France, Spain and Italy are among countries facing in-depth European Union probes into their economic imbalances that have contributed to the region’s financial crisis.
“There are positive signs that the re-balancing of the EU economies is progressing,” the European Commission said today in a statement. Yet the “necessary adjustment for some countries with large current account deficits is still considerable” and needs to be enhanced, it said.
Trade imbalances and their resulting deficits are among the underlying reasons for the financial crisis that began in 2007 in the U.S. and later spread to Europe. The commission’s investigations are part of the tougher economic monitoring introduced in the euro area in the wake of the sovereign debt turmoil and countries that fail to correct “excessive” distortions can, at a later stage, be fined by the EU.
France, which has so far largely escaped bond market pressure, is drawing increasing criticism from organizations such as the commission and International Monetary Fund for lack of effort to revamp its economy to improve its trade position. The commission said today it will deepen an examination of early warning signs it began in May.
“France has continued losing export market shares, although at a slower pace and the indicator is well beyond the threshold,” the commission said. “The losses are set to continue looking forward if decisive policy action is not taken.”
Neighboring Spain and Italy, which saw borrowing costs surge earlier this year, will also be subject to increased scrutiny from Brussels.
In Spain, “decreasing unit labor costs and some depreciation in the real effective exchange rate contribute to recover part of the loss of competitiveness accumulated during the boom cycle,” the commission said. “While the adjustment of flows is ongoing, the stock of external liabilities remains significant” and the accumulated external debt means the “economy is exposed to liquidity risks.”
For Italy, which won praise for trying to increase competition and overhaul taxation, as well as for moving toward a trade surplus in 2012, the key concerns are productivity and government debt, according to the commission.
“Weak productivity developments remain an obstacle to lasting improvement in Italy’s competitiveness position and growth outlook,” the commission said. “The high government debt remains a major burden,” especially because growth remains slow, it added.
In all, 14 out of 27 EU countries will be probed.
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