EU to say French economy out of balance, Germany surplus too high

Detail of a 1 euro coin. [Paolo Margari / Flickr]

The European Commission will tell France on Wednesday (22 February) its economy is improving but still has excessive imbalances, while chiding Germany over its current account surplus and warning Italy it must reduce its rising public debt, an EU official said.

The European Union’s executive arm is to publish in-depth reviews of the economies of several countries identified last November as having “imbalances” or “excessive imbalances” such as large public debts, budget deficits or trade surpluses.

The countries named were Bulgaria, Croatia, Cyprus, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden.

The idea is to prevent the excessive economic imbalances in these countries from developing eventually into a full-blown crisis that could threaten others in Europe and especially those in the euro zone.

France: Debt set to rise

In November, the Juncker Commission said France’s main economic imbalance was its rising public debt in the context of low productivity growth and weak competitiveness.

France, which holds presidential elections in April and May, will see its debt rise to 97.0% of gross domestic product (GDP) next year from 96.7% seen this year, the Commission forecast last week.

The EU official, who is familiar with the content of the executive’s reviews, said that compared with last year France’s economy has improved as previous reforms have begun to produce some results but that this improvement was not enough.

But the coming presidential election is adding to the uncertainty, with politicians left and right wondering aloud whether France should start ignoring the EU’s Stability and Growth Pact, meant to ensure public finances remain sound.

As elections near, French politicians renew assaults on EU budget rules

Nobody yet knows the winner of France’s presidential election next year, but the smart money is on one loser: the 3% cap on government deficits enshrined in eurozone rules.

Germany: Surplus problem

The European Commission will also urge Germany, the largest economy in Europe, to reduce its current account surplus, which rose to a record high of 8.7% of GDP last year from 8.5% in 2015 and invest more to ensure sustained and stable growth.

Last week, the Commission forecast that investment in Germany, which has been registering budget surpluses since 2014, will actually fall to 2.1% of economic output this year from 2.5% in 2016.

Brussels renews criticism of German trade surplus

In its latest macro-economic survey, the European Commission again pointed the finger at Germany's high export surplus. Serious imbalances were also detected in Italy and France, EURACTIV.de reports.

Italy: Debt set to increase

Italy was more of a concern as its public debt continued to balloon, breaking EU rules under which it should be falling. In November, the executive said that Italy’s main imbalance was its high public debt and the banking system burdened with bad loans in a context of weak productivity growth.

Italy’s debt is set to increase to 133.3% of GDP this year from 132.8% last year, the Commission forecast last week, while under EU rules the debt should fall by 3.65 points.

Unless Rome delivers on promises made to the Commission in February to reduce by the end of April its structural budget deficit, which excludes one-off items and the effects of the business cycle, by 0.2% of GDP, the EU executive will open disciplinary steps against Italy, EU officials said.

Italy presents 2017 budget, seeks compromise with Brussels

Italian Prime Minister Matteo Renzi announced his 2017 budget plan on Saturday (15 October), hoping to persuade the European Commission to approve its minimal reduction in the budget deficit next year while avoiding unpopular belt-tightening.

Spain: No particular concern

The fourth-largest eurozone economy, Spain, would not be a particular concern, the EU official said, because its high unemployment looks set to fall to 17.7% of the workforce this year from 19.6% last year and to 16% in 2018.

Italy and Spain: A tale of two deficits

While Italy has opted for a confrontational approach to clinch budget spending leeway from the European Commission, Spain is hoping that better-than-expected growth will placate EU demands.