Cause and Effect in European Politics and Law

Populists vs. Lawmakers in the Debate on Spain and Portugal

Adelina Marini, October 5, 2016

Instead of a debate on the implementation of the law, the discussion on the temporary suspension of European funds for Spain and Portugal over systemic violations of EU fiscal rules turned into a rebellion against the law. The two and a half hour dialogue between European Commission Vice-President Jyrki Katainen (Finland, EPP), European Commissioner for Regional Policy Corina Crețu (Romania, Socialists and Democrats), and members of the Economic and Monetary Affairs and Regional Development committees revealed the extent of the infection of Euroscepticism and resistance against European legislation. As described by the French MEP from the economic committee Sylvie Goulard (ALDE), the debate revealed the true state of the European Union. The discussion also uncovered the corrupting power of a political European Commission. 

Legal grounds for the suspension of European funds for Spain and Portugal

The 2009 crisis, which threatened the survival of the euro area, and thus the EU in general, brought about the swiftest reform in EU economic governance in history. Within two years, co-authored by the European Parliament, the large reform was adopted, whose goal was to set stricter rules and discipline for their implementation, so that a re-run of the crisis is avoided. At the time, everyone agreed that an end must be put to violating or circumventing the rules, for it has repercussions not just on the guilty states, but all the others as well, who share a common currency or are economically interconnected. 

One of the innovations in that reform was the linking of fiscal discipline to European funds. Preliminary economic conditionality was introduced. It was incorporated in the multiannual budget of the European Union for the 2014-2020 period. Differing from previous programme periods, with the new change all five EU structural funds are tied to the economic governance procedures. Under the new legislation, the Commission is obliged to sanctioning a member state, should it not follow the rules. 

Spain and Portugal have been in an excessive deficit procedure since 2009 and since then the EC has extended several concessions to them, hoping that the full force of European legislation will not have to be enforced. As was explained by Vice-President Jyrki Katainen (former commissioner for economic affairs and former prime minister of Finland), the EC has so far applied all the possible flexibility of legislation to the extreme. Regardless of that, Madrid and Lisbon, both locked into an endless cycle of political crisis, were incapable of complying with the set targets for lowering the excessive budget deficit. So, on July 12th, the Council approved decisions for levying sanctions on Portugal and Spain, but the Commission refused to fine them and gave them another extension instead (the second in a year). The Council approved this decision on August 8th.

Portugal and Spain have until October 15th to implement the new EC recommendations. As no financial fine was imposed, the Commission is obliged, following Article 23 of the Common Provisions Regulation, to propose the suspension of part of the 2017 commitments on Portugal and Spain’s operational programmes. The EC can only do so following consultations with the European Parliament. What was supposed to be a structured dialogue, transpired on the evening of October 3rd. According to the Regulation, the EC can block all or a part of the commitments or payments for the following fiscal year. The size of the suspension can be up to 50% of payments on each of the programmes, but could also reach 100% if the offending side continues not to take effective actions within three months of the adoption of the decision.

The EC has the right to judge whether to cut from all programmes, or chose the ones that would have the least detrimental effect to investments in the country in question. It could decide not to suspend payments, but just the new commitments. The Regulation sets a maximum of 50% or 25% ceiling for the next fiscal year. If the offending state takes action, the EC could lift the blockade and re-budget the programmes. The EC’s proposal for suspension of European funds could be rejected by the Council by a qualified majority. In drafting the proposal, the EC can take into consideration the difficult economic situation, with Jyrki Katainen and Corina Crețu assuring MEPs that they would do just that, concentrating mainly on the unemployment in both states, for it is extremely high.

They will also take into account that structural funds make up a large portion of public investment in both countries – 78% in Portugal and 21% in Spain for the 2014-2016 period. This means that blocking commitments could slow down planned investments, although the two commissioners assured that it will not get to that, should Lisbon and Madrid follow the EC’s recommendations. According to Ms Crețu, blocking some of the commitments will have no short-term effect on the programmes’ implementation. She said that if European funds are suspended for 2017, effects will show all the way in 2020, and only if no measures are taken at that.

For the entire programme period (2014-2020), Portugal is allocated 26 billion euro, and Spain is allocated 38 billion euro on the cohesion funds. For the period 2014-2016, Portugal’s commitments are for 8.2 billion euro, and the country has absorbed 1.5 billion. Jyrki Katainen assured that not a single ongoing project will be affected and that both countries will continue to receive money, even more than they have been able to absorb so far. 

Sovereignty is mine,  European funds are common

None of this, however, reassured most MEPs, who, regardless of their affiliation to a specific political group, stood against the very idea of the two countries being punished and did not accept the commissioners’ assurances that the measure is not a sanction. Moreover, there were mass calls for the law not to be enforced. The discussion revealed that to many MEPs European law is just a political option, not something that has supremacy over everything. Fully aware what is coming, Corina Crețu reminded in her opening statement that many of today’s MEPs were involved in the adoption of the Regulations and even qualified them at the time as a “positive conditionality”. Lambertus van Nistelrooij (EPP, The Netherlands) objected, stating that he remembers very well the debates at the time, when it was agreed that the application of Article 23 will be a “last last last resort".

He was awarded a loud round of applause for his statement, in which he threw back as a boomerang the politicality of the European Commission. “Your Commission is a political commission, as you said, it’s clear. You changed the roaming proposal because there was a reason not to bring forward what might have been reasonable. And this is exactly what is at stake in this structured dialogue. If 3/3 of Portuguese money is coming from Europe, you touch them in the heart. You touch the educational programmes, everything. Come up with something else”, stated the Dutch MEP of the group of the right-wing European People’s Party. 

Despite assurances by Corina Crețu and Jyrki Katainen that the last resort is already here, attacks not only did not cease, but intensified. MEPs of all political groups, excluding ALDE and a few other MEPs, condemned the idea as ridiculous. Some even contested the legal grounds for implementing the measure, although it is very clearly stated in the Regulation. Following speeches from MEPs from the regional development committee, belonging to the three largest political groups – EPP, Socialists and Democrats, and ECR – a voice of reason was heard from Matthijs van Miltenburg (ALDE, The Netherlands), who was the first to attempt to say that however unpleasant, rules are meant to be respected. “Of course, we can say this is a pity, but these are the rules that we should respect because else there will be no governance”, he said.

Younous Omarjee of the extreme left-wing (France), however, stuck a finger in the common European wound. “Is this what we want to see after a Brexit? We need to punish countries, which violate human rights”, he said. The Greens on the other hand directly stated that macroeconomic conditionality is not the way to go. Portuguese MEP of the Socialists and Democrats group Liliana Rodrigues also warned of the threat of Euroscepticism. Another Portuguese MEP, but from the EPP group, Fernando Ruas, called on the EC to implement all possible flexibility by stating that things got to this point due to not imposing a fine. Instead of governments being fined, beneficiaries and regions will be punished, he said. 

The calls by MEPs to uphold the laws were a voice in the wilderness. German EPP MEP Burkhard Balz stated that the EC cannot be told not to respect the law and French Liberals MEP Sylvie Goulard literally exploded saying that the European Parliament is acting as if it did not adopt the Regulation with over 400 votes in support of macroeconomic conditionality. She added that the EC should have been way more balanced and should not have allowed exceptions. The strongest statement, however, came from Swedish MEP Gunnar Hökmark of the EPP. “We have all suffered in difficult times but if you do choose to increase spending in the toughest of times then you're undermining stability and investments. EU is a legal union. And if we legislate rules I think we can require from all of us to follow the rules. Otherwise we don’t need the rules. Otherwise we're not a Union. If we, as parliament, are hinting or saying that we legislated the rules but we don’t meant it, then, colleagues, we're undermining the credibility not only of the Stability and Growth Pact, but the EU and then we're really undermining the European economy”, he said.  . 

To him, a way larger threat than levying sanctions is the turning of not following rules into a policy or dogma. “The Commission is there to follow the rules not breaking them”, he concluded, but did not receive much deserved applause. Applause was awarded to populism, which wanted rules to be disregarded, because they were needed once, but now they are in the way. Vice-President Katainen attempted on several occasions to explain that the Commission is legally bound to enforce the suspension of European funds. “This is not a question of political will but we have a legal obligation and that's why we are here. [...] The reason for the conditionality is that once we are using European taxpayers' money we have to make sure that this money really created added value and is used properly”, said Mr Katainen.

He added that European solidarity is based on rule of law. “The EU is based on rule of law, which pushed aside the rule of force”, were his words. They were, however, silenced by shouts of “let’s not follow rules and procedures religiously”, “let’s be smart in implementing rules”, “why is France not sanctioned for the same thing”, “why don’t you enforce zero suspension of European funds”, “stopping European funds is immoral”. It is expressly stated within the EC anchor points on the structured dialogue, published by Politico, that legislation leaves no room for manoeuvre, for it requires action by the Commission.

It was pointed out on several occasions during the discussion that there is no deadline for the implementation of the measure, but it is clearly written in the Regulation that the suspension of commitments must be implemented starting January 1st of the year following the decision. This means that the decision must be made by the end of the year. If Portugal and Spain present satisfactory draft budget plans by October 15th, it might not come to the suspension of European funds. This, however, does not solve in the least the ever grander problem the EU has with disrespect of its own rules.

Translated by Stanimir Stoev