OREANDA-NEWS. The decision not to impose fines on Spain and Portugal following their failure to correct excessive deficits highlights the limited credibility of the eurozone's fiscal framework, Fitch Ratings says.

The European Commission recommended on Wednesday that no fines be imposed on Spain or Portugal following reasoned requests by both governments and taking into account the challenging economic environment. Both countries reaffirmed their commitment to comply with the rules of the Stability and Growth Pact, under which governments must bring their deficits to below 3% of GDP. Under new fiscal adjustment paths agreed with the Commission, Portugal will do this by 2016 and Spain by 2018, at the latest. Portugal's budget deficit was 4.4% of GDP at end-2015, while Spain's was 5.1%.

The pace of fiscal consolidation in Europe has relaxed as the eurozone crisis has faded. European policymaking has shifted away from the themes of fiscal discipline, economic reform and European financial institution-building.

The European Commission and many eurozone governments have moved away from a strict interpretation of the European fiscal rules, favouring looser budgetary policy. This outcome is growth-supportive in the near term. Indeed, in a low growth and low interest rate environment, the stimulus to growth may be relatively strong, offsetting some of the impact on public debt dynamics. Recent GDP outturns for some of the largest economies, including Spain, have exceeded expectations.

But it further undermines fiscal credibility. Public debt remains the primary rating constraint for many sovereigns in the region, and we expect this to remain the case for several years.

Moreover, fiscal consolidation in eurozone countries may drop further down the list of priorities, as leaders focus on enacting, and limiting the ramifications of, the UK's decision to leave the EU.