Italy, France, Britain have unbalanced economies, EU says

Feb 14, 2012, 15:58 GMT

Strasbourg, France - The economies of Italy, France and Britain - the largest in the European Union after Germany's - are heading for trouble and should be put under special surveillance, a European Commission study concluded Tuesday.

All three countries have seen a decline in their export competitiveness. In addition, Italy is hampered by high levels of public debt, while in Britain private debt is a problem, fueled by the housing boom of pre-crisis years, the EU executive said.

The warnings on so-called macroeconomic imbalances were issued as part of the tougher economic scrutiny powers that the EU executive was granted last year by 'six pack' legislation on eurozone governance.

They come in the wake of a decision by the Moody's credit ratings agency to downgrade Spain, Italy, Malta, Portugal, Slovakia and Slovenia, and to place France, Austria and Britain on a negative outlook.

The commission's reforms are designed to prevent the fresh build-up of structural economic problems - such as credit and housing booms in Spain and Ireland and low productivity in Italy, Portugal and Greece - that have laid the ground for the current eurozone crisis.

Macroeconomic imbalances have also built up in Belgium, Bulgaria, Denmark, Spain, Cyprus, Hungary, Slovenia, Finland and Sweden, the commission warned.

It mentioned problems with housing booms and private indebtedness in Sweden, Finland and Denmark, strains with banks in Slovenia, 'wide-ranging challenges' in Cyprus and mounting public and private debt in Hungary, which is seeking a precautionary EU-IMF loan.

The 12 countries singled out on Tuesday will be given specific recommendations in May, EU Economy Commissioner Olli Rehn said. If they repeatedly fail to take action, they could eventually face fines of up to 0.1 per cent of their gross domestic product (GDP).

Countries already covered by EU-backed bailouts - Greece, Portugal, Ireland and Romania - were not covered by the assessment.

In an effort to fix the eurozone crisis, EU policymakers have long been urging weaker economies to get a grip on their deficit and pursue labour and market reforms to regain competitiveness.

Some economists have argued that healthy economies like Germany also need to make an effort, slowing down their export performance and boosting their domestic demand, to help the catch up process of weaker peers.

But the commission refrained from identifying the large current account surpluses Germany has been running for years as a critical issue.

Rehn told reporters at the European Parliament in Strasbourg, France, that Tuesday's report focused on the countries with 'the most pressing and urgent need' for corrective action.

But he also underlined that a rebalancing of German indicators was already underway, since its current account surplus has been 'on a downward trend' since 2007.

Also on Tuesday, Eurostat said eurozone industrial production had dropped by 1.1 per cent on a monthly basis in December, an ill-boding figure ahead of Wednesday's publication of eurozone GDP estimates for the fourth quarter of 2011.

However, in an indication that better times were coming - at least for the euro area's largest economy - the ZEW Centre for European Economic Research said its index on investor confidence in Germany had reached highest level in 10 months in February.