Brussels, 05/03/2014 (Agence Europe) - On Wednesday 5 March, the European Commission decided to put Italy, Slovenia and Croatia under increased surveillance due to macroeconomic balances that the European Commission says are too high. Three other countries, France, Spain and Ireland, will also be closely monitored because strong political action is needed to deal with their imbalances. The Commission published detailed assessments of these countries in November with a view to aiding them in preparing their Stability Programmes (for eurozone nations) and their Convergence Programmes (non-euro nations) that are to be handed in at the end of April. On 2 June, the Commission will publish country-specific economic recommendations.
Imbalances in Italy, Slovenia and Croatia are too big, says the European Commission, which has placed them under increased surveillance. Rehn encouraged the new Italian government under Matteo Renzi to take speedy economic reform action to boost growth and improve job creation. He said weak external competitiveness in Italy and the country's high public debt need to be addressed. On the latter issue, Renzi told the congress of European Socialists in Rome last week that his government was planning to improve the debt, not because an international institution wants it to, but because it is a matter of dignity.
For Slovenia, he said there has been “decisive progress” in the banking sector, but other “challenges require strong political action” - like paying attention to budgetary targets, which might otherwise be missed. Lastly, Croatia must take measures by 30 April at the latest, when it presents it national convergence programme. Croatia needs to respond to sizeable external liabilities, declining export performance, highly leveraged firms and fast-increasing general government debt. Rehn, also noted that here is a need for significant “additional” budgetary consolidation to curtail the deficit by the end of the year.
Three other countries to be closely monitored. France, Ireland and Spain will be subject to increased surveillance due to the need for strong political action to deal with imbalances.
The European Commission focuses on two issues in France - the trade balance and competitiveness on the one hand, and the high level of public spending on the other. Rehn says strong action is needed on both fronts to avoid negative consequences for France itself and the wider eurozone given the size of the French economy. Despite its efforts to date, the Commission draws attention to the risk of France missing its budget targets for 2014. Its public debt is continuing to rise and public spending must be reduced, added Rehn. For both France and Slovenia, the Commission recommends that governments deal with the situation in a timely manner. France reacted quickly. In a joint press release, the French economy minister, Pierre Moscovici, and budget minister Bernard Cazeneuve, said that only a partial view of the 2013 deficit of public administrations is available at this stage, which show that spending has been strictly managed and the structural deficit will continue to sharply fall.
Rehn said Spain had already done much when it comes to economic reforms and its economy has now reached a turning point with exports picking up and a slight rise in domestic demand. He said there was even good news on the job front, according to recent figures, but unemployment still remains high. Other risks remain, like high private and public debt, and there is room for further improvement in making the Spanish economy more competitive.
Ireland is part of the European semester budget surveillance programme now that it has exited its aid programme. Along with Spain, it will be subject to special post-programme surveillance. The first monitoring mission will begin in April, said Rehn, and focus on the banking sector.
Germany was found in November for the first time to be suffering from macroeconomic imbalances not because of its strong international competitiveness, which Rehn would like replicated in every member state, but because of its ever-low level of domestic demand. Rehn's staff therefore recommend that demand be encouraged and investment be made in Germany. There are bottlenecks in the service sector and Berlin should do more to encourage more women to enter the labour force. Germany's trade surpluses with the rest of the world are continuing to rise, but falling with the eurozone.
Denmark, Luxembourg and Malta were removed in November from the list of countries where there are macroeconomic imbalances and the Commission says that risks have reduced and are being better controlled. A number of aspects of the situation in Luxembourg need to be dealt with, like its heavy financial sector, but this is not an imbalance in the sense of the MIP. (EL)