regulation, such an excess is exceptional when it results (i) from an unusual event outside the control of the Member State concerned and with a major impact on the financial position of general government or (ii) from a severe economic downturn, meaning a negative annual GDP volume growth rate or an accumulated loss of output during a protracted period of very low annual GDP volume growth relative to its potential.

(6)An evaluation of the application of the above-mentioned conditions to Portugal yields the following conclusions:

Even though Portugal's annual GDP growth has contracted more rapidly than expected in 2011 and 2012, the economy has been on a mild recovery path since spring 2013. Unemployment also grew considerably until 2013 but returned to a downward path in 2014, as the Portuguese economy eventually began to recover. GDP has been growing largely above the growth of potential output since 2014 and this situation is expected to continue in 2016. According to the Commission 2016 spring forecast, GDP is projected to continue growing at 1.5% during 2016, further increasing to 1.7% in 2017. Consequently, there has not been a severe economic downturn over the period covered by the 21 June 2013 Council Recommendation (i.e. 2013-2015).

Moreover, no unusual event outside the control of the government, with a major impact on public finances over 2013-2015, took place.

(7)Therefore, exceptional economic circumstances that would warrant a reduction of the amount of the fine do not exist.

(8)On 18 July 2016, Portugal submitted a reasoned request to the Commission to recommend that the Council set the amount of the fine to zero. In support of its request, Portugal gave the following reasons:

(9)Portugal recalls the substantial fiscal consolidation effort and the structural reforms implemented during the recent economic adjustment programme. It also reaffirms the strong commitment to correct the excessive deficit in 2016, including the commitment to adopt measures when necessary to correct budgetary deviations, and to implement a fiscal adjustment in 2017 in line with the fiscal country specific recommendation adopted by the Council on 12 July 2016. Portugal considers that the application of sanctions would be detrimental to the achievement of the budgetary targets correcting the excessive deficit this year. It also points to economic policy commitments in particular as regards the stabilisation of the financial system and the measures presented in the 2016 National Reform Programme. Finally, Portugal considers any sanction inappropriate in the current European and international environment, in particular in view of the high uncertainties arising from the outcome of the referendum in the United Kingdom on the membership of the European Union.

(10)An assessment of the abovementioned arguments leads to the considerations below.