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EU Keeps an Eye on Italy, France and others for ‘Excessive Imbalances’ in Spending

The European Union set up a yearly cycle of economic policy coordination called the European Semester. It enables the European Commission to give policy guidance on the budgetary and economic plans of the Member States. It also monitors the economies of the Member States for macroeconomic imbalances and reviews the progress towards jobs, education, innovation, climate and poverty reduction targets of the EU’s long-term growth strategy – as published in a press release issued on 4th March.

Last November the European Commission launched an in-depth review of 18 EU economies to assess whether there are weaknesses in the economy and the levels of seriousness. From this they have identified countries that are worrying to the EU in terms of economic imbalance, or at risk of developing economic problems in the future. There are four possible categories – “without macroeconomic imbalances”, “with imbalances”, “with excessive imbalances” or “excessive imbalances and the need for corrective action”

One of the outcomes presented by the European Commission, or executive arm of the EU, on Tuesday 8th March said that Italy and France were in breach of the EU rules on public spending, putting them in the “excessive imbalances” category.

Italy has “high government debt” along with worrying levels of long-term unemployment that “weighs on growth prospects.” It also mentions weak competitiveness and slow progress in dealing with high levels of bad loans by banks.

France has “large public debt coupled with deteriorated productivity growth.” The commission finds the country’s ability to compete at a global level has deteriorated.

This is the second year that these countries have been singled out for large debts, high unemployment rates and weak banking systems. It also found other countries, including Portugal, Bulgaria and Croatia, were experiencing “excessive imbalance” in the EU. And Finland, Germany, Ireland, the Netherlands, Spain, Sweden and Slovenia. to a lesser degree, were criticised, Germany for “excessive savings and subdued investment.”

Vice-President Valdis Dombrovskis warned that these countries risk an unprecedented step of punitive action, that could involve penalties*, if they do not show improvements,. So far sanctions have not been imposed on member states for failing to restore economic balance. In EU rules, a limit on public deficits is set at 3 percent of an economy’s total annual output. The threshold for total public debt is 60 percent of output.

The countries mentioned will be more closely monitored by Brussels. But the slightly better news is that in the previous year’s examination, 16 countries were found to have imbalances, but this year that number has dropped to 12. Countries that have been deemed to no longer require special monitoring are Belgium, Hungary, Romania and the UK.

There’s a very good fact sheet on the EU website that explains the 2016 European Semester, and the results are reported in many places across the web, including Italy’s The Local.

(*Editor’s note – “fining” countries because their debt is too high – which presumably increases their debt – does sound somewhat like Alice in Wonderland or perhaps even Kafka! )