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Brussels warns French economy out of kilter, chides Germany, Italy
February 22, 2017 / 11:53 AM / 10 months ago

Brussels warns French economy out of kilter, chides Germany, Italy

BRUSSELS, Feb 22 (Reuters) - The European Commission warned France two months before elections that its economy was out of balance and in need of reforms as it also chided Germany and Italy.

The European Union’s executive arm published in-depth reviews on Wednesday of the economies of several countries identified last November as having “imbalances” or “excessive imbalances”, such as large public debts, budget deficits or trade surpluses.

France, which holds presidential elections in April and May, had excessive imbalances, the Commission said, noting that even though there was some improvement, it was not enough.

“While recent reforms constitute notable progress, some policy challenges remain to be addressed and further action would be needed, notably to increase the efficiency of public spending and taxation, to reform the minimum wage and the unemployment benefit system and to improve the education system and the business environment,” it said.

Germany, Europe’s biggest economy, had a persistent current account surplus that showed Germans were saving too much and insufficiently investing. Reducing the surplus would benefit the whole of the euro zone of 19 countries, the Commission said.

“The current account surplus increased further in 2015 and 2016 and it is expected to remain at a high level,” the Commission said.

“Addressing the surplus has implications on the rebalancing prospects of the rest of the euro area because more dynamic domestic demand in Germany helps overcoming low inflation and ease deleveraging needs in highly-indebted Member States,” the Commission said.

It noted that public investment in Germany has increased in recent years, but was still low as a proportion of GDP in comparison with the rest of the euro zone, especially given Germany’s budget surplus and investment needs.

The Commission also warned the euro zone’s third biggest economy, Italy, it must deliver on its promises to cut its structural budget deficit, which excludes one off items and cyclical revenue and spending swings, by 0.2 percent of GDP by the end of April.

The Commission said that, if Rome failed to do so, the EU executive would launch disciplinary steps against it because Italy would be breaking the EU’s rule that public debt has to fall every year, rather than rise.

“High government debt and protracted weak productivity dynamics imply risks with cross-border relevance looking forward, in a context of high non-performing loans and unemployment,” the Commission said.

“The public debt ratio is set to stabilise but is not yet on a downward path due to the worsening of the structural primary balance and subdued nominal growth,” it said. (Reporting By Jan Strupczewski; editing by Philip Blenkinsop)

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