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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Statement on the Alert Mechanism Report
Strasbourg, 14 February 2012
The "raison d'être" of this very first Alert Mechanism Report is to tackle risky macroeconomic imbalances throughout the European Union.
The report is essentially a screening device and our main surveillance tool to detect the build-up of potentially risky and damaging macroeconomic imbalances in such areas as competitiveness, export performance, current account, private debt or the housing market.
Why is this so important? The crisis has underlined the serious risks that macroeconomic imbalances pose for financial stability, economic prospects and the general welfare of a country and its citizens. Indeed, the crisis that was originally born in the unstable financial markets was greatly amplified, not only by unsustainable public finances, but also by the significant increase in these macroeconomic imbalances. In reverse, a stable macroeconomic climate contributes to restore confidence – not just in the markets but also, crucially, amongst the wider public.
I very much see the new macroeconomic imbalances analysis as a way to deepen our dialogue in economic policy making with the Member States, as a new kind of partnership of providing relevant policy advice.
Based on qualitative assessment of a scoreboard of ten selected economic indicators, we have identified 12 Member States whose macroeconomic situation needs to be analysed in more depth. These in-depth reviews will enable us to conclude whether or not harmful imbalances exist. If necessary, the European Commission will then issue a recommendation to the Member State concerned, so that it can take appropriate action to correct the situation.
This report fits in the timeline of the European Semester. The further in-depth analysis should orientate the preparation by Member States of their National Refom Programmes, to be submitted to the Commission by April, and it will feed into the preparation of the Country Specific Recommendations that the Commission will publish in May.
Only if appropriate action is not taken, we can open a so-called "excessive imbalance procedure", in which the Member State concerned must clearly set out what action it intends to take – and by when.
Today's Alert Mechanism Report concludes that the macroeconomic situation in the following countries warrant further study (in alphabetical order): Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Hungary, Slovenia, Spain, Sweden and the UK.
In-depth reviews have not been proposed for Greece, Ireland, Portugal and Romania, as these countries benefit from a conditional financial assistance programme by the EU and IMF, and are therefore already subject to enhanced economic surveillance. The same applies to Latvia, which is under post-programme surveillance.
For Spain, we need to further analyse the structural causes of the very high unemployment and the difficult situation after prolonged housing and credit booms. In the case of Italy, very high public debt and low growth potential do pose challenges that we need to analyse in depth. The focus of attention in Cyprus should be the high corporate and household debt and the loss of export market share.
As regards Belgium, France and the UK, further examination is needed to better assess the reasons behind the relative loss of export market shares, as well as the implications of the accumulated level of indebtedness. In the case of Bulgaria, an in-depth analysis is deemed necessary to better assess the ongoing adjustment on the external side and the dynamics related to labour costs and productivity developments. For Slovenia, a closer look to the high corporate-sector debt and developments in the housing sector is needed.
Denmark and Sweden also display developments which warrant further investigation in asset markets, such as housing, and the continuous build-up of private sector debt. An in-depth analysis is proposed for Finland on similar grounds, but even more so because of the recent deterioration in trade performance and loss of export share.
Moreover, the economic reading of the scoreboard does point to the need for further analysis of the drivers and policy implications of large and sustained current account surpluses. In the next months, we will further assess the divergence in economic performance across member States.
I would like to emphasise that the purpose of today's report is not a "name and shame" exercise (though I have already seen some of that in the press). The objective is to identify and help correcting risky imbalances that have built up in some Member States over the years and help Europe's economies get back to a stronger footing so that they can withstand any future economic shocks.
In fact, to tackle many of these risks, Member States are already taking action. For instance, the Governments of Spain and Italy are currently conducting key structural reforms with determination, in order to improve their labour markets and the competitiveness of their economies.
All in all, this report is a pre-emptive tool for macroeconomic stability, which is a necessary condition for sustained growth and job creation.