Spain and Portugal just won a massive victory over the European Commission

Spain and Portugal just won a massive victory over the European Commission, avoiding — for a few months at least — fines for failing to comply with European Union fiscal rules.

Both Iberian nations have been under scrutiny from the commission for missing targets on debt reduction, but president Jean-Claude Juncker has now decided that no decision should be made until at least the end of June, following the upcoming general election in Spain.

Spaniards will go to the polls on June 26, after previous elections last year failed to produce a clear winner. That has led to a period of serious uncertainty in the country, with the leader of the People’s Party Mariano Rajoy taking the role of acting prime minister. That uncertainty is at the heart of the European Commission’s decision on Wednesday.

Speaking about the decision earlier on Wednesday, Pierre Moscovici, the EU’s economic commissioner said “this is not the right moment economically or politically” to take action against either Spain or Portugal for financial indiscretions, but did say the commission “will have to come back to this issue in early July.”

A statement released as part of the European Commission’s Spring Package said:

As regards Portugal and Spain , the Commission recommends to the Council to recommend a durable correction of the excessive deficit in 2016 and 2017 respectively, by taking the necessary structural measures and by using all windfall gains for deficit and debt reduction. In line with its duty to monitor the implementation of the excessive deficit procedure under Article 126 of the Treaty, the Commission will come back to the situation of these two Member States in early July.

Essentially, the commission realises the potential political implications of fining Spain ahead of an election could be huge, and has decided to defer its decision. By doing so, it risks being accused of putting politics ahead of the rules.

Both Spain and Portugal should both, by rights, have been given the first substantial fines ever levied by the European Commission for failing to lower their budget deficits to required levels. Here’s what they were supposed to acheive:

  • Portugal — ran a budget deficit of 4.4% last year, ahead of the 2.7% maximum mandated by the EU.
  • Spain — ran a budget deficit of 5.1% in 2015. It was required to have a maximum deficit of 4.2% by the ed of the year. Spain also looks likely to miss its 3% target for the end of 2016.

The upcoming election is a source of much chagrin in Spain, with a recent campaign video from Rajoy openly admitting that he realises people are pretty bored of the political deadlock: “I know this might be tiresome for a lot of people and that’s logical. Because on December 20 we held elections in Spain and it wasn’t possible to reach an understanding and form a government,” he said.

While Wednesday’s decision is a big let off for the southern European states, it is by no means unprecedented. France and Italy have both repeatedly missed fiscal targets and avoided fines. In 2015 for instance, France failed to bring its budget deficit down to a 3% target, but was given an extra two years to do so.

NOW WATCH: This 27-year-old quit her corporate finance job to travel the world

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.