May 7, 2016 / 12:24 PM / 2 years ago

Spain's Rajoy asks EC to forgo deficit fine - El Pais

MADRID (Reuters) - Acting prime minister Mariano Rajoy has asked the European Commission to waive a fine that could be imposed on Spain for missing its deficit target in 2015, El Pais newspaper reported on Saturday.

Spain's acting Prime Minister Mariano Rajoy reacts at Moncloa palace in Madrid, Spain, May 6, 2016. REUTERS/Andrea Comas

Citing a letter sent to Commission President Jean-Claude Juncker, El Pais said Rajoy had stressed Spain’s efforts in the past four years to halve the public deficit, and offered up additional measures to control spending next year.

A Commission spokeswoman confirmed it had received a letter from Spain and would study it. A source with the Spanish government said the letter contained information that had already been sent to Brussels on Spain’s latest plans to bring the deficit down.

The Commission is in charge of policing the budgets of the EU’s 28 members to make sure they improve each year in line with recommendations set by finance ministers.

The rules were sharpened in 2011 to make financial sanctions for rule-breakers more automatic and harder to circumvent through political alliance-building as had happened in the past.

Spain missed its 2015 target of cutting the deficit to 4.2 percent of gross domestic product (GDP), after overspending by regions and a social security revenue shortfall pushed it up to 5 percent.

The Commission is considering penalising Spain as well as Portugal for missing their goals. Officials have told Reuters the fines - which would be unprecedented - could be symbolic and be set at zero percent of GDP, though even that would ramp up political pressure.

Spain’s deficit tussle comes at an sensitive time for Rajoy’s acting centre-right government, which faces a second election in six months after an inconclusive ballot last December which stripped the People’s Party (PP) of its majority.

The PP has tried to sell itself as a safe pair of hands on the economy, after the country emerged from a deep recession under its administration.

The new election is now set for June 26. The Commission is due to issue its recommendations on whether or not to fine Spain and Portugal later this month, though the size of any fine may not be announced until after the vote, El Pais said.

The maximum penalty is up to 0.2 percent of GDP, or 2.16 billion euros (£1.7 billion) in the case of Spain.

Brussels is also expected to give Spain more leeway to whittle its public deficit below its recommended 3 percent threshold, through an extension of one or even two years, sources have said.

By exercising better controls on regional spending and helped by an economic rebound, Spain aims to bring the deficit down to 3.6 percent this year - instead of the 2.8 percent originally envisaged - and sees it standing at 2.9 percent in 2017.

Brussels has projected the deficit will reach 3.8 percent of GDP this year and 3.1 percent in 2017.

Reporting by Sarah White in Madrid and Robert-Jan Bartunek in Brussels; Editing by Toby Chopra

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