# EUR-Lex - 52013SC0232 - EN

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# 52013SC0232

**COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Eighth progress report on economic, social and territorial cohesion The regional and urban dimension of the crisis /* SWD/2013/0232 final */**

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Figure 1: Member
States grouped by impact of recession, 2007-2011

Figure 2: Changes in
GVA and employment by sector by group of MS, 2007-2011

Source: Eurostat

Figure 3: Changes in
GVA and employment by sector per Member State, 2007-2011

Source:
Eurostat

No data available for Luxembourg or for GVA in Malta.

Figure 4: Change in
GDP per head index (PPS) in metro regions, 2007-2010

Figure 5: Change in
employment in metro regions, 2007-2010

1. Public debt

The general
government debt is defined as the consolidated gross debt of the whole of the
general government sector outstanding at the end of the quarter (at nominal
value). The general government sector comprises central government, state
government, local government, and social security funds. The debt is measured as
a percentage of GDP.

Why
does this matter?

The Maastricht
Treaty specifies government debt must not exceed 60% of GDP unless it is
sufficiently diminishing and approaching 60% at a satisfactory pace. Unsustainable
levels of public debt undermine macro-economic stability, increase government
spending interests and the higher taxes required to service the debt may act as
a drag on growth.

How
the EU Member States score?

Country || General Government Gross Debt, fourth quarter 2012

This table shows the five countries with the highest government debt-to-GDP ratio

Greece || 156.9

Italy || 127.0

Portugal || 123.6

Ireland || 117.6

Belgium || 99.6

Government
debt-to-GDP ratios increased drastically over the 2008-2012 period in both the
euro area (24.9 percentage points) and in the EU-27 (26.2 p.p.), sustained by
government budget deficits (negative primary balances), increasing interest
payments and lower nominal GDP growth. During the crisis, the total debt-to-GDP
ratio of EU-27 registered a negative trend, peaking at 85.2% in the last
quarter of 2012 (latest available data).

Country || General Government Gross Debt, first quarter  2008 - fourth quarter 2012

This table shows the five countries with the biggest increase of government debt-to-GDP ratio

Ireland || 90.0

Portugal || 56.1

Greece || 49.0

Spain || 48.6

UK || 46.7

The highest ratios
of government debt to GDP are recorded in Greece (156.9%), Italy (127.0%) and Portugal (123.6%). The total government debt is higher than the annual GDP also in
 Ireland, and close to this level in Belgium. The lowest ratios, instead, are
registered in Estonia (10.1%), Bulgaria (18.5%) and Luxembourg (20.8%). The values
of the last quarter of 2012 represent a peak (since 2000) for eleven countries,
including Germany, Portugal, Netherlands and the UK.  Greece, instead, peaked (170.3%) in the fourth quarter of 2011 and decrease is mainly due
to the exchange of bonds. Also Hungary (79.2%) improved its situation compared
to the peak recorded in the second quarter of 2010 (85.3%).

The highest
increases between 2008 and 2012 are registered in Ireland, where the ratio
increased by a staggering 90.0 percentage points, Portugal (56.1) and Greece (49.0).

The debt to GDP ratio
increased in all EU-27 countries, although Sweden (+0.2 p.p.), Bulgaria (+3.1 p.p.) and Estonia (+6.0 p.p., starting from a very low base) registered a mild
increase.

2. House Price
Index (HPI)

House Price
Indices (HPIs) measure inflation in the residential property market. The HPI
captures price changes of all kinds of residential property purchased by
households (flats, detached houses, terraced houses, etc.), both new and
existing. Only market prices are considered, self-build dwellings are therefore
excluded. The land component of the residential property is included.

Why does this
matter

Rapid increases
in housing prices reduce the affordability of housing, especially for
first-time buyers. Rapid reductions in housing prices lead to mortgages which
are higher than the current value of the house, so-called negative equity.
These reductions also lead to fewer transactions on the housing market, with
effects on mobility of workers.

How the EU Member
States score?

Housing market bubbles
have been one of the main macroeconomic imbalances leading to the current
economic crisis. Household indebtedness is closely linked with housing market
developments: growth in credit to households, house price increases and high
residential investment went hand in hand during the decade preceding the
crisis, leading to higher indebtedness of the private sector. While the length
and the speed of this expansion has shown significant variations across
countries, house prices peaked in a vast majority of Member States in 2007/2008[1], ending a particularly
pronounced price cycle across the EU. In 2006-2007, half of the Member States
where data is available recorded price increases above 6%/year, a threshold
considered as an alert of internal imbalances[2].

Country || House Price Index, 2007-2012

This table shows the five countries with the highest drop of house prices

Ireland (2007-2010) || -49.5

Latvia || -35.7

Estonia || -30.2

Spain || -28.0

Romania (2009-2012) || -26.1

Taking into
account the 2007-2012 period, house prices contracted considerably in Ireland (-49.5%, until 2010), Latvia (-35.7%) and Estonia (-30.2%). In Ireland house prices in 2010
were significantly lower than in 2005. A substantial decrease between 2007 and
2012 was also registered Spain (-28.0%), and Romania (-26.1%, 2010-2012).

Between 2007 and
2012, house prices kept on increasing considerably in Sweden (+16.3%), Luxembourg (+15.1%), Finland (+14.8%) and Belgium (+14.0%), and at a slower pace in
 Malta (+8.2%), Germany (+6.8%) and France (+4.5%).

3. Trade
in Goods, 2008-2009

International
trade refers to selling (exports) or buying (imports) of goods and services
along international borders.  The analysis is based on the trade volume index.
It accounts, simultaneously, for change in prices and in volumes of export and
import; therefore it is a suitable indicator of change over time.

Why does this
matter?

Through export, countries can
expand their market, which is important in particular for countries with small
domestic markets. Imports can increase competition on the domestic market and
improve the choice of goods and services available to consumers, at lower
prices. A positive balance of exports and imports (trade surplus) contributes
to GDP growth. A negative balance (trade deficit) lowers GDP.

How do
EU countries score?

As the crisis spread
across the economies, people started to consume less and firms started to buy
less intermediate goods. This led to a serious contraction in both, exports and
imports of goods and services, worldwide.

In the EU, the
Central and Eastern countries, suffered the highest drop in imports. The
countries in the table saw their imports falling by a nearly a quarter in Bulgaria to nearly a third in Latvia, in just one year. Most of the countries that joined the EU
after 2004 were enjoying a period of high economic growth fuelled by high
investments and high consumption, before the crisis hit them. At the same time,
imports grew significantly. The crisis brought this development to a halt during
at least two years (2008-2010) before imports started to grow again.

The effect of the
crisis on trade in the less developed MS was higher on imports, whereas the
import of intermediate products, which will be transformed and exported again,
is likely to increase apace with the exports. Imports of final consumption
goods will only grow when disposable household income starts to grow again.

The four of the five countries with a reduction in exports
of 18% or more (see table) have a GDP per head above the EU average. In
general, the decline in trade was associated mainly with falling exports in the
more developed MS, indicating that the consumption of final goods did not drop
as quickly as in the less developed MS.

In
general, imports fell faster than exports and took also longer to recover. By
2011 most of the EU countries reached or nearly reached their trade volumes
from the pre-crisis period. However, the consequence of such abrupt fall in
consumption and production, for their labour market will take much longer to
recover.

4.
Foreign Direct Investments

Foreign
direct investment is an investment made by a company or entity based in one
country, into a company or entity based in another country in order to acquire
a lasting interest (10 percent or more of voting stock). The difference in
inward and outward FDI is called FDI balance. It is usually expressed with
relation to a country's GDP.

Why does this
matter?

A
negative FDI balance means that a country receives more investment from abroad
than it sends abroad. As a result, a negative FDI balance leads to higher
private investments. This will boost the economic activity in a country. In
addition, it can contribute to efficiency gains, transfer of innovative
technologies and higher productivity.

How do
EU countries score?

The table shows the countries with the where net inflows
were much higher than net outflow as a share of GDP.  Most of them are
relatively small and open economies with skilled workforce. With the exception
of Belgium, they are all Member States with GDP per head (well) below the EU
average.

Joining
the EU may have contributed to increase of FDI in several of the Central and
Eastern Member States due to the access to the single market and the
incorporation of the EU acquis into national legislation.

Foreign direct investment dropped rapidly in 2008 and 2009
as global credit conditions started to deteriorate. The fall was more
substantial for inflows than outflows of FDI, which led to significantly lower
investments in the main recipient of FDI in the EU.

Bulgaria
experienced the biggest reduction in inward FDI as share of GDP (- 12 pp).
Nevertheless, it still is one of the main destinations for investors in the EU.
This is also the case for Malta.

Among
the ten Member States with the biggest drop in inward FDI, there are four
Western MS. This is not so surprising for small, open economies such as Luxembourg, Denmark and the Netherlands, but it also includes the large economy of the UK, where it dropped by 4 pp.

In 2011, FDI
flows showed strong signs of a recovery. Both flows from one EU country to
another and from the outside the EU into the EU increased substantially
compared to 2010.

5.
Change in GDP and Employment, 2007-2010

These two
indicators measure the average annual change in GDP and employment between 2007
and 2010, i.e. the average growth in 2008, 2009 and 2010.

Why
does this matter?

Reductions in GDP
lead to lower incomes and reduce government revenues. Reductions in employment increase
unemployment and demands for unemployment benefits.

How do the EU regions score?

Two out of three
EU regions suffered a contraction of their GDP between 2007 and 2010.

The ten regions
where GDP shrunk fastest include the three Baltic States and one of the two
Irish regions. It does not include a Spanish region as they suffered more from
employment than GDP losses.

For Greece no regional growth figures are available. The country's GDP shrunk by -2.5% a year
over that period and the contraction of GDP was even harsher after 2010.

The growing
regions are mainly located in Poland, Germany, Sweden, Slovakia and the Czech Republic.

More than one out
of two regions suffered a reduction of employment between 2007 and 2010. Employment reductions were particularly high in Spain, Ireland and the Baltic States. In Greece, employment only shrunk by 0.7% between 2007 and
2010 and lost far more employment in 2011 and 2012.

Bulgaria and Romania both have regions which saw big declines in employment. National level data shows
that employment continued to decline in 2011, but Romania managed return to
growth in 2012.

The regions with
employment growth were mainly located in Poland, Germany, Austria, Belgium and Luxembourg.

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6.
Unemployment, 2012

This indicator
measures the number of people aged 15-74 who are without work but looking for
work and available for work, divided by the number of people aged 15-74 and
active in the labour market, i.e. those employed and unemployed.

Why
does this matter?

High unemployment
is a threat to social cohesion leading to poverty and social exclusion and it
is one of the most important incentives for people to leave their regions.

How do the EU
regions score?

Regional disparities in unemployment among the EU-27
regions remain high. More than one region in three has an unemployment rate
above 10%. The highest rates are registered in Spain, Greece and in the overseas departments of France. In the top-30 regions in terms of unemployment, 29
are located in these three countries.

The regions
recording unemployment rates above 15% are almost one out of five (one out of
ten in 2010).  In contrast, about one region out of six registers unemployment
rates below 5% (a total of 45, an increase from the 41 regions in 2011). These
regions are mainly located in Austria, Germany, Belgium and Netherlands.

It is possible to identify different trends for the period
2008-2012. Between 2008 and 2012 unemployment increased in four out of five
regions. The crisis hit severely regions of Spain, Greece, Ireland and the Baltic States. Instead, unemployment dropped almost exclusively in German regions,
especially in Eastern Landers (also due to labour mobility).

One in three
regions saw increases until 2010 and have shown some resilience since then. These
regions are located in particular in Belgium, Czech Republic, Slovakia, Austria, Sweden and the UK.

||

7.
Youth Unemployment, 2012

This indicator divides
the number of people aged 15-24 who are without work but looking for work and
available for work, by the number of people aged 15-24 and active in the labour
market, i.e. those employed and unemployed.

Why
does this matter?

Unemployment
at a young age can have a long-lasting negative impact, a 'scarring effect'.  In
addition to higher risks of future unemployment, lower wages, these young
people are also at a higher risk of social exclusion, of poverty and of facing
health problems. High unemployment is one of the main drivers for young people
to leave their regions.

How do the EU regions score?

Regional
disparities in youth unemployment rates among the EU-27 regions are pronounced
– with differences up to 13 times between regions experiencing the highest and
the lowest youth unemployment rates.

Two regions out
of five have a youth unemployment rate above 25%. The highest youth
unemployment rates are registered in Spain, Greece and Italy. In the top-30 regions in terms of youth unemployment, 29 are located in these three
countries.

In contrast, only 15% of the regions register youth
unemployment rates below 10%, mainly located in Austria, Germany and the Netherlands.

Between 2008 and
2012 youth unemployment increased in four out of five regions. The crisis hit
severely regions of Greece, Spain (where the increase in youth unemployment was
between 10 percentage points in Navarra and over 27 p.p. in Asturias), Bulgaria, and Lithuania and Latvia.

In contrast,
youth unemployment rates dropped in regions, 35 of them located in Germany, 5 in Belgium and 4 in Austria.

[1] http://ec.europa.eu/economy_finance/economic_governance/documents/alert_mechanism_report_2012_en.pdf

[2] Ibid.

8.
People aged 15 to 24 not in Employment, Education or Training (NEET), 2012

This indicator
divides the number of people aged 15-24 that are not employed (both unemployed
and inactive) and not involved in any education or training by the total number
of people aged 15-24.

Why
does this matter?

People
not in employment, education or training age 15-24 are likely to be early
school leavers and unlikely to have completed tertiary education. Europe 2020
aims to reduce the share of early school leavers and increase the share of
tertiary educated by 2020. In addition, a high share of NEETs can indicate
increasing resignation among young people and lack of trust in state
institutions, a major threat to social cohesion.

How do the EU regions score?

Regional
disparities in NEET rates among the EU-27 regions are pronounced – with
differences up to 12 times between regions experiencing the highest and the
lowest NEET rates.

The regions with
the highest rates - with more than 1 out of 5 young people not in employment,
education and training - can be found in Bulgaria and Romania (for reasons of
higher inactivity), as well as Italy, Spain, and Greece (for reasons of higher
unemployment).

In contrast, only 6% of the regions (16 out of the 268
regions for which data were available) register NEET rates below 5%, mainly
located in the Netherlands. Regions with the lowest NEETs rates are also
located Austria, Germany and the Czech Republic (the city of Prague).

Between 2008 and
2012 NEET rates increased in four out of five regions. The increase in NEET
rates was particularly sharp for regions in Greece, Romania and Bulgaria with regional increases of 10 pp or more.

In contrast, NEET
rates dropped in 51 regions, most of these are located in Germany, Sweden, Finland and Austria.

9. Net
migration

Net
migration is the difference between inward migration and emigration per
thousand inhabitants. It is calculated by subtracting natural population change
from total population change.

Why does this matter?

Migration can help to reduce regional disparities. In the receiving
regions, it can boost employment and economic growth in by reducing labour
shortages. The sending regions may witness a reduction of unemployment and an
increase in money sent home by migrants (remittances). Rapid changes in total
population, however, can lead to significant adjustment costs to increase or
decrease public services.

How do the EU regions score?

Net migration turned negative or slowed down in many parts
of the EU as a result of the crisis.  In the transition regions, net migration
dropped from 8.5 to 4.8 per thousand inhabitants. Nevertheless, the transition
regions still have the highest average net migration rate. Regional
Competitiveness and Employment (RCE) regions come close with a rate of 3.2 and
the convergence regions trail behind with a rate of 0.4.

The
regions with the highest net migration rates are a mixture of Eastern, Western
and Southern regions, including three capital regions. In many Eastern Member
States, the capital region has the highest net migration.

The
crisis reduced migration in regions that experienced largest inflows of labour
migrants in the pre-crisis period, such as in Spain and Ireland. Despite the large reductions of net migration, many Spanish regions still had some
of the highest levels of net migration. In Greece, migration dropped or
remained stable, but all Greek regions kept a positive net migration rate. As
the crisis continues to unfold, the increasing differences in regional
unemployment rates may still affect migration in the coming years.

In Lithuania and Latvia, the crisis sped up the outflow with net migration rate moving from -2 to -8
and from -0.5 to -1.8 respectively. In contrast, in Estonia, net migration
remained close to zero in both periods.

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10.
Living in a household with a very low work intensity, 2011

This indicator divides
the number of people who are living in households with very low work intensity
by the population aged 0 to 59. Very low work intensity means that the adult(s)
worked less than 20% of their total work potential during the past year. Households
composed only of children, of students aged less than 25 and/or people aged 60
or more are excluded.

Why does this
matter?

The Europe 2020 strategy aims to reduce the number of
people at risk of poverty or exclusion in the EU with at least 20 million by
2020. This includes persons living in a very low work intensity household.

How do the EU countries score?

The ten countries with the highest share include some which
had a very impact of the crisis, such as Ireland, Latvia and Lithuania. It also includes several countries with a relatively low impact of the crisis
such as Germany. In 2011, Cyprus and Luxemburg had the lowest shares (4.6%,
5.8% resp.)

Figure
1 shows the shares in cities and in towns, suburbs and rural areas per country.
In half of the MS, the share is higher in cities, typically in Western MS. In a quarter of the MS the shares are higher outside the cities, mostly in
Central and Eastern MS. In the remaining MS, the shares in and outside cities
is very similar.

At the EU level, the share only increased by 1 pp. The six
MS with a very high impact of the crisis it increased most by between 4 and 9
pp. Ireland experienced the largest increase leading to a share of 23%. On the
other hand, Romania and Poland reduced it (-1.5 pp and -1 pp resp).

The changes in and outside cities did not show a clear
pattern (see Figure 2). In most countries the trend was similar in and outside
cities. In Belgium and Sweden, very low work intensity in cities increased 3 pp
more than outside cities. While in Bulgaria, Lithuania and Denmark very low work intensity increased by at least 3 pp more outside cities than inside.
Overall, the pattern of urban advantage and disadvantage did not change due to
the crisis.

Figure 1: Very low work intensity in- and
out-side cities, 2011

Figure 2: Change in very low work intensity
in- and out-side cities, 2008-2011

11. GDP/head,
2010

This indicator
measures the Gross Domestic Product (GDP) per head in Purchasing Power
Standards. GDP is the total value of all goods and services produced. GDP/head
is the level of output per inhabitant which is an indication of the average
level of economic wealth generated per person. Purchasing Power Standards (PPS)
eliminates differences in purchasing power due to different price levels
between regions to facilitate comparisons.

Why does this matter?

In general, the
level of GDP per head is closely related to global economic performance, in
particular to production factor productivity and employment. Its change over time
shows the pace of economic development.

How do the EU
regions score?

The GDP/head
distribution highlights the very large gaps in economic output existing across
regions and Member States of the European Union.  In 2009, the GDP per head
ranged from 331% of the EU average (Inner London, UK) to 27.3% (Severozapaden, Bulgaria). Between 2007 and 2009, ratio between the average of GDP per head
in the top-20 and bottom-20 regions decreased from 4.9 to 4.6. The regions with
the highest GDP per capita in 2009 are mainly capital regions and located in
Western or Northern Europe.

The relatively
high levels of GDP per head of capital regions can be in part explained by a
large daily influx of commuters from neighbouring regions. At the other hand of
the spectrum, the ten regions with the lowest GDP per capita are located in Bulgaria, Romania and Hungary.

Compared to the
EU-27 average, between 2000 and 2010, GDP per head in PPS increased in particular
in regions located in the Member States that joined the EU in 2004 and 2007. Also
regions located in Eastern Germany and Spain recorded a positive performance.
Instead, negative performances are recorded by regions located in Greece, Italy, France, the UK and southern Sweden and Finland.

Eight out of the
top-10 regions in terms of GDP per head increases are capital regions. However,
the region with the largest decrease is also a capital region: Brussels.