Spain confident of avoiding EU fines over budget rules

Spain voiced confidence in its economic policies on Friday, a day after the European Commission declared it and its neighbour Portugal to be in violation of public spending rules.

The European Union's executive on Thursday accused the two eurozone members of moving too slowly towards meeting the EU's deficit limit of three-percent of national output.

"We remain confident that this sanction will not lead to a fine for Spain," said Spanish Deputy Prime Minister Soraya Saenz de Santamaria.

In Lisbon, informed sources said Portugal, reacting sharply to comments last month by German Finance Minister Wolfgang Schaeuble, had hauled in the German ambassador for an explanation.

Schaeuble had warned Portugal against any backsliding in its pledge to curb spending.

"Portugal would be making a serious mistake if it no longer respects its undertakings. It would then need to seek a new aid package and get it," he had said.

Portugal's finance ministry was quick to respond that no new bailout was being considered.

The sources said Friday the Portuguese foreign ministry called in Germany's ambassador to Lisbon in protest. The meeting took place on June 30.

"The Portuguese government considers these statements unfair and unfriendly and has already expressed its displeasure to the German authorities, through the usual diplomatic channels," Foreign Minister Augusto Santos Silva said in an interview with the weekly Expresso.

The ministry later said German Ambassador Ulrich Brandenburg had "clarified" the matter and the explanation was "completely satisfactory." Germany's embassy in Lisbon declined to comment.

Portuguese Prime Minister Antonio Costa has also warned that Brussels would only embolden euroscepticism if EU sanctions are applied.

Costa cited "the results of the UK referendum" as a reason to refrain from full implementation of the rules.

Bailed out Portugal, long considered a star reformer, sharply cut its budget deficit from close to 10 percent of GDP in 2010 to 4.4 percent last year, but that still overshoots targets and the bloc's limit.

Spain, while avoiding a eurozone bailout, suffered through six years of recession. In 2015 it reported a deficit of 5.1 percent of gross domestic product (GDP), way off the target of 4.2 percent set by the commission and the normal 3.0-percent limit.

If the sanctions are endorsed by the EU's finance ministers, who meet on July 12, the commission then has 20 days to propose fines against the two neighbouring countries.

Saenz de Santamaria said Madrid would defend itself against such a decision.

"It's a question of good sense. We have made efforts and I believe that will be taken into account," she said.

Spain, however, remains in political limbo with parties still negotiating to form a new government after a second round of general elections last month proved inconclusive.