Saturday

24th Jun 2017

EU criticises France on economic 'imbalances'

  • Hollande and German Chancellor Angela Merkel - a relationship marked by "friendly tensions" in Hollande's own words (Photo: Bundesregierung/Denzel)

France and Slovenia moved a step closer to the eye of the eurozone storm after being censured by the European Commission for having "macro-economic balances."

The commission's reports, published on Wednesday (10 April), look at "macro-economic imbalances" in 13 domestic economies, and are in their second year as part of the EU's revised economic governance regime.

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Of the countries to be named and shamed - Belgium, Finland, France, Italy, Malta and the Netherlands, as well as euro outsiders Bulgaria, Denmark, Hungary, Sweden and Britain - 12 of the 13 had been subject to the same review in 2012.

The Netherlands is the only new country to fall foul of the rules in 2013.

EU economic affairs commissioner Olli Rehn described the reports as a "necessary wake-up call for several member states."

He added that governments needed to "complete the unwinding of the imbalances that were able to grow unchecked in the decade up to the crisis.”

Spain and Slovenia bore the brunt of the toughest censure from the commission, with both countries suffering from "excessive imbalances" which, in Slovenia's case, require "urgent policy action… to halt the rapid build-up of these imbalances and to manage their unwinding."

EU officials are increasingly concerned about the French economy, the second largest in the eurozone after Germany.

"The resilience of the country to external shocks is diminishing and its medium-term growth prospects are increasingly hampered by long-standing imbalances," the commission said.

The EU executive also said that France's share of the EU's export market has decreased by 11.2 percent between 2006 and 2011, with the report pointing to a trade balance that continues to go deeper into deficit as a barrier to economic growth.

Commenting that France was "experiencing macroeconomic imbalances, which require monitoring and decisive policy action," the commission report maintains the pressure on French President Francois Hollande to push ahead with structural reforms to the French labour market, as well as the country's wage and pension system.

The commission said existing reform plans in France would "not be sufficient to solve the competitiveness issues … further policy response will be needed."

Rehn emphasised the importance of the French economy to the eurozone. "France is a core country in terms of its size and economy, and its health has a very direct impact on the health of the eurozone," he said.

The French budget deficit remains high, despite falling to 4.6 percent in 2012. The commission's projections have it remaining above the 3 percent threshold in 2013 and 2014. Meanwhile, the country's economy is expected to expand by a meagre 0.1 per cent in 2013.

Hollande, for his part, on Wednesday (10 April) said he had no plans to change his budget proposal tabled in January.

Describing it as a "serious budget," the French leader said that "by pursuing this policy, the reforms that have been initiated ... that France will be best placed to redirect the focus on European growth."

Germany

Commissioner Rehn also joined the chorus of those urging the German government to take steps to boost domestic consumption, commenting that "I still believe that there is much more Germany can do to boost its domestic demand."

Although Germany's trade surplus was 7 percent in 2012, it escaped formal censure by the commission, with Rehn adding that rising levels of German imports had caused a 45 percent reduction to its trade surplus with the rest of the eurozone.

US treasury secretary Jack Lew also recently called on Germany to take steps to boost domestic demand following a meeting with German finance minister Wolfgang Schaeuble in Berlin.

Eurozone recession to continue in 2013

The eurozone economy will shrink by a further 0.3 per cent in 2013, the European Commission has said. The bloc will have to wait until 2014 before seeing economic growth.

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At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

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