27 February 2019

New Europe: Commission identifies macroeconomic imbalances in 10 EU countries

Macroeconomic imbalances have been found in 10 EU nations according to a report published by the European Commission and based on the assessment of progress concerning structural reforms, the prevention and correction of macroeconomic imbalances, and the results of in-depth reviews.

Cyprus and Italy were for the second year in a row identified as experiencing excessive imbalances, with the former – despite an improved economic situation and a stepping up of its policy efforts – experiencing persistent vulnerabilities.

“A very high share of non-performing loans is burdening the financial sector and external debt continues to hang on the economy in the context of a still relatively high, though declining, unemployment and weak potential growth,” the Commission’s report said, which added that the current account deficit remains significantly negative.

Italy’s high government debt and protracted weak productivity have continued, which has contributed to the high level of non-performing loans and unemployment.

“The government debt ratio is not expected to decline in the coming years, amid the weak macroeconomic outlook and the government’s current fiscal plans, which are less expansionary than its initial plans for 2019. But this will entail a deterioration of the primary surplus,” the Commission added, suggesting that its roots are based on “long-standing issues when it comes to the functioning of labour, capital, and product markets, which are compounded by weaknesses in the public administration and justice system. This drags down potential GDP growth”.

According to the Commission’s findings, Bulgaria, France, Germany, Ireland, the Netherlands, Portugal, Spain, and Sweden are also experiencing an imbalance. The EU executive said Bulgaria took further steps to ensure the stability of its banking sector, but some important initiatives have yet to be finalised or implemented.

Reform commitments have stepped up in France, but a “correction of the imbalances, related to high public debt and weak competitive dynamics, depends crucially on policy progress,” according to the report.

Private debt issues are being addressed in some EU countries, but major imbalances remain for the Netherlands, which also has a large current account surplus along with Germany.

Berlin’s current account surplus remains high while, once again, the Commission suggests that more efforts are needed to fill investment gaps for infrastructure and education.

Ireland, whose strong growth and policy progress have continued to support a narrowing of the stock imbalances, Brexit-related vulnerabilities, according to the Commission, could further increase risks for the Irish economy, especially as an EU-UK agreement remains un-ratified by the British government.

Imbalances related to internal and external debt are narrowing in Portugal and Spain helped by improved economic conditions, while policy and adjustment gaps remain.

Spain “continues to enjoy robust economic growth of 2.5% even if a slow down gradually remains above Eurozone growth rates,” Commission Vice-President Valdis Dombrovskis told New Europe. 

Full article on New Europe

European Semester Winter Package: assessing Member States' progress on economic and social priorities

Opening remarks by Vice-President Dombrovskis on the European Semester Winter Package

Opening remarks by Commissioner Moscovici on the European Semester Winter Package

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