27th Oct 2016

Italy and France on EU's economic 'watch list'

  • Italy and France are under pressure from Brussels to cut debt and deficit levels

Italy and France were the major euro area countries put on the European Commission's economic "watch-list" over fears about persistently high debt and deficit levels.

The two countries were among 14 nations deemed to have "macro-economic imbalances" in their economy by the EU executive in a series of reports on 17 countries published on Wednesday (5 March).

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Italy "must address its very high level of public debt and weak external competitiveness," the commission said, adding that its economy is hamstrung by "a continued misalignment between wages and productivity, a high labour tax wedge, an unfavourable export product structure and a high share of small firms which find it difficult to compete internationally."

Speaking with reporters on Wednesday, the bloc's economic affairs commissioner Olli Rehn also called for a fresh effort from Italy's new Prime Minister Matteo Renzi, saying that Italy needs to reach and maintain budget surpluses "above historical averages", make further cuts to public spending and achieve economic growth.

Italy has had a debt pile of around 100 percent of GDP for most of the past 20 years, but the burden hit 130 percent in 2013, the second highest in the bloc behind Greece, as its economy shrank for the second successive year.

Meanwhile, the commission warned that France would miss its target to reduce its budget deficit to 3 percent - the limit set out in the EU's stability pact - despite being given an extra two years to do so.

Both Italy and France will now be subject to strict monitoring programmes by the commission.

Croatia and Slovenia were urged to impose austerity programmes to correct excessive imbalances, with the commission stating that Croatia, which became the latest member of the EU last summer, was "experiencing a prolonged bust".

The reports form part of the EU's overhauled economic governance framework under which countries must take actions to cut debt and deficit levels and economic imbalances or face a possible fine.

On the other hand, Germany was encouraged to increase domestic spending, which the Commission said would "boost potential growth, and could contribute to the recovery and to the ongoing adjustment in the euro area."

"I wish every eurozone member state had same export competitiveness as Germany," said Rehn, "but we recommend strengthening domestic investment."

However, Spain was praised for its recent economic recovery which the commission described as being "clearly advanced"

"The current account has turned into surplus, as a result of a combination of import compression and strong exports, supported by competitiveness gains. The housing market has approached stabilisation. Employment destruction appears to be coming to an end," it said.

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