The European Commission on Wednesday backed away from calling for heavy fines against Spain and Portugal for running high deficits, avoiding what would have been a landmark move to impose tough budget rules.
Both nations now must find new measures until October 15 to curb their budget deficits over the coming months and years. This deadline could be tough for Spain considering its political paralysis following inconclusive elections.
"To sanction would not have corrected the past and would have been counterproductive at a time when people doubt Europe," EU Commissioner Pierre Moscovici said. "Our decision is politically and economically the most appropriate."
Under bloc regulations, the EU executive could have imposed fines of up to 0.2 per cent of national gross domestic product (GDP) against Madrid and Lisbon - but instead showed clemency amid growing anti-Brussels sentiment highlighted by Britain's Brexit vote.
Instead, it said there were attenuating circumstances. The Commission said that considering "the challenging economic environment, both countries' reform efforts and their commitments to comply with the rules," it suggested there be no fines. Instead, the countries should take steps to lower their deficits, it said.
The Commission wants to give Spain until 2018 to bring its deficit within 3 percent of GDP while Portugal should be given until the end of this year to lower its deficit to 2.5 percent.
The Commission only recommends what member states should do, but it is unlikely that countries would fundamentally go against the EU executive.
Spain and Portugal have been under the EU's excessive deficit procedure since 2009 because of recurrent fiscal holes.