Bloomberg News

EU to Focus on Deficit States in Testing Imbalances, Draft Shows

November 07, 2011

(See EXT4 <GO> for more on the European debt crisis.)

Nov. 7 (Bloomberg) -- Deficit countries such as Spain will come under greater scrutiny than surplus countries such as Germany in Europe’s economic scoreboard designed to prevent future crises, a draft document showed.

Current-account deficits of 4 percent of gross domestic product will flash an alert signal, while surpluses will be allowed as high as 6 percent, according to the document prepared for tonight’s euro-area finance ministers’ meeting in Brussels.

The current account is one of 10 indicators to be monitored for signs that an economy is out of kilter. The scoreboard is meant to catch bubbles like Ireland’s real-estate boom that went bust, forcing the Irish government to seek financial aid.

The purpose is “to provide an early-warning signaling device of potentially harmful macroeconomic imbalances,” according to the document, a copy of which was obtained by Bloomberg News. In extreme cases, countries that fail to stabilize their economies will face sanctions.

Germany, which ran an external surplus of 5.7 percent of GDP in 2010, had pushed for an “asymmetric” test that puts the onus on deficit countries to shape up.

The proposed full scoreboard for euro-area countries is as follows:

--Current account: normal range is from surplus of 6 percent of GDP to deficit of 4 percent, based on three-year average.

--Net international investment position: minus 35 percent of GDP or worse.

--Real effective exchange rate: plus or minus 5 percent, based on HICP deflator over three years.

--Export market share: drop of 6 percent or more, over five-year period.

--Nominal unit labor costs: increase of 9 percent or more over three years.

--Deflated house prices: 6 percent year-on-year increase or higher.

--Private-sector credit flow: 15 percent of GDP or higher.

--Private-sector debt: 160 percent of GDP or higher.

--General government debt: 60 percent or higher (the euro treaty rule).

--Unemployment: 10 percent or higher, based on three-year average.

--Editors: Patrick G. Henry,

To contact the reporters on this story: Rebecca Christie in Brussels at; James G. Neuger in Brussels at

To contact the editor responsible for this story: Leon Mangasarian at

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