22nd Mar 2018

EU sneaks in bleak economic report

  • Commission: "It is urgent to strengthen the fundamentals of our economies" (Photo:

The European Commission waited until the end of the week to publish its annual "analysis of [EU] economic and social challenges,” in what looked like an attempt to keep the bad news quiet.

"The EU recovery remains fragile," admitted economic affairs commissioner Pierre Moscovici in a quote provided by the commission's press release.

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Looking at some of the 25 country reports published the commissioner could hardly be contradicted.

Greece and Cyprus don't get a report as they are under aid programmes, while it seems that Ireland's report was delayed due to a general election on Friday.

But looking at Spain, the commission said: "Low potential growth amplifies the risks related to macroeconomic imbalances.”

It also said "the high government debt remains a burden for the economy and a source of vulnerability” and that “private sector debt continues to decline but remains high, making the country vulnerable to shocks".

As Spain still has no governement two months after December elections, the commission notes that "no decisive measures have been taken to promote labour market participation, regional mobility, or to streamline minimum income schemes" and warns against further iaction.

A separate report noted that "structural weaknesses still hold back Italy’s capacity to grow and adjust to economic shocks".

"Italy is the source of potential spillovers to other Member States while external conditions affect its recovery. Its modest recovery and structural weaknesses adversely impact the European recovery and growth potential,” it said.

In France, "growth is expected to remain weak," in the long term and "the economic environment, characterised by a decline in potential growth and low inflation, complicates the reduction in public debt".

"The unemployment rate, at 10.5% in 2015, is not expected to decline in the short term," the report added.

“The recent wage moderation, in a context of low inflation and high unemployment, remains insufficient to regain competitiveness given the slowdown in productivity growth,” it said.

German surplus

On Portugal, which exited a financial aid programme in June 2014, the commission said that "the moderate recovery is set to continue, while risks stem from high fiscal imbalances and financial market volatility".

"The recovery of the Portuguese labour market continued in 2014 and 2015," the report noted, "but the absorption of the large pool of long-term unemployed remains a challenge".

In addition, "the low average skill level of the labour force is holding back productivity and competitiveness."

As for Germany, "the current account surplus has adverse implications for the economic performance of the euro area".

"Raising its growth potential would benefit Germany," the commission said.

"Moreover, given strong trade and financial linkages, it would also help sustain the recovery in the euro area amid the current demand shortfall. Instead, the weak domestic investment and dependence on external conditions pose risks to Germany,” it added.

The commission believes however that "Germany's solid fundamentals, including the robust labour market and the sound public finance position, provide a solid underpinning to build on in tackling" the challenge of integration of the hundred of thousands of refugees arriving in the country.

The country reports come a few weeks after the commission published its Winter Forecasts in which it revised downwards its growth expectations: 1.7 percent in 2016 and 1.9 percent in 2017. In November, the forecasts were 1.8 percent in 2016 and 1.9 percent in 2017.

'Effort is uneven'

On Friday, before the publication of the reports, a commission spokeswoman said they were "staff working documents, technical documents".

That is maybe why they were published when stock markets were closing for the weekend.

Their political significance were however outlined by the commission vice-president for the euro, Valdis Dombrovskis, in another quote provided in the press release.

"Against the background of growing external risks and increased volatility in financial markets, it is urgent to strengthen the fundamentals of our economies," he said.

"The commission's analysis shows that reforms are being carried out on a number of policy areas, but the effort is uneven. A number of member states still need to be more decisive in tackling persistent vulnerabilities, such as high public and private debt,” he added.

Fragile EU growth at risk

The commission expects Europe's economic recovery to continue. But slowing Chinese growth, low oil prices and geopolitical tensions threaten to undermine progress.


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Deflation fears trigger ECB's 'bazooka'

In a new attempt to revive the economy, the European Central Bank has decided to cut rates further in the negative and to step up its bond buying programme.

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