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Brussels, 10 April 2013
Commission concludes in-depth reviews as part of the Macroeconomic Imbalance Procedure
What are the in-depth reviews?
The in-depth reviews examine macroeconomic developments with the aim of analysing potential imbalances, their origin, nature and severity, and in particular of determining whether these imbalances are excessive in the sense of the Macroeconomic Imbalance Procedure. They were prepared by staff from the Commission’s Directorate-General for Economic and Financial Affairs (DG ECFIN). The in-depth reviews look particularly at external financial sustainability; the drivers of external competitiveness; developments related to the deleveraging of private sector balance sheets; private and public indebtedness; housing and mortgage market developments; and financial sector stability. In-depth reviews encompass a thorough analysis of sources of imbalances in the Member State under review, taking into account country-specific economic conditions. They consider a wide set of available data and other information. In the preparation of the in-depth reviews, specific surveillance missions - including discussions with the Member States' government and other stakeholders - took place.
For which countries is the Commission publishing in-depth reviews?
The in-depth reviews have been done for 13 Member States, which were identified in the Alert Mechanism Report of 28 November 2012 (IP/12/1275, MEMO/12/912) as warranting further economic analysis, since they show signs of potential macroeconomic imbalances or face challenges in adjusting to imbalances. These Member States are Belgium, Bulgaria, Denmark, Malta, the Netherlands, Finland, France, Italy, Hungary, Slovenia, Spain, Sweden and the United Kingdom. In the Alert Mechanism Report the Commission made an assessment based on a scoreboard encompassing eleven economic indicators to identify internal and external imbalances in EU Member States linked to developments in competitiveness, indebtedness, asset prices, adjustment and inter-linkages with the financial sector.
Why is there no in-depth review for Cyprus?
Cyprus was one of the countries identified in the Alert Mechanism Report as warranting an in-depth review. But given the political agreement reached between the Eurogroup and the Cypriot authorities on the key elements of a macroeconomic adjustment programme and official financing, no in-depth review has been published. The reason is that programme countries are not covered by the Macroeconomic Imbalances Procedure, as they are under enhanced economic surveillance in the scope of the economic adjustment programme linked to the financial assistance they receive. The Commission was already implementing this principle, which has now been confirmed with the approval of the so-called "two-pack", that consists of two regulations to further strengthen the economic pillar of the Economic and Monetary Union (MEMO/13/196).
What are the overall findings of the in-depth reviews?
The analysis in the in-depth reviews confirmed that the Member States concerned face macroeconomic imbalances, but the origin, nature and gravity of these imbalances differ. Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom experience imbalances. In Spain and Slovenia the Commission considers the imbalances to be excessive according to the Macroeconomic Imbalances Procedure.
In general terms, the in-depth reviews show that in most Member States a number of harmful trends are being corrected. But in the majority of cases, adjustment of economic imbalances is not yet complete. Moreover, the deterioration in the economic activity and the economic outlook increased the risks and spill-overs that imbalances may engender, even if measures at Member States' and EU level have attenuated tail risks.
In particular, the accumulated stocks of external liabilities (as measured by the large and negative net international investment positions and the net external debt), private indebtedness and the situation in the housing markets continue to pose severe challenges to a number of EU economies. Overcoming these challenges will impact the ability of the economies to grow and compete, to ensure financial stability and to fundamentally reduce unemployment.
In addition, the in-depth reviews confirm that the macroeconomic imbalances in several Member States require further structural reforms. Many of the measures that aim at a smooth correction of economic imbalances are also measures that promote medium-term economic growth. This implies that the EU strategy to boost growth and investment (Europe 2020) largely includes the policy action that should be taken in the context of the Macroeconomic Imbalance Procedure.
What are the main conclusions for each country?
The analysis of the in-depth reviews shows that the Member States concerned are experiencing imbalances or excessive imbalances, which need to be addressed under the preventive or the corrective arms of the Macroeconomic Imbalance Procedure.
Belgium is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, macroeconomic developments in the areas of external competitiveness of goods, and indebtedness, especially concerning the implications of the high level of public debt for the real economy, continue to deserve attention.
Bulgaria is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, the impact of deleveraging in the corporate sector as well as the continuous adjustment of external positions, competitiveness and labour markets deserve continued attention.
Denmark is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, the continuing adjustment in housing markets and the still high level of indebtedness in the private sector, especially for households, as well as drivers of external competitiveness, deserve continued attention.
France is experiencing macroeconomic imbalances, which require monitoring and decisive policy action. In particular, developments related to export performance and competitiveness, driven both by cost and non-cost factors, also in the context of a deteriorating external position and high public debt deserve continued attention so as to reduce the risk of adverse effects on the functioning of the French economy and of the Economic and Monetary Union.
Italy is experiencing macroeconomic imbalances, which require monitoring and decisive policy action. In particular, macroeconomic developments in the areas of export performance and the underlying loss of competitiveness as well as high public indebtedness in an environment of subdued growth deserve continued attention in order to reduce the risk of adverse effects on the functioning of the Italian economy and of the Economic and Monetary Union.
Hungary is experiencing macroeconomic imbalances, which deserve monitoring and decisive policy action. In particular, the on-going adjustment of Hungary’s large stocks of public and private debt (including external debt) and a weak business environment continue to deserve very close attention so as to reduce the important risks of adverse effects on the functioning of the economy.
Malta is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, the high corporate and government debt levels warrant attention to ensure the long-term sustainability of the public finances. Moreover the very large financial sector, and then, in particular, the strong link between the domestically-oriented banks and the housing market and construction sector, which are in the process of adjusting, pose challenges and deserves continued monitoring.
The Netherlands are experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, macroeconomic developments regarding private sector debt and deleveraging pressures, also coupled with remaining inefficiencies in the housing market deserve attention. Although the large current account surplus does not raise risks similar to large deficits, the Commission will also continue monitoring the developments of the current account in the Netherlands.
Finland is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, the substantial deterioration in the current account position and the weak export performance, driven by industrial restructuring, as well as cost and non-cost competitiveness factors, deserve continued attention.
Slovenia is experiencing excessive macroeconomic imbalances. Urgent policy action is needed to halt the rapid build-up of these imbalances and to manage their unwinding. Until now, the levels of private and public debt are below the alert thresholds of the scoreboard and also net external debt is relatively contained. However, in a context of accelerating negative economic trends, the risk of financial sector stability stemming from corporate indebtedness and deleveraging is substantial, including through interlinkages with the level of sovereign debt. These risks are compounded by limited adjustment capacity in labour and capital markets and by an economic structure dominated by state-ownership.
Spain is experiencing excessive macroeconomic imbalances. Although adjustment is taking place, the magnitude of the necessary correction requires continuous strong policy action. In particular, very high domestic and external debt levels continue to pose risks for growth and financial stability. The decisive policy action at the EU level and by Spain itself has resulted in a visible adjustment in the current account balance, reduction in financing costs and a reduction of immediate risks. However, developments over the last year, including further contraction in economic activity, rising unemployment, and the need for public support for the recapitalisation of a number of banks, have exposed the vulnerabilities represented by those imbalances for growth, employment, public finances and financial stability.
Sweden is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, macroeconomic developments regarding private sector debt and deleveraging, coupled with remaining inefficiencies in the housing market deserve continued attention. Although the large current account surplus does not raise risks similar to large deficits the Commission will continue monitoring the developments of the current account in Sweden.
The United Kingdom is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, macroeconomic developments in the areas of household debt, linked to the high levels of mortgage debt and the characteristics of the housing market, as well as unfavourable developments in external competitiveness, especially as regards goods exports and weak productivity growth, continue to deserve attention.
What are the next steps?
All of the Member States experiencing imbalances, be they excessive or not, should take into account the findings of the In-Depth Reviews in their National Reform Programmes, and Stability or Convergence Programmes, which must be presented by the end of April. For the Member States with excessive imbalances, the National Reform Programmes and Stability Programmes should set out a comprehensive and detailed policy response to tackle the imbalances.
The Commission will then carefully assess the National Reform Programmes and the Stability or Convergence Programmes and put forward the appropriate policy recommendations to correct imbalances and to prevent the build-up of new ones. These recommendations will be integrated in the package of proposals for country-specific recommendations, which the Commission will present at the end of May.
This is the second cycle of the Macroeconomic Imbalance Procedure. What happened so far?
In the first round of the Macroeconomic Imbalance Procedure, based on the analysis of the Alert Mechanism Report published in February 2012 (IP/12/132), in-depth reviews were carried out for twelve EU Member States (Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Hungary, Slovenia, Spain, Sweden and the United Kingdom). The in-depth reviews confirmed that the Member States concerned faced macroeconomic imbalances of different nature, which were not considered excessive (MEMO/12/388). Appropriate policy responses to these imbalances were integrated in the set of country-specific recommendations addressed to Member States under the European Semester, i.e. under the preventive arm of the MIP. The recommendations were endorsed by the European Council in June and subsequently adopted by the Council of Ministers in July. In the current round of the MIP, the twelve Member States concerned were again identified to warrant an in-depth review. In addition, the Alert Mechanism Report of November 2012 concluded that an in-depth review should be carried out for Malta and the Netherlands 2012 (IP/12/1275, MEMO/12/912).
Is the Macroeconomic Imbalance Procedure from now on limited to countries which were found to have a macroeconomic imbalance?
No, the Commission will again assess all EU Member States - except the programme countries - in the next Alert Mechanism Report in the second half of 2013. Moreover, it should be noted that also Member States for whom the latest Alert Mechanism Report concluded that there was no need for an in-depth review are covered by the European Semester for strengthened coordination of economic and budgetary policies. Therefore the Commission will as well put forward country-specific recommendations for them (but not in the scope of the Macroeconomic Imbalance Procedure).
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