LISBON (Reuters) - OECD chief Angel Gurria on Friday urged the European Commission not to apply sanctions on Portugal and Spain for overshooting their budget deficit goals, saying it was the "the last thing we need" as Europe grapples with Brexit and other challenges.

The European Commission launched formal disciplinary procedures on Thursday against Spain and Portugal for their excessive deficits in 2014 and 2015.

"I have gone on the record to say that the last thing we need now is for the Commission to talk about sanctions for countries which may have deviated by 0.2 percent from a path of deficit reduction," Gurria, who heads the OECD which advises developed nations on policy, told a conference in Lisbon.

"We face new challenges, of migrants and refugees, terrorism and Brexit."


He said it would "create divides among us by applying sanctions which are not even sanctions because they have to do with the past and not with the future".

The Council of EU finance ministers will decide on the Commission's recommendation at their regular meeting on July 12.

Gurria said any sanctions by the EU on Portugal "don't take into account what is happening already today".

Portugal's Socialist government has promised to reduce the budget deficit this year to 2.2 percent of GDP from 4.4 percent last year.

Portugal's budget overshoot last year was caused by bank bailout of Madeira-based bank Banif, which needed an injection of 2.2 billion euros.

Gurria said sanctions would not take into consideration that "when countries face a banking crisis they have to do whatever it takes in order to maintain the stability of the financial markets".

Portugal exited a three-year bailout in 2014 after enacting harsh austerity measures.

Gurria said Portugal's economy still needs to sharply boost its productivity, saying it is 40 percent below the average of the euro zone.

"Portugal still bears the scars of the crisis," Gurria said. "It still faces many policy challenges."

(Reporting By Daniel Alvarenga, writing by Axel Bugge; Editing by Alison Williams)

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