(Finance) – “Greece and Italy continue to experience excessive imbalances, although their vulnerabilities appear to have eased also thanks to the progress made in terms of policies. Germany, Spain, France, the Netherlands, Portugal, Romania and Sweden continue to present imbalances, although for some Member States these imbalances are receding”. This is what the Council of the European Union in Conclusions adopted today on the 2023 in-depth reviews under the Macroeconomic Imbalance Procedure. A procedure considered “central” within the European Semester established in 2011.
Therefore, one will be applied to Italy and Greece “specific monitoring” procedure, which is tailored to the degree and nature of their imbalances and involves an intensified dialogue with national authorities, as well as progress reports and policy recommendations in the annual country-specific recommendations. Countries with “excessive imbalances accompanied by corrective action” may also be subject to the excessive imbalance procedure but “in the current circumstances”, the Commission states that it has not “deemed it appropriate” to start this procedure.
According to the Commission’s analysis contained in the 2023 IDRs – which kept most classifications unchanged – Cyprus no longer presents excessive imbalances: “the levels of public, private and external debt – the Council points out – have decreased over time and over the last two years in Cyprus and follow a downward trajectory” L‘Hungary, currently, – continues the analysis – “is experiencing imbalances related to very strong price pressures and public and external financing needs, which require urgent strategic action. A timely disbursement of funds under the Recovery Facility and resilience and other EU funds, following the achievement of agreed targets and objectives related to investment and reforms, would help reduce the risks of deteriorating imbalances”. The risk “of a further deterioration” – reads the note from the EU Council – still persists in Romania, “which requires urgent strategic action”. The conclusion of the 2023 in-depth reviews, on the other hand, reveals how Czechia, Estonia, Latvia, Lithuania, Luxembourg and Slovakia “they do not present imbalances as the vulnerabilities appear to be contained”.
According to general framework drawn up by the Council of the EU “The EU economy continues to show resilience despite a challenging environment characterized by Russia’s unprovoked invasion of Ukraine, with high energy prices and high inflation affecting the purchasing power of households and on competitiveness due to growing protectionism and geopolitical competition”. However, it notes the “robust post-pandemic recovery, which benefits from timely policy actions at national and EU level, and the key role of EU policies in underpinning sound investment performance and structural reform progress in a wide range of policy areas”.
In this scenario – underlines the Council – “the full, timely and effective implementation of the Recovery and Resilience Facility through the reforms and investments foreseen in the national recovery and resilience plans, thus enabling the use of available finance, in order to support economic expansion, increase the resilience, inclusiveness and sustainability of the economies of the EU and reduce macroeconomic vulnerabilities”. It is also important to “closely and continuously coordinate EU economic policies and identify, prevent and correct macroeconomic imbalances which hamper the proper functioning of the economies of the Member States, the Union economic and monetary or of the whole economy of the European Union.
“The economic developments – underlines the Council – are generally favorable in most of the Member States covered by the IDR, but significant challenges remain for several Member States” and “if diverging inflationary dynamics persist, cost competitiveness could be undermined in Member States with high inflation”.
In the current context of high nominal growth, “the long-lasting imbalances related to high levels of public, private and external debtor – notes the Council – have resumed a downward trend. Tighter financing conditions increase risks and that sustained efforts are needed to ensure a sustained downward trend in debt levels. External positions were generally weakened by the shock of energy import prices, to which was added, in some cases, the contribution of robust domestic demand. Current account balances are expected to strengthen in 2023 due to lower energy costs.”
The Board acknowledges that “i House prices increased strongly in several Member States in 2022; the tightening of financing conditions and the decrease in real household incomes have curbed demand and initiated a correction in house prices”.
The banking sector – states the Council – “it has withstood the pandemic well and that non-performing loans have continued to decrease” but – it observes – “constant vigilance is necessary to ensure lasting macro-financial stability”.
In conclusion, the Council calls for “vigilance and timely strategic action, if necessary, to prevent deterioration and the emergence of macroeconomic imbalances linked to high inflation differentials” and underlines “the urgency of addressing the structural challenges related to the population aging and climate change, to strengthen the EU’s energy security, to improve the resilience of supply chains, to tackle low productivity growth, to promote labor market participation, to reduce macroeconomic imbalances existing ones and to prevent the emergence of new imbalances”.