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BackThe measures for stronger economic policy coordination or economic governance, which the EU has come up with in response to the crisis, are based on two key issues: the reduction of public deficits and the early identification of macroeconomic imbalances. According to the EU Commission, the initiative for the latter shall now be provided by the first so-called ‘Alert Mechanism Report’ on macroeconomic imbalances, which was presented on Wednesday. The report lists twelve Member States - among them France, Great Britain and Italy - whose economic development is to be analysed - Austria would not give cause for concern.
Continuous disparities in trade balances, deterioration in competitiveness, high level of public debt and dangerous housing bubbles: the list of structural problems, which has been identified by the Commission as having dominated the last decade, is long. In order to prevent crises from once again being triggered by risky developments, the Commission has set out ten economic indicators to assess the economic situation of the EU Member States. The result: twelve countries were singled out, which will subsequently be analysed in more detail. This has nothing to do with naming and shaming, assures the EU Commission. However, the Commission is hoping for increased cooperation with economically vulnerable Member States.
Apart from large economies such as France, Great Britain, Italy and Spain, the Commission intends to analyse over the coming months also the causes of structural problems in Belgium, Bulgaria, Denmark, Finland, Sweden, Slovenia, Hungary and Cyprus. For example, France’s downturn in export market shares is among the highest in the EU. With regard to Italy, the Commission’s concerns are among other related to the extent of her public debt, and Great Britain, based on the considerable loss of export market shares and the high level of private debt, is also a problem child of the Commission. Countries, such as Greece, that are already under or coming out of bailout programmes were not analysed.
Macroeconomic alert system is to initiate reforms
Most of the economic problems of the Member States have been known for a long time. In contrast to the current obligatory statistical exercises, the new monitoring procedure to detect macroeconomic imbalances is to initiate concrete reforms - if necessary by means of sanctions. However, the ball is now in the corner of the EU Finance Ministers, who will discuss the results of the report when they meet in March. Based on this, the Commission will prepare twelve detailed country studies to identify what kind of imbalances exists and how severe these are. Those countries where imbalances have been identified will subsequently be given recommendations on reforms by both EU Commission and Council. The EU will be getting very serious with countries that have severe economic imbalances: these countries will have to submit a roadmap containing measures as to how to get their economy back on track. Should Euro countries with substantial structural weaknesses not ‘do their homework’, they have to expect fines to be paid to Brussels.
EU report does not address Germany’s current account surplus
However, it is not only interesting to see the countries on the list to be selected by the Commission for a more in-depth analysis, but also those that are not included. Hence, the Commission has refrained from subjecting Germany’s controversial large current account surplus to further investigations. However, many economists say that exactly this surplus is not beneficial to achieving an economic balance in the monetary union, as Germany’s export miracle depends on other countries importing more goods than they are exporting. Austria too is not on the list of potential problem cases, even though her declining export market shares are above the risk level specified by the Commission, as is public debt and that of the private sector, which has been pushed upwards in particular by business. Hence, the coming months will show whether the EU’s reform recommendations are aimed at growth and employment or whether the only goal is to intensify the austerity spiral.
Further information:
Alert Mechanism Report
Apart from large economies such as France, Great Britain, Italy and Spain, the Commission intends to analyse over the coming months also the causes of structural problems in Belgium, Bulgaria, Denmark, Finland, Sweden, Slovenia, Hungary and Cyprus. For example, France’s downturn in export market shares is among the highest in the EU. With regard to Italy, the Commission’s concerns are among other related to the extent of her public debt, and Great Britain, based on the considerable loss of export market shares and the high level of private debt, is also a problem child of the Commission. Countries, such as Greece, that are already under or coming out of bailout programmes were not analysed.
Macroeconomic alert system is to initiate reforms
Most of the economic problems of the Member States have been known for a long time. In contrast to the current obligatory statistical exercises, the new monitoring procedure to detect macroeconomic imbalances is to initiate concrete reforms - if necessary by means of sanctions. However, the ball is now in the corner of the EU Finance Ministers, who will discuss the results of the report when they meet in March. Based on this, the Commission will prepare twelve detailed country studies to identify what kind of imbalances exists and how severe these are. Those countries where imbalances have been identified will subsequently be given recommendations on reforms by both EU Commission and Council. The EU will be getting very serious with countries that have severe economic imbalances: these countries will have to submit a roadmap containing measures as to how to get their economy back on track. Should Euro countries with substantial structural weaknesses not ‘do their homework’, they have to expect fines to be paid to Brussels.
EU report does not address Germany’s current account surplus
However, it is not only interesting to see the countries on the list to be selected by the Commission for a more in-depth analysis, but also those that are not included. Hence, the Commission has refrained from subjecting Germany’s controversial large current account surplus to further investigations. However, many economists say that exactly this surplus is not beneficial to achieving an economic balance in the monetary union, as Germany’s export miracle depends on other countries importing more goods than they are exporting. Austria too is not on the list of potential problem cases, even though her declining export market shares are above the risk level specified by the Commission, as is public debt and that of the private sector, which has been pushed upwards in particular by business. Hence, the coming months will show whether the EU’s reform recommendations are aimed at growth and employment or whether the only goal is to intensify the austerity spiral.
Further information:
Alert Mechanism Report