It has cancelled all sanctions
Spain and Portugal will not be fined for breaking EU budgetary rules for failing to get their budget deficits below 3% of GDP.
In July the countries were judged to have failed to have taken effective action to meet the EU targets.
The European Commission subsequently recommended that the states should not be fined.
"Today’s decisions reflect an intelligent application of the Stability and Growth Pact. By giving more time to Spain and Portugal to bring their public deficits below 3%, the Council sets new credible fiscal trajectories, which will contribute to strengthening both their economies and the euro area," Pierre Moscovici, EU commissioner for Economic and Financial Affairs said.
"The Commission will assess the action taken by Spain and Portugal in the coming months in the context of both the Excessive Deficit Procedure and the analysis of the Draft Budgetary Plans for 2017," he added.
Spain is still without a government after two general elections in eight months - it has been given a two and a half year extension to meet the target. Portugal has been given a one year extension.
The countries will have to demonstrate that they are taking effective action to meet this target by mid-October.