Italy, Cyprus and Greece are all experiencing «excessive» imbalances in their economies because of high debt and the number of nonperforming loans on their bank balance sheets, the European Commission (EC) said last February 27th.
Brussels issued the warning as part of its European Semester Winter Package, which scrutinizes the economies of EU countries. The package serves as a basis for further talks between Brussels and the bloc’s capitals about their reform targets and whether their spending plans respect EU rules.
According to this report, Bulgaria, France, Croatia, Germany, Ireland, the Netherlands, Romania, Portugal, Spain and Sweden are also experiencing some economic imbalances, albeit less serious than Cyprus, Greece and Italy.
Commission concerns about high public debt were the common theme in this package, amid consistent warning that the EU is facing an economic slowdown in the near future. Earlier, in February, the Commission downgraded its growth forecast for the single currency bloc in 2019 and 2020 thanks to global trade tensions and China’s slowing economy.
EC Vice President Valdis Dombrovskis said during a press conference in Brussels that it is «worrying» that countries with high government debt have «not used the good times» to decrease their public stockpiles and build fiscal buffers to defend against an economic downturn.
«The European economy is experiencing its seventh consecutive year of economic expansion. Yet growth is slowing down», he said.
Greek woes not over
The label «excessive» is a red flag for national economies that are vulnerable to economic and financial shocks. And Athens’ imbalances were expected to be labelled as «excessive» since Greece exited its €86 billion bailout program in August with a debt pile of around 180% of GDP.
«This should not surprise anyone», Finance Commissioner Pierre Moscovici said.
The EU’s executive arm nonetheless described Greece’s financial sector as «vulnerable» due to a «very large» stock of bad loans that its lenders hold. «More progress» is also needed in Cyprus, which is struggling with an excessive amount of bad loans in its banking sector.
Public debt is a heavy burden for several EU countries, such as Spain, Portugal, and France — although they managed to escape the “excessive” label.
Part of that has to do with the fact that Madrid has enjoyed “robust” economic growth and Lisbon has decreased its bad loans stockpile and government debt.
Original Story: Politico | Silvia Sciorilli Borrelli
Photo: FreeImages.com/Takis Kolokotronis
Translation and Edition: Prime Yield