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“Our transformed economic governance enables us to address macro-economic imbalances pre-emptively and to create the foundations for sustainable growth”, said Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro. “Decisive policy action by Member States and at EU-level is helping to rebalance the European economy. But significant challenges remain: it will take some time yet to complete the unwinding of the imbalances that were able to grow unchecked in the decade up to the crisis, and which continue to take a toll on our economies.”
The in-depth reviews have found that the macro-economic adjustment in Europe is proceeding, though with differences in nature and pace among Member States. The reviews point to reductions in current account deficits, convergence in unit labour costs, corrections in excessive housing prices and reductions in private sector indebtedness. However, given different challenges and imbalances, cross-country growth differences are expected to persist in the coming years.
The weakness of economic activity and the fragile economic outlook in some cases may have aggravated both the risks and the cross-country spillovers related to macro-economic imbalances. Moreover, in most cases the adjustment is not yet complete. Many EU economies continue to face significant challenges in the form of external liabilities, private sector indebtedness and ongoing adjustments in housing markets. Overcoming these challenges will impact the ability of the indebted economies to grow and compete, to ensure financial stability and, fundamentally, to reduce unemployment.
The macro-economic imbalances in several Member States need to be closely monitored. They demand a decisive commitment to structural reform in order to ensure that they are unwound as smoothly as possible and that the conditions can be created for sustainable growth and job creation.
The Commission also expects those eleven countries with imbalances that are not found to be excessive, namely Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom, to take the findings of the in-depth reviews into account in their National Reform Programmes and Stability and Convergence Programmes. For these countries, the Commission will put forward encompassing policy recommendations on 29 May for the correction of existing imbalances and the prevention of new ones.
In two Member States, Spain and Slovenia, imbalances can be considered excessive. In Spain, the very high domestic and external debt levels continue to pose serious risks for growth and financial stability. In Slovenia, the risks for financial sector stability stemming from corporate indebtedness and deleveraging are substantial, including through inter-linkages with public finances. The adequacy of their policy responses will be assessed in time for the conclusion of this year’s European Semester of economic policy coordination, in the context of which country-specific recommendations will be adopted on 29 May.
For Cyprus, which was also selected for an in-depth review in the Alert Mechanism Report, no in-depth review is published. This is a consequence of the political agreement reached between the Eurogroup and the Cypriot authorities on the key elements of a macro-economic adjustment programme and official financing. Programme countries are not covered by the Macro-economic Imbalances Procedure, as they are already under enhanced economic surveillance as part of their economic adjustment programmes.
Communication from the Commission to the EP, Council & Eurogroup
Macro-economic Imbalance Procedure