REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK on the Alert Mechanism Report 2013, prepared in accordance with Articles 3 and 4 of the Regulation on the prevention and correction of macroeconomic imbalances
Date: 2012-11-28
Institutions: European Commission
Subjects: EU Member State, economic disparity, economic recession, euro area, macroeconomics, public debt, report, structural adjustment

EUROPEAN 
COMMISSION 

Brussels, 28.11.2012  
COM(2012) 751 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE 
COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC 
AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE 
EUROPEAN INVESTMENT BANK 

on the Alert Mechanism Report 2013,  

prepared in accordance with Articles 3 and 4 of the Regulation on the prevention and 
correction of macroeconomic imbalances 

{SWD(2012) 420  final} 
{SWD(2012) 421 final}

EN 

   EN 

 
 
 
 
 
  
 
 
 
1. 

INTRODUCTION  

Persistent  macroeconomic  imbalances,  reflected  in  large  and  persistent  external  deficits  and 
surpluses,  sustained  losses  in  competitiveness,  and  the  build-up  of  indebtedness,  have  been 
part at the core of the economic crisis and their current unwinding and adjustment shape the 
economic land scape. They continue to frame the macroeconomic challenges for the Member 
States concerned and involve spillovers which contribute to the threats facing the euro area. In 
December 2011, the "6-pack" entered into force, including the two regulations setting up the 
Macroeconomic Imbalance Procedure (the MIP)1. Surveillance on imbalances under the MIP 
forms  part  of  the  'European  Semester'  which  takes  an  integrated  and  forward-looking 
approach to macroeconomic surveillance. The MIP was fully implemented for the first time in 
2012.  On  14  February  2012,  the  first  step  in  the  MIP  was  taken  when  the  Commission 
published  the  first  Alert  Mechanism  Report2.  On  30  May  2012  in-depth  reviews  for  12 
Member  States  were  published3  and  concluded  on  the  existence  of  macroeconomic 
imbalances in the 12 member States reviewed. Appropriate policy responses to the identified 
imbalances  were  integrated  in  the  set  of  country-specific  recommendations  issued  by  the 
Council in July under the European Semester4.  

This  is  the  second  Alert  Mechanism  Report  which  initiates  the  MIP  for  the  2013  European 
Semester.  

The  Alert  Mechanism  Report  is  the  initial  screening  device  whereby  the  Commission 
identifies  Member  States  for  which  it  considers  that  developments  warrant  further  in-depth 
analysis to determine whether imbalances exist or risk emerging. It should be emphasised that 
it  is  not  in  the  Alert  Mechanism  Report,  but  in  the  subsequent  in-depth  reviews  that  the 
driving forces behind the observed developments are analysed in detail5. On the basis of the 
in-depth reviews, the Commission will conclude whether imbalances or excessive imbalances 
exist, and propose policy recommendations. This second round of the MIP will integrate the 
findings from the previous cycle and taking into account that the general economic conditions 
have not improved. The in-depth reviews are foreseen to be published in spring, ahead of the 
May European Semester package. 

The  Alert  Mechanism  Report  is  based  on  a  scoreboard  of  indicators.  The  assessment  of  the 
potential  existence  or  the  risk  of  imbalances  in  Member  States  does  not  derive  from  a 
mechanical  application  of  the  scoreboard  indicators.  The  scoreboard  is  complemented  by 
additional  information  and  indicators  taking  due  account  of  country-specific  circumstances 
and institutions, and considering also the conclusions in the in-depth reviews of May 2012. As 
regards the scoreboard design, an indicator related  to the financial sector has been added to 
the  initial  set  of  ten  indicators  to  respond  to  the  call  of  the  Council  and  the  European 
Parliament  to  better  take  into  account  the  financial  sector.  Annex  1  provides  further 
explanations and background on this year's scoreboard. 

1  Regulations  (EU)  of  the  European  Parliament  and  the  Council  No  1176/2011  and  1174/2011  (OJ  L  306, 

23.11.2011, p. 25 and 8, respectively). 

2  COM(2012) 68 final, 14.2.2012. 
3  These Member States were Belgium, Bulgaria, Denmark, Spain, France, Italy, Cyprus, Hungary, Slovenia, 
Finland,  Sweden  and  the  United  Kingdom  (see  European  Economy-Occasional  Papers,  99  to  110,  and 
Commission Communication 'Action for Stability, Growth and Jobs' - COM(2012) 299 final, 30.5.2012). 

4  Council Recommendations of 10 July 2012 (2012/C 219/01 to 27) (OJ C 219, 24.7.2012). 
5  Work  to  strengthen  analytical  frameworks  and  tools  for  the  analysis  of  imbalances  is  taken  forward  by 
Member  States  and  the  Commission  in  the  context  of  the  Economic  Policy  Committee.  This  includes  for 
example issues linked to housing, indebtedness and the assessment of external positions. 

1 

 
 
                                                 
Section  2  discusses  some  horizontal  and  thematic  messages  from  the  reading  of  the 
scoreboard.  In  section  3  the  reading  of  the  scoreboard  is  presented  per  country.  Section  4 
concludes. 

2. 

PROGRESS IN REBALANCING AND CORRECTION OF IMBALANCES  

The  EU  economies  continue  to  face  large  challenges  to  correct  the  external  and  internal 
imbalances  accumulated  in  the  pre-crisis  period.  Several  Member  States  face  deleveraging 
pressures  in  the  private  and  public  sector.  These  pressures  reflect  the  unwinding  of 
accumulated  financial  imbalances,  which  are  linked  to  previous  unsustainable  expenditure 
and debt levels. The simultaneous deleveraging is weighing on growth, as spending is reduced 
and income is directed to debt repayment, while the correction of the external deficits, to be 
complete and sustainable, requires further improvement in relative competitiveness, including 
through the reductions in costs and increases in productivity. This adjustment of accumulated 
internal and external imbalances is expected to be a protracted process shaping the economic 
landscape for several years to come and framing the surveillance under the MIP. The current 
growth conditions, including the outlook for next year, are considerably weaker than forecast 
at  the  time  of  the  previous  Alert  Mechanism  Report  earlier  this  year,  but  progress  in  re-
balancing will open up the way for growth and convergence. 

There are positive signs that the rebalancing in the EU economies is progressing, as evidenced 
by  the  latest  Commission  forecasts.  The  reform  efforts  appear  to  bear  fruit,  and  not  only  in 
programme  countries.  Current  account  deficits  are  coming  down  in  the  countries  with  the 
largest  external  imbalances,  supported  by  gains  in  competitiveness.  However,  the  necessary 
adjustment  for  some  countries  with  large  current  account  deficits  is  still  considerable  and 
needs to be supported by the implementation of the productivity-enhancing structural reforms 
agreed  in  the  context  of  the  economic  adjustment  programmes  and  in  the  country-specific 
recommendations.  Further  intra-euro  area  (and  intra  EU)  rebalancing  would  benefit  from 
dynamic domestic demand and wage developments in the surplus countries.  

As  regards  the  different  areas  covered  by  the  scope  of  the  scoreboard  the  following  more 
specific observations can be made: 

•  Euro-area (and EU) rebalancing of current account positions is on-going. This has 
so  far  mainly  been  the  result  of  adjustment  in  the  vulnerable  economies  although 
developments in the Member States with large current account surplus also contribute 
to the rebalancing of the euro area (and EU).  Deficit countries have experienced an 
expansion of exports thanks to gains in competitiveness and a reallocation of resources 
towards export-oriented industries but also a strong compression of domestic demand 
and imports. Although, these developments include both cyclical and structural nature, 
the structural correction appears to predominate in most countries. In parallel with the 
adjustment  in  Member  States  with  large  current  accounts  deficits,  the  external 
balances of several Member States in surplus have been declining, albeit at a slower 
pace.  The  increasing  weight  of  domestic  demand in  the  economic  activity  of  the 
surplus  countries  and  the  relatively  dynamic  wage  increases  suggest  that  the 
contribution of surplus countries to rebalancing might grow in the coming years. 

•  Nonetheless, the external adjustment in current account deficits is not yet sufficient 
to  ensure  sustainable  and  sound  external  debt  positions.  A  majority  of  Member 
States  have  (negative)  net  international  investment  positions  beyond  the  indicative 
threshold. How much the net international investment position is beyond the threshold 
differs,  however,  across  countries,  ranging  from  moderate  (CZ,  EE,  LT,  PL,  SI  and 

2 

 
 
SK,  and  RO)  to  substantial  (BG,  ES,  CY,  LV  and  HU,  as  well  as  IE,  EL  and  PT) 
deviations. In catching-up economies, the net external debt is generally lower than the 
net  international  investment  position  reflecting  the  importance  of  foreign  direct 
investment  (BG,  CZ,  SK,  LT  and  LV).  In  many  cases,  the  negative  positions  have 
continued to rise, or when declining this has been mainly the result of valuation effects 
(ES and CY, as well as EL and PT), in particular due to the loss in the market value of 
domestically-issued securities held by foreigners. 

•  Export  performance  has  been  improving  slightly  in  a  context  of  weaker  global 
demand.  With  the  exception  of  catching-up  Member  States  (EE,  MT,  SK,  BG,  LV, 
LT,  PL  and  RO),  over  the  last  five  years  the  majority  of  Member  States  have  lost 
export market shares at a rate well exceeding the indicative threshold,. Over a longer 
period of time, these losses partially reflect an EU-wide trend in a global context and 
need  to  be  viewed  in  the  context  of  the  expansion  of  world  trade.  Nevertheless,  the 
pace of market share losses is often reduced compared to a year ago.  

•  Price  and  non-price  competitiveness  developments  have  contributed  positively  to 
unwinding external imbalances. The recovery in price and non-price competitiveness 
is key to the adjustment process of the economies with large current account deficits. 
Many  structural  reforms  have  already  been  adopted.  Although  the  full  effects  of 
reforms  on  the  main  macroeconomic  variables  are  typically  visible  only  with  a  time 
lag,  the  substantial  labour  market  reforms  have  started  to  translate  in  significant 
competitiveness gains in several Member States. Changes in the trends of relative unit 
labour  costs  and  real  effective  exchange  rates  give  already  supportive  evidence  of 
competitiveness gains in most Member States. In the scoreboard, the unit labour cost 
indicator  (nominal  change  in  2009-11)  exceeds  the  threshold  only  in  four  Member 
States  (BG,  LU,  RO,  FI)  compared  to  the  double  in  the  previous  report,  reflecting 
downward pressures on wage growth over the last couple of years.  

•  So  far,  gains  in  price  competitiveness  have  taken  place  predominantly  in  Member 
States  with  large  imbalances,  sparked  by  intense  market  pressure. Since  2010,  the 
growth rate of nominal unit labour costs in the euro-area periphery has been below the 
corresponding growth rate in the core surplus economies. The reduction in unit labour 
costs  in  vulnerable  countries  relative  to  the  core  euro  area  stems  from  increases  in 

3 

 
 
 
productivity and competitive pressures, labour shedding which now offset the labour 
hoarding  of  recent  years,  and  reductions  in  the  nominal  remuneration  in  several 
sectors.  

•  Deleveraging  pressures  in  the  private  sector  persist  in  many  Member  States.  The 
unwinding  of  excessively  leveraged  positions  in  the  private  sector,  including 
corporates  and  households,  started  in  the  aftermath  of  the  financial  crisis.  Private 
sector  debt  exceeds  the  indicative  threshold  (160  per  cent  of  GDP)  in  a  majority  of 
Member States (AT, BE, CY, DK, FI, FR, HU, LU, MT, NL, ES, SE and the UK, as 
well  as  IE  and  PT).  At  a  sectorial  level,  firms’  indebtedness  is  particularly  high  in 
some countries (above 120 per cent of GDP in BE, BG, CY, MT, ES and SE, as well 
as IE and PT).  In other cases, such as  SI and ES, construction firms account for the 
bulk  of  non-financial  corporations  debt  and  further  housing  market  correction  may 
lead to an increase in bad loans and impaired assets in the corporate sector. Turning to 
households,  deleveraging  pressures  are  visible  in  a  number  of  Member  States  (CY, 
DK,  NL,  ES,  SE  and  UK,  as  well  as  IE  and  PT,  and  are  mainly  linked  to  pre-crisis 
housing  market  upswings.  Downside  risks  for  household  balance  sheets  and 
consumption are linked to potential further corrections in housing markets.  

•  Lending to the private sector remains weak and private credit flows are subdued. In 
2011,  credit  growth  figures  were  generally  below  the  threshold,  explained  both  by 
credit  supply  and  demand  factors.  On  the  one  hand,  banks  downsized  their  balance 
sheets and increased their provisioning. Indeed, there was only a moderate increase in 
the  financial  sector  liabilities  in  2011  across  the  board.  Existing  structural  and 
liquidity issues in the financial sector also affected the supply of credit. On the other 
hand,  worsening  growth  prospects  coupled  with  high  uncertainty  have  been  holding 
back demand, particularly in those countries with the biggest adjustment needs.  

•  Complex  sectoral  inter-linkages  among  the  public,  banking  and  private  sectors  often 
add to the underlying imbalances. The strong country bias between the financial sector 
and domestic sovereigns leaves banks largely exposed to sovereigns through holdings of 
government bonds. Moreover, high sovereign yields can also affect firms via the banking 
sector,  thus  affecting  negatively  their  financing  conditions.  Against  this  background, 
financing  costs  for  both  public  and  private  sector  have  been  diverging  increasingly  in 
Member States resulting in financial fragmentation across national borders. The sovereign 
debt crisis has triggered deposit outflows from some vulnerable countries and has exerted 
additional  funding  and  liquidity  pressures  on  their  private  sector.  Small  and  medium- 
sized  enterprises  risk  being  affected  more  in  this  respect  as  they  rely  heavily  on  bank 
credit.  In  this  context,  private  sector  deleveraging  pressures  are  even  more  of  a  concern 
when  this  takes  place  in  parallel  to  on-going  and  necessary  deleveraging  in  the  public 
sector (BE, ES, HU and IT, as well as IE, EL and PT).  

4 

 
 
Debt by sector, 2011

P
D
G

f
o
%

350

300

250

200

150

100

50

0

U
L

E
I

Y
C

T
P

E
B

L
N

S
E

I

T F
M

T
A

R
F

E
E

T S

I

I

E
D

L
E

K
S

K
D

E
S

K
U

U
H

G
B

V
L

L
P

Z
C

O
R

T
L

Euro Area

Non Euro Area

Note: Programme countries in pattern..
Source: Eurostat. 

Households

Non-financial corporations

General Government

•  Housing markets are still in correction mode with different implications according 
to  the  dynamics  of  the  construction  sector.  Indeed,  almost  all  Member  States 
experienced negative real house price growth rates in 2011 with the notable exception 
of the Baltic States recovering from the previous boom-bust episodes. Consequently in 
no country did the house price growth exceed the indicative threshold. This correction 
has gained speed in some countries, which  were already characterised by substantial 
cumulated falls in house prices (CY, ES and IE) in a context of a sharp deterioration in 
economic  conditions.  It  has  in  some  cases  led  to  the  necessary  downsizing  of 
construction  sectors,  but  has  also  led  to  higher  unemployment  and  deterioration  in 
banks'  balance  sheets  (SI,  ES  and  IE).  Further  downward  adjustments  cannot  be 
excluded  (DK,  NL,  UK),  against  a  background  of  tightened  credit  conditions  and 
economic uncertainty.  

to  show 

their  effectiveness 

•  The on-going adjustment to imbalances is necessary but is costly in the short term 
and  has  resulted  in  higher  unemployment.  Adjustment  is  taking  place  but  the  way 
forward for a complete and durable rebalancing is still long. Reforms in wage-setting 
mechanisms  are  starting 
improving  cost-
competitiveness. High or rising unemployment in several Member States, in a context 
of subdued aggregate demand, points to a labour market adjustment process that is still 
incomplete. Weak economic activity and, in some cases, the downsizing of important 
sectors  such  as  construction  (SI,  ES  and  IE)  are  part  of  the  adjustment  process 
inducing  a  shift  of  resources  from  the  non-tradable  to  the  tradable  sector  and  the 
switching  of  expenditure  to  domestically-produced  goods. The  engineering  of  an 
expenditure  switch  to  restore  growth,  job  creation  and  external  adjustment  depends 
heavily on sustained structural reform efforts  on  both  labour and product  markets as 
well  as  on  stepping  up  efforts  on  the  implementation  of  financial  regulation.  This  is 
even more important in the context of high internal deleveraging pressures.  

in 

5 

 
 
 
 
 
 
3. 

COUNTRY-SPECIFIC COMMENTARIES ON THE READING OF THE SCOREBOARD 

The commentaries below do not cover Member States which are subject to surveillance under 
economic  adjustment  programmes  supported  by  official  financing.  This  concerns  Greece, 
Ireland and Portugal in the euro-area and Romania outside the euro area6.  

Belgium:  In  May  2012,  the  Commission  concluded  that  Belgium  was  experiencing 
macroeconomic  imbalances,  in  particular  as  regards  developments  related  to  external 
competitiveness and indebtedness. In the updated scoreboard, a number of indicators exceed 
their  indicative  thresholds,  namely  the  change  in  export  market  shares;  gross  private  sector 
debt and general government debt. On the external side, Belgium has continued losing export 
market  shares  at  a  slower  pace.  The  continuous  loss  of  export  market  shares  is  due  to 
deterioration  in  the  goods  balance  since  2003,  which  has  partly  been  offset  by  the  steady 
increase of the services balance. The current account position is expected to remain close to 
balance in the coming years. An important factor explaining the deterioration in export market 
shares  is  the  decline  in  cost-competitiveness  due  to,  inter  alia,  stronger  accumulated  unit 
labour cost increases compared to the euro-area average. This trend is expected to continue. 
Concerning internal imbalances, the private sector debt indicator is well above the threshold, 
although to a large extent driven by intra-company loans. Credit grew relatively strongly in 
2011  but  has  been  reduced  lately  both  due  to  a  decline  in  demand  and  tightening  credit 
conditions for companies. Government debt is high and increasing due to the accumulation of 
large  deficits  over  recent  years  and  the  interventions  in  the  financial  sector.  House  prices 
increased  rapidly  prior  to  the  crisis  and  the  likelihood  of  a  correction  needs  to  be  further 
explored, including the impact such a correction could have on the sustainability of mortgage-
related household debt. In 2011, the debt-to-equity ratio of the financial sector increased due 
to losses in the sector. Overall,  the Commission finds  it  useful, also taking into account the 
identification  of  an  imbalance  in  May,  to  examine  further  the  persistence  of  imbalances  or 
their unwinding. 

Bulgaria:  In  May  2012,  the  Commission  concluded  that  Bulgaria  was  experiencing 
macroeconomic  imbalances,  in  particular  as  regards  developments  related  to  external 
indebtedness, corporate sector deleveraging and the labour market adjustment process. In the 
updated  scoreboard,  some  indicators  exceed  their  indicative  thresholds,  namely  the  net 
international investment position and unit labour costs, while the private sector debt indicator 
is  now  below  the  threshold.  On  the  external  side,  the  current  account  balance  has  been 
improving rapidly: it reached a balanced position in 2011 and is projected to remain below the 
threshold  over  the  forecast  horizon.  Despite  an  improvement  mirroring  steep  corrections  in 
the current account, the negative net international investment position is expected to remain 

6  This  approach  which  avoids  duplication  of  procedures  and  reporting  obligations  is  consistent  with  the 
Commission  proposal  for  a    regulation  on  the  strengthening  of  economic  and  budgetary  surveillance  of 
Member States experiencing or threatened with serious difficulties with respect to their financial stability in 
the  euro  area  -  COM(2011)  819  final,  23.11.2011  -,  which  is  a  component  of  the  '2-pack.'  For  a  detailed 
discussion of the economic situation and progress in the unwinding of macroeconomic imbalances, see the 
latest  compliance  reports:  in  European  Economy-Occasional  Papers,  94  (Greece),  115  (Ireland),  116 
(Romania) and 117 (Portugal). Spain is discussed in this report though it benefits from official financing for 
the  recapitalisation  of  banks;  see  'The  Financial  Sector  Adjustment  Programme  for  Spain,'  European 
Economy-Occasional  Papers,  118.  Also  Hungary  and  Cyprus  are  discussed.  In  November  2011,  the 
Hungary  formally  requested  negotiations  leading  to  a  precautionary  financial  assistance.  However,  these 
negotiations  have  not  advanced  significantly.  Cyprus  requested  official  financing  on  25  June  2012  and 
negotiations for a programme is currently on-going.  

6 

 
 
                                                 
significantly  above  the  indicative  threshold  and  accordingly  a  factor  of  vulnerability  in  the 
foreseeable future. However, this indicator should be interpreted in conjunction with the very 
high foreign direct investment stock, leading to substantially lower net external debt. Firstly, 
foreign  direct  investment  inflows  remained  subdued  in  2011  and  their  recent  pick-up  is 
envisaged to stay modest even if foreign direct investment stocks are high. Secondly, Bulgaria 
has  recorded  gains  in  export  market  shares  against  a  background  of  improved  productivity 
and a depreciating real effective exchange rate and recently moderate increases in unit labour 
cost, although the indicator remains above the threshold, and growth in wages and unit labour 
costs  is  foreseen  to  be  relatively  strong  looking  forward.  The  downward  adjustment  in  the 
housing  market  is  on-going  after  earlier  steep  declines  in  house  prices.  Credit  conditions 
remain  stable  providing  for  an  expansion  in  lending,  although  the  high  level  of  non-
performing  loans  could  become  a  drag  on  lending.  While  deleveraging  rapidly  (2011  data 
point  to  a  swift  drop  in  short-term  loans  to  non-financial  corporations),  the  private  sector 
remains  relatively  indebted  for  a  catching-up  economy  mainly  on  account  of  cross-border 
intercompany  loans  to  non-financial  corporations.  Since  the  adjustment  in  the  external 
imbalances  has  partly  come  through  a  compression  of  domestic  demand,  including 
investment, there is a risk of locking the economy into a low-growth path, thereby making the 
reduction  in  debt  levels,  including  net  international  investment  position,  more  challenging. 
Concerns  over  the  country's  long-term  potential  growth  are  also  due  to  labour  market 
weaknesses, which are reflected in a weak labour market performance with negative growth, 
increasing unemployment rates and high structural unemployment. Overall, the Commission 
finds it useful, also taking into account the identification of an imbalance in May, to examine 
further the persistence of imbalances or their unwinding. 

Czech Republic: In the previous round of the MIP, the Czech Republic was not identified as 
experiencing imbalances. In the updated scoreboard, the net international investment position 
is  above  the  indicative  threshold.  The  net  international  investment  position  has  deteriorated 
because of sustained, albeit moderate, deficits in the current account balance of around 3 per 
cent of GDP over the last three years: these are mainly driven by the outflow of dividends on 
the  high  stock  of  foreign  direct  investment.  Overall,  the  risk  of  external  vulnerabilities  is 
limited because of the relatively low value of gross external debt liabilities. The trade balance 
recorded  a  robust  surplus  in  2011  but  gains  in  export  market  shares  are  gradually  easing, 
reflecting  the  falling  share  of  new  green-field  projects  in  foreign  direct  investment.  At  the 
same  time  import  growth  is  also  expected  to  ease.  As  domestic  demand  remains  weak,  the 
current  account  deficit  is  projected  to  continue  to  improve  in  the  coming  years  and  this  is 
expected  to  contribute  to  stabilising  the  net  international  investment  position  around  the 
current level. Contrary to the appreciation trend observed before the global financial crisis, the 
real effective exchange rate has remained broadly stable since 2009. The inflow of capital to 
the  Czech  Republic  went  hand-in-hand  with  considerable  wage  growth  in  all  sectors  of  the 
economy,  even  though  productivity  increases  were  limited  mostly  to  the  tradable  sector. 
While the aggregate nominal unit labour cost growth decreased to close to 3 per cent over the 
past  three  years,  and  is  expected  to  remain  subdued  in  the  near  future,  the  cumulative 
productivity  gap  in  the  non-tradable  sector  may  weigh  on  the  competitiveness  of  the 
economy: first, because the non-tradable sector provides inputs to other sectors, thus directly 
affecting their competitiveness of the latter; and second, since higher wage growth in the non-
tradable sector may hinder shifts in labour towards export-oriented industries that have more 
scope  for  productivity  growth.  Adjustment,  accompanied  by  falling  real  house  prices,  is 
underway in construction and real-estate activities, which had been boosted by relatively easy 
lending conditions before the crisis: the share of bank loans to value added in these industries 
doubled  in  2005-8.  The  largely  foreign-owned  banking  sector  in  the  Czech  Republic  has 

7 

 
 
remained  resilient,  and  the  moderate  levels  of  private-  and  public-sector  indebtedness  have 
prevented the emergence of any negative feedback loops. Overall, the Commission will at this 
stage not carry out further in-depth analysis in the context of the MIP. 

Denmark:  In  May  2012,  the  Commission  concluded  that  Denmark  was  experiencing 
macroeconomic  imbalances,  in  particular  as  regards  developments  related  to  external 
competitiveness and household indebtedness. In the updated scoreboard, some indicators are 
above the indicative threshold, namely the change in export market shares and private sector 
debt. The loss in export market shares remains well above the threshold and was of the same 
magnitude in 2011 as in 2010. The in-depth review of May 2012 concluded that Denmark's 
competitiveness and weak performance in exports of goods was linked to a rise in unit labour 
cost,  relative  to  main  competitors.  However,  cost-competitiveness,  as  measured  by  the 
percentage  change  over  three  years  in  nominal  unit  labour  cost,  has  improved  and  remains 
below  the  threshold.  Continued  muted  development  of  unit  labour  cost  is  forecast  for  the 
coming years. The percentage change over three years in the real effective exchange rate also 
reveals a depreciation since 2009, which is expected to continue over the coming years. The 
sustained  decline  in  market  shares  despite  the  improvement  in  cost-competitiveness  may 
imply  that  the  latter  is  not  yet  sufficient  in  order  to  restore  the  cumulative  loss  in 
competitiveness  which  took  place  over  the  previous  decade.  Nevertheless,  current  account 
surpluses  have  continued  to  increase,  driven,  in  particular,  by  the  balance  of  trade  in  goods 
and services – partly thanks to oil and gas exports which benefit from rising oil prices – but 
also  inflows  of  income  from  foreign  direct  investment  abroad.  However,  as  the  current 
account balance partly reflects large savings in the private sector, it is expected to decline in 
coming years, as domestic demand gradually recovers. The private sector debt ratio remains 
significantly above the threshold. Admittedly it has been reduced for the second year in a row, 
partly  reflecting  a  fall  in  the  household  debt  ratio  but  remains  among  the  highest. 
Developments  in  housing  markets  have  contributed  to  pushing  household  debt  beyond 
sustainable  levels,  potentially  exacerbating  risks  to  financial  and  economic  stability.  While 
the risk to financial stability may be relatively low, the risks to economic stability seem more 
pronounced.  Indeed,  the  excessive  swings  in  house  prices  and  high  household  debt,  which 
have  contributed  to  large  fluctuations  in  private  consumption,  are  now  constraining  the 
economy's  ability  to  recover  as  households  need  to  deleverage  going  forward.  Real  house 
prices dropped again in 2011, after a stabilisation in 2010. Although they are now arguably 
close  to  their  long-term  trend,  the  market  remains  fragile  in  an  environment  of  tight  credit 
conditions  and  low  wage  growth,  implying  risks  of  further  downward  adjustments  ahead 
given the economic outlook. Overall, the Commission finds it useful, also taking into account 
the identification of an imbalance in May, to examine further the persistence of imbalances or 
their unwinding. 

Germany:  In  the  previous  round  of  the  MIP,  Germany  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard  a  couple  of  indicators  are  above  their  indicative 
thresholds, namely the change in export market shares and the general government debt ratio. 
On  the  external  side,  losses  in  export  market  shares  remain  above  the  indicative  threshold, 
reflecting  losses  recorded  in  2010  and  which  continued  to  a  lesser  extent  in  2011.  These 
losses appear moderate overall and are consistent with the on-going reduction in the current 
account  surplus.  As  in  the  last  Alert  Mechanism  Report,  the  indicator  for  current  account 
surplus is just below the threshold in 2011. The reduction in the current account surplus over 
the  last  few  years,  as  part  of  the  re-balancing  process,  has  been  driven  in  particular  by  a 
declining trade surplus vis-à-vis the rest of the euro area. Looking ahead, the latest forecasts 
indicate  that  the  current  account  surplus  will  decline  at  a  moderate  pace  in  2012-2014,  as 

8 

 
 
private consumption and investment regain momentum. Also, unit labour costs have increased 
in  recent  years  and  are  expected  to  continue  to  rise  more  than  the  euro  area  average  in  the 
coming years on the back of a still robust labour market. Despite rising labour costs, the real 
effective exchange rate is still depreciating given firms' limited scope to pass on higher wages 
to costumers. On the internal side, government debt is projected to be on a downward trend as 
from  2013,  and  Germany  is  making  progress  towards  compliance  with  the  debt  reduction 
benchmark  of  the  SGP.  Private  sector  indebtedness  and  credit  activity  remain  moderate. 
House  prices  have  increased  moderately  with  stronger  price  hikes  in  some  urban  areas. 
Looking  forward,  investment  in  housing  is  expected  to  grow  at  a  strong  rate.  Overall,  the 
Commission  will  at  this  stage  not  carry  out  further  in-depth  analysis  in  the  context  of  the 
MIP. 

Estonia:  In  the  previous  round  of  the  MIP,  Estonia  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard,  a  couple  of  indicators  are  above  the  indicative 
thresholds,  namely  the  net  international  investment  position  and  unemployment.  A  third 
indicator, private sector debt has now moved comfortably below the threshold (133% of GDP 
in  2011).  On  the  external  side,  the  bulk  of  the  very  sharp  adjustment  of  the  high  external 
imbalances  that  accumulated  in  2005-7  has  been  completed.  In  2011,  the  current  account 
position continued to be in sizeable surplus and is expected to remain close to balance in the 
medium  term,  supported  by  gains  in  export  market  shares.  While  the  negative  net 
international  investment  position  remains  significantly  beyond  the  threshold  level,  it  is 
improving rapidly, reflecting the sustained current account surplus and a denominator effect 
since nominal GDP is growing steadily. Moreover, half of the net external liabilities consist of 
foreign direct investment, which contributes to limiting external liquidity-related risks; the net 
external  debt  is  only  6  per  cent  of  GDP.  Although  still  high,  private  sector  indebtedness 
declined substantially in 2010-11, supported by on-going deleveraging and GDP growth. As a 
result, and although the private sector deleveraging may soon draw to a halt, the private sector 
indebtedness  is  expected  to  have  fallen  further  in  2012.  Nevertheless,  the  relatively  high 
private debt level may impose a drag on growth in the medium term. The unemployment rate 
peaked  at  almost  20  per  cent  in  the  first  quarter  of  2010  but  diminished  rapidly  to  10.2  per 
cent in the second quarter of 2012. It is expected to contract further, although more slowly, 
reflecting the reappearance of skills mismatches and more moderate output growth. Overall, 
the Commission will at this stage not carry out further in-depth analysis in the context of the 
MIP. 

Spain:  In  May  2012,  the  Commission  concluded  that  Spain  was  experiencing  very  serious 
imbalances,  in  particular  as  regards  developments  related  to  the  external  position,  private 
sector  debt  levels  and  the  financial  sector.  In  the  updated  scoreboard,  several  indicators  are 
above the indicative thresholds, namely the current account deficit, export market shares, net 
international  investment  position,  private  sector  debt,  general  government  debt  and 
unemployment. On the external side the current account deficit has improved in the context of 
a recovery in export performance and falling domestic demand. The indicator remains above 
the  threshold  but  the  current  account  is  expected  to  move  towards  balance  in  the  years  to 
come. Decreasing unit labour costs and some depreciation in the real effective exchange rate 
contribute to recover part of the loss of competitiveness accumulated during the boom cycle. 
This has contributed to reduce the losses in export market shares, although the indicator still 
exceeds  the  threshold.  Unit  labour  costs  are  expected  to  be  reduced  further  this  year  and 
growth to be muted in the years to come. While the adjustment of flows is on-going, the stock 
of  external  liabilities  remains  significant,  as  reflected  in  the  large  negative  net  international 
investment position and net external debt. This is a particular cause for concern as the Spanish 

9 

 
 
economy  is  exposed  to  liquidity  risks.  Combined  with  rapidly  increasing  government  debt, 
high  private  sector  indebtedness  implies  substantial  deleveraging  pressures.  In  the  private 
sector,  deleveraging  started  in  2011  and  is  set  to  continue,  thus  holding  back  the  economic 
recovery through subdued domestic demand. The banking sector remains fragile following the 
housing  and  construction  busts  and  negative  feedback  loops  with  public  finances.  The 
weaknesses of the banking sector are being addressed within the framework of the financial 
sector  adjustment  programme,  which  provides  official  financing  for  the  restructuring  and 
recapitalisation  of  Spanish  banks.  Notwithstanding  declining  unit  labour  cost,  the  labour 
market  has  deteriorated  with  record  high  and  increasing  unemployment,  much  beyond  the 
threshold, and continued employment destruction. This presents an additional threat to the on-
going  adjustment,  via  its  effects  on  deleveraging,  and  also  impacts  negatively  on  budgetary 
consolidation  efforts.  Overall,  the  Commission  finds  it  useful,  also  taking  into  account  the 
identification of a very serious imbalance in May, to examine further the risks involved and 
progress in the unwinding of imbalances in an in-depth analysis.  

France:  In  May  2012,  the  Commission  concluded  that  France  was  experiencing  serious 
imbalances,  in  particular  as  regards  developments  related  to  export  performance  and 
competitiveness. In the updated scoreboard, a number of indicators are above their indicative 
thresholds, namely export market shares, general government debt and this year also private 
sector debt. On the external side, France has continued losing export market shares although 
at  a  slower  pace  and  the  indicator  is  well  beyond  the  threshold.  Losses  are  set  to  continue 
looking forward if not decisive policy action is taken. These losses are reflected in the gradual 
deterioration  of  the  trade  balance,  as  well  the  current  account  balance  and  a  negative  net 
international  investment  position,  although  the  latter  two  are  still  below  their  respective 
indicative thresholds. This development is linked to the persistent deterioration of both price 
and  non-price  competiveness.  The  unit  labour  cost  indicator  is  below  the  threshold  but, 
despite  measures  taken  recently  to  reduce  taxes  on  labour,  looking  forward  unit  labour  cost 
growth is expected to be close to the euro area average in the short term, implying that there 
would  be  no  relative  gains  in  the  near  future.  The  reduction  in  the  profitability  of  French 
companies,  which  reached  historically  low  levels  in  2011,  weighs  on  their  investment 
potential  as  well  as  their  innovation  capacity  to  the  detriment  of  their  non-price 
competitiveness. Besides, the low profitability of firms weighs on their deleveraging capacity 
and  therefore  also  contributes  to  the  high  indebtedness  of  the  private  sector  as  a  whole  that 
now exceeds the indicative threshold. The unemployment rate has increased and is expected 
to  move  above  the  threshold  level  in  the  years  to  come.  Household  debt  remains  relatively 
low  but  house  prices  increased  prior  to  the  crisis  and  also  in  2011;  the  possibility  and 
implications of a correction in the housing market needs to be further explored. The increase 
in  the  level  of  private  debt  is  particularly  worrying  in  a  context  of  still  increasing  general 
government indebtedness, which is now close to 90% of GDP. Overall, the Commission finds 
it useful, also taking into account the identification of a serious imbalance in May, to examine 
further  the  risks  involved  and  progress  in  the  unwinding  of  imbalances  in  an  in-depth 
analysis. 

Italy:  In  May  2012,  the  Commission  concluded  that  Italy  was  experiencing  serious 
imbalances,  in  particular  as  regards  developments  related  to  the  export  performance, 
competitiveness  and  the  implication  of  high  government  debt.  In  the  updated  scoreboard  a 
couple of indicators are above the indicative thresholds, namely losses in export market shares 
and  general  government  debt.  In  particular,  since  euro  adoption,  cost  and  non-cost 
competitiveness  losses  have  built  up  and  this  is  reflected  in  a  significant  losses  of  export 
market  shares,  well  beyond  the  threshold  level.  Italy's  current  account  deficit  is,  however, 

10 

 
 
narrowing  and  the  trade  balance  is  expected  to  record  a  surplus  in  2012.  This  is  mainly 
explained by the sharp fall in imports, given the weakness in domestic demand in the current 
recession,  but  also  by  a  positive  export  performance,  especially  towards  non-EU  partners. 
Weak productivity developments remain the main obstacle to a lasting improvement in Italy's 
competitiveness  position  and  economic  growth  outlook.  The  recently-adopted  structural 
reforms  –  aimed  at  fostering  market  competition,  addressing  labour  market  segmentation, 
making  the  tax  system  more  growth-friendly  and  improving  the  business  environment  – 
should  help revive productivity  growth in the medium  term. Meanwhile, wages  are still not 
sufficiently responsive to productivity developments. Nominal unit labour costs are expected 
to increase in the years to come at a rate close to the euro area average. The high government 
debt  remains  a  major  burden  for  the  Italian  economy,  especially  against  the  background  of 
slow growth prospects. While low growth rates make it more difficult to achieve and maintain 
the  large  primary  surpluses  required  to  put  the  government  debt-to-GDP  ratio  on  a  steadily 
declining  path  going  forward,  the  present  and  expected  high  tax  burden  which  is  needed  to 
service  the  high  debt  hampers  domestic  demand  and  economic  activity.  In  addition,  in  the 
context  of  a  financial  market  that  is  fragmented  across  national  borders,  the  relatively  high 
interest  rates  associated  with  the  government  risk  premium  affect  the  private  sector's 
financing  conditions  and  exacerbates  the  funding  problems  of  the  domestic  banking  sector. 
On  the  positive  side,  private  sector  indebtedness  remains  relatively  contained  in  Italy.  In 
particular, the financial position of Italian households is relatively strong, while their savings 
ratio has been on a downward trend for over two decades. Overall, the Commission finds it 
useful, also taking into account the identification of a serious imbalance in May, to examine 
further  the  risks  involved  and  progress  in  the  unwinding  of  imbalances  in  an  in-depth 
analysis. 

Cyprus: In May 2012, the Commission concluded that Cyprus was experiencing very serious 
imbalances,  in  particular  as  regards  developments  related  to  the  external  position,  public 
finances and the financial sector. In the updated scoreboard, several indicators are above their 
indicative  thresholds,  namely  the  current  account  deficit,  net  international  investment 
position,  export  market  shares,  private  sector  credit  flow,  private  sector  debt  and  general 
government debt. On the external side, the current account balance indicator remains above 
the  negative  threshold  despite  a  recent  strong  decline  in  imports  due  to  a  compression  of 
domestic  demand.  Looking  forward,  the  losses  in  export  market  shares  are  in  particular 
explained  by  the  goods  balance  which  has  maintained  its  downward  trend,  while  Cyprus 
continues  to  record  surpluses  in  services  trade.  Overall,  the  current  account  deficit  is 
forecasted  to  decrease  in  the  years  to  come.  Losses  in  price  and  cost  competitiveness  have 
eased recently, the public sector wage freezes contributed to wage moderation in the private 
sector  and  export-oriented  sectors.  However,  structural  reforms  to  underpin  sustained 
improvements  in  competitiveness  have  not  materialised.  In  parallel,  the  negative  net 
international  investment  position  is  fast-deteriorating  which  raise  concerns  about  the 
sustainability of external position of the country. The net international investment position has 
deteriorated on the back of current account deficits, but also due to valuation losses on banks' 
assets  abroad.  On  the  internal  side,  the  highly  leveraged  private  sector  has  continued  to 
unwind  its  large  outstanding  debt.  This  is  also  indicated  by  the  significant  decrease  of  the 
private  sector  creditor  flow  indicator  compared  to  the  year  before.  The  fact  that  the  credit 
indicator  remains  above  the  threshold  is  primarily  associated  with  the  loan  rescheduling 
process taking place, as the rescheduled loans are treated as new flows, rather than provision 
of new credit. For households, debt levels are matched by substantial  assets, but these have 
been  hit  by  a  continuous  decline  in  real  and  nominal  house  prices.  The  public  debt  is  also 
above  the  Treaty-based  threshold  and  is  expected  to  increase  sharply.  At  the  same  time, 

11 

 
 
unemployment  in  Cyprus  has  risen  sharply  recently,  and  is  expected  to  increase  further 
looking  forward,  indicating  structural  challenges  in  addition  to  cyclical  factors.  Any  further 
fallout from the exposure of the Cyprus banking sector to Greece and further deterioration of 
economic activity will aggravate the risks and make structural adjustment more difficult. The 
situation  is  further  exacerbated  by  negative  feedback  loops  between  developments  in  the 
housing and financial sectors and government finances. Also the Cyprus's financial sector is 
among  the  most  leveraged  in  the  whole  EU.  After  requesting  official  financing  on  25  June 
2012,  Cyprus  is  currently  negotiating  a  programme  of  economic  policies  to  address  its 
financial, fiscal and structural challenges. Overall, the Commission finds it useful, also taking 
into  account  the  identification  of  a  very  serious  imbalance  in  May,  to  examine  further  the 
risks involved and progress in the unwinding of imbalances in an in-depth analysis. 

Latvia:  In  the  previous  round  of  the  MIP,  Latvia  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard,  a  couple  of  indicators  are  above  their  indicative 
thresholds,  namely  the  net  external  investment  position  and  unemployment.  After  an 
accumulation  of  external  imbalances  and  a  hard  landing  in  2008-9,  external  competiveness 
improved substantially through the process of internal adjustment, which included wage and 
employment cuts, fiscal consolidation, deleveraging in the private sector and a wide range of 
growth-enhancing  structural  reforms.  After  a  return  to  high  growth  rates  in  2011-2,  the 
current account balance moved back to a moderate deficit which is expected to remain in the 
years  to  come.  The  country's  net  liabilities,  measured  by  the  net  international  investment 
position, remain on a downward path though from a relatively high level. The large negative 
net  international  investment  position  to  a  large  extent  explained  by  the  net  stock  of  foreign 
direct investment (around half of the net international investment position), while the external 
debt component is rapidly declining. Following the successful completion of the balance-of-
payments assistance programme in early-2012, yields on government debt have been steadily 
decreasing, which contributes to further reducing risks on the country's external position. As 
regards  internal  indicators,  public  debt  has  stabilised  at  levels  slightly  above  40%  of  GDP, 
while house prices and credit growth are slowly recovering from the steep correction during 
the crisis. Despite the recovery, house prices remain well below the pre-crisis levels of 2005-
07 while a more significant rebound is observed only in the segment of new construction. In 
the financial sector, commercial lending in terms of newly approved credits is now stabilised 
in the household sector and slightly on the rise in the corporate segment. The ratio of private 
debt to GDP kept falling to 125% of GDP in 2011 but private investments were nevertheless 
rising at a high rate helped by strong corporate profits. The unemployment rate remains well 
above the EU average and the indicative threshold but is now gradually shrinking, a trend that 
is expected to continue in the coming years, helped by the recovery and active labour market 
policies.  The  low  job  vacancy  rate  does  not  signal  significant  structural  deficiencies  in  the 
labour  market,  while  both  employment  and  participation  rates  are  on  the  rise.  Overall,  the 
Commission  will  at  this  stage  not  carry  out  further  in-depth  analysis  in  the  context  of  the 
MIP. 

Lithuania:  In  the  previous  round  of  the  MIP,  Lithuania  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard,  a  couple  of  indicators  are  above  their  indicative 
thresholds, namely the net international investment position and unemployment. Lithuania has 
continued  to  gain  export  market  shares  as  real  effective  exchange  rate  depreciated,  on  the 
back of substantially lower wage costs. Unit labour cost declined but is expected to grow at a 
low  pace  in  the  coming  years.  While  the  current  account  indicator  is  close  to  zero  strong 
domestic demand stimulated imports and a negative trade balance pushed the current account 
balance back into a deficit of almost 4% of GDP in 2011, which was covered mainly by EU 

12 

 
 
budget-related transfers and foreign direct investment. In the meantime, data up to September 
2012 indicate that the current account deficit is being reduced and stabilised looking forward. 
The net international investment position has improved but remains negative and exceeds the 
indicative  threshold.  Net  external  debt,  which  takes  into  account  the  stability  of  financing 
through foreign direct investment, is much lower. Furthermore, public sector debt remains at 
moderate  levels  and  the  private  sector  has  continued  to  deleverage;  domestic  credit  growth 
has  been  negative  for  households,  while  it  turned  slightly  positive  for  non-financial 
corporations  and  the  government.  After  a  significant  correction  in  previous  years,  house 
prices are stable in real terms. However, unemployment remains an issue of concern and the 
unemployment  rate  is  likely  to  remain  in  double  digits  in  the  coming  years  although  it  has 
been  declining  since  2011  and  is  set  to  be  reduced  further. Overall,  the  Commission  will  at 
this stage not carry out further in-depth analysis in the context of the MIP. 

Luxembourg:  In  the  previous  round  of  the  MIP,  Luxembourg  was  not  identified  as 
experiencing  imbalances.  In  the  updated  scoreboard  a  number  of  indicators  are  above  their 
indicative  thresholds,  namely  the  current  account  surplus,  nominal  unit  labour  cost,  private 
sector  debt  and  this  time  also  the  export  market  shares  indicator.  On  the  external  side,  the 
persistent  large  current  account  surplus,  beyond  the  indicative  threshold,  is  expected  to  be 
reduced  in  the  coming  years.  It  does  not  appear  to  be  related  to  an  excessively  subdued 
domestic  demand,  but  essentially  results  from  the  very  high  concentration  of  economic 
activities  in  Luxembourg,  mainly  in  the  financial  sector,  attracted  by  an  overall  favourable 
environment  (including  the  tax  system).  While  the  current  account  surplus  is  unlikely  to 
constitute a harmful imbalance for Luxembourg or its partners, it hides a constant deficit of 
the  goods  trade  balance,  which  reflects  losses  in  overall  export  market  shares.  At  the  same 
time Luxembourg keeps gaining export market shares in services. The evolution of nominal 
unit  labour  costs  is  the  likely  cause  of  the  weak  performance  of  trade  in  goods;  indeed,  the 
nominal unit labour costs has risen substantially faster than in the euro area since 2000 and 
more than five times faster than in Germany. Moreover, unit labour cost is expected to grow 
at  a  rate  higher  than  the  euro  area  average  in  the  coming  years,  in  spite  of  recent  measures 
taken by the government on wages. High private sector indebtedness is mainly explained by 
large lending and borrowing operations inside international non-financial corporations, rather 
than  an  excessive  indebtedness  of  the  private  sector.  The  household  debt  level  is  relatively 
contained  and  mainly  related  to  real-estate  loans.  The  growth  rate  of  house  prices,  while 
recording a strong cumulated rise in the last decade, is now slowing down and mostly reflects 
the  interplay  between  strong  demand  and  limited  supply.  Finally,  while  the  financial  sector 
remains sound overall, the financial crisis appears to have dented its growth potential. Given 
its  large  size  compared  to  the  overall  economy,  a  question  arises  regarding  the  impact  of  a 
less  dynamic  sector  for  employment  and  sustainability  of  public  finances.  Overall,  the 
Commission  will  at  this  stage  not  carry  out  further  in-depth  analysis  in  the  context  of  the 
MIP. 

Hungary:  In  May  2012  the  Commission  concluded  that  Hungary  was  experiencing  serious 
imbalances, in particular as regards developments related to the net international investment 
position  and  implications  of  high  government  debt.  In  the  updated  scoreboard,  several 
indicators  are  above  their  indicative  thresholds,  namely,  as  last  year  the  net  international 
investment  position  and  government  debt,  and  this  year  also,  the  unemployment  rate  and 
private  sector  debt  indicators  are  slightly  above  their  thresholds.  External  imbalances  have 
been  reduced  with  the  current  account  in  surplus  for  the  third  year  in  a  row  and  the  net 
international investment position improving steadily, although it remains significantly above 
the threshold. This is expected to be the case also in the coming couple of years. The current 

13 

 
 
account  turnaround  was  mainly  the  result  of  a  fall  in  domestic  demand;  export 
competitiveness  has  not  changed  substantially.  After  a  marked  decline  during  the  2009 
recession, the deficit in the factor income has started to widen again, though it remains below 
pre-crises  levels.  Both  issues  suggest  that  the  external  correction  is  partly  cyclical.  Private 
sector deleveraging is necessary to correct imbalances most notably in the household sector. 
While  this  has  been  happening,  the  rapid  fall  in  corporate  credit,  against  the  background  of 
policy  uncertainty  and  extra  burdens  on  the  financial  sector,  has  contributed  to  historically 
low investment rates, which have in turn eroded the country's growth potential. Investments 
are set to further decline in 2012 and are only forecasted to stabilise in the years to come. The 
slightly declining, but still substantial government debt, coupled with policies with a negative 
impact  on  the  business  environment,  imply  increased  vulnerabilities  also  reflected  in 
relatively high financing cost for both the public and the private sectors. The pick-up in the 
unemployment  rate  may  be  less  of  a  concern  than  data  would  suggest,  given  that  it  mainly 
reflects  an  increased  participation  rate  as  employment  returned  to  pre-crisis  levels.  In 
November 2011, the  government  formally requested negotiations leading to a  precautionary 
financial  assistance.  However,  these  negotiations  have  not  advanced  significantly.  Overall, 
the  Commission  finds  it  useful,  also  taking  into  account  the  identification  of  a  serious 
imbalance  in  May,  to  examine  further  the  risks  involved  and  progress  in  the  unwinding  of 
imbalances in an in-depth analysis. 

Malta:  In  the  previous  round  of  the  MIP,  Malta  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard,  a  number  of  indicators  are  above  their  indicative 
thresholds,  namely,  private  sector  debt,  the  current  account  balance  and  government  debt. 
Private  sector  indebtedness  exceeds  200%  of  GDP,  mainly  reflecting  high  credit  growth  to 
non-financial  corporations  during  the  boom  years.  However,  the  private  sector  does  not 
appear overleveraged currently given that households and corporates have sizeable financial 
assets and the maturity structure of their debt is relatively favourable: around two thirds of it 
is long-term. The current account has posted sizeable deficits over the past decade, but recent 
developments  suggest  that  a  correction,  also  reflected  in  gains  of  export  market  shares,  is 
underway,  thanks  to  higher  savings  and  more  moderate  increases  in  unit  labour  cost.  In  the 
coming  years  the  current  account  is  expected  to  remain  in  a  small  surplus  and  unit  labour 
costs  are  expected  to  grow  at  a  rate  close  to  the  euro  area  average.  Moreover,  the 
sustainability of Malta's external position benefits from its net external creditor position and 
positive net international investment position. Nevertheless, given the large size of the stocks, 
the  vulnerability  of  the  latter  to  unfavourable  developments  needs  to  be  monitored  closely. 
The financial sector is very large in proportion to the domestic economy, with total liabilities 
close to 900% of GDP in 2011. The growth rate of total financial liabilities has exceeded the 
indicative threshold several times in the past decade and as a result the accumulated growth in 
2011  significantly  exceeds  the  average  for  the  euro  area.  Risks  of  negative  feedback  loops 
appear  to  be  limited  due  to  the  fact  that  a  significant  part  of  these  inflows  have  been  to 
internationally-oriented  banks  that  have  very  little  exposure  to  the  domestic  economy. 
However, in the current deteriorating economic conditions, close monitoring of the domestic 
banking system is warranted due to its high exposure to the property market, which has seen 
very dynamic price growth followed by a relatively limited correction over the past decade, 
and the low level of provisions for loan impairment losses. Overall the Commission finds it 
useful  to  examine  further  the  risks  involved  in  an  in-depth  analysis  with  a  view  to  assess 
whether an imbalance exists.  

Netherlands:  In  the  previous  round  of  the  MIP,  the  Netherlands  was  not  identified  as 
experiencing  imbalances.  In  the  meantime,  as  discussed  in  the  latest  Commission  forecasts, 

14 

 
 
there has been deterioration in  growth  prospects linked to domestic demand.  In  the updated 
scoreboard, a number of indicators are above their indicative thresholds, namely the current 
account  surplus,  export  market  shares,  private sector debt and general government debt. On 
the  external  side,  persistently  large  current  account  surpluses,  well  above  the  indicative 
threshold,  are  mainly  driven  by  the  trade  balance,  including  positive  net  gas  exports.  The 
surpluses are also increasingly attributable to a rising surplus on trade in services and growing 
income from outward direct investment, though the Netherlands has lost export market share 
beyond  the  indicative  threshold.  This  reflects,  in  particular,  the  positive  trend  in  profits 
received from abroad, boosting the savings of non-financial corporations. In response to these 
trends, the Dutch net international investment position has improved notably in recent years. 
Looking  ahead,  the  available  forecasts  indicate  a  further  increase  in  the  current  account 
surplus  to  almost  10  per  cent  of  GDP.  Moderate  losses  in  competitiveness  of  domestically-
produced  goods  and  services  have  broadly  been  offset  by  the  dynamism  of  re-exports.  The 
overall loss in export market shares has been modest. The unit labour cost indicator is below 
the  threshold  and  unit  labour  cost  is  foreseen  to  grow  in  line  with  euro  area  average  in  the 
short term. Risks to the economy in the Netherlands mainly relate to the housing market and 
high  private  household  debt,  as  a  result  the  private  sector  debt  indicator  is  significantly 
beyond  the  indicative  threshold.  Although  households  have  a  strong  net  financial  asset 
position,  the  debt-to-asset  ratio  continues  to  rise  and  this  is  a  source  of  risk  for  household 
balance  sheets.  The  high  mortgage  debt  of  private  households  relative  to  their  disposable 
income  is  largely  due  to  tax  incentives,  which  for  many  years  encouraged  them  to  take  up 
large  mortgages,  and  financial  innovations  giving  them  easier  access  to  credit.  This  has 
contributed  to  the  rise  in  house  prices.  However,  since  the  crisis,  house  prices  have  been 
declining.  The  reduction  has  steepened  in  the  last  year  and  the  fall  is  likely  to  continue  for 
some time. Although the incoming government has agreed on reform measures, the outlook in 
the  housing  market  is  set  to  remain  unfavourable  as  long  as  economic  prospects  remain 
clouded. This has an impact on the real economy via wealth and confidence effects and also, 
indirectly,  on  the  financial  sector,  implying  that  the  risks  involved  should  be  closely 
monitored. Overall the Commission finds it useful to examine further the risks involved in an 
in-depth analysis with a view to assess whether an imbalance exists.  

Austria:  In  the  previous  round  of  the  MIP,  Austria  was  not  identified  as  experiencing 
imbalances. In the updated scoreboard, a number of indicators are breaching their indicative 
thresholds,  namely  the  change  in  export  market  shares,  private  sector  debt  and general 
government debt. Austria's global export market shares declined by 11½% in 2006-11 but the 
loss  of  market  shares  appears  to  have  ceased  in  2011.  The  real  effective  exchange  rate  and 
unit labour cost indicators do not point to problems with price and cost competitiveness and 
the  growth  of  unit  labour  cost  is  expected  to  remain  significantly  under  the  indicative 
threshold  over  the  2012-2014  period.  Austria  has  maintained  a  strong  position  in  terms  of 
absolute productivity (GDP using purchasing power standards per person employed) as well 
as  in  exports  per  person  employed.  Nevertheless,  a  recent  narrowing  of  the  current  account 
surplus  took  place,  somewhat  abruptly,  in  2010-11  as  exports  remained  below  its  pre-crisis 
level. This cautions against a too-benign appreciation of the situation and may be signalling a 
need for enhancing the capacity of the Austrian economy to innovate and diversify. Looking 
forward,  the  surplus  is  expected  to  remain  solid  as  net  exports  gradually  regain  strength. 
Furthermore,  general  government  debt  is  elevated  at  72.3%  of  GDP.  Although  the  country 
seems  to  be  on  track  regarding  the  correction  of  the  excessive  deficit,  the  debt  ratio  is  not 
projected to decline before 2014 and will require sustained fiscal effort. While containing the 
risk of negative feedback loops between the government and the financial sector, the process 
of restructuring of the nationalised banks is still subject to a certain degree of risk of delays. 

15 

 
 
Private sector indebtedness moved slightly above the indicative threshold in 2010 following a 
sustained  build-up  of  corporate  liabilities  over  the  course  of  several  years.  In  2011,  the 
financial liabilities of both households and corporations grew more slowly than GDP. Private 
sector credit growth tailed off in the course of 2011, and further in 2012, as the borrowing of 
corporates and households was subdued. On one hand, corporations accumulated ample own 
funds; on the other hand, investment and consumer demand have slowed down. Accordingly, 
the indebtedness  ratio in 2011 was only marginally above the threshold, at 160.7% of GDP 
and is likely to edge further down as credit demand stays weak. Overall, the Commission will 
at this stage not carry out further in-depth analysis in the context of the MIP. 

Poland:  In  the  previous  round  of  the  MIP,  Poland  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard,  a  couple  of  indicators  are  above  their  indicative 
thresholds, namely the current account balance and the net international investment position. 
The current account deficit, which is slightly above the threshold, has been largely financed 
through relatively stable foreign direct investment and EU funds inflows, which support the 
expansion  of  export-oriented  manufacturing  and  the  development  of  a  modern  transport 
infrastructure network. Moreover, the current account deficit is expected to shrink gradually 
in  the  near  future  as  a  result  of  weak  domestic  demand  leading  to  import  compression  and 
improved  cost competitiveness.  While  the net  international  investment  position is  above  the 
threshold, net external debt is more limited, although a growing dependence of the sovereign 
on  foreign  debt  holders  might  be  a  source  of  risk.  There  have  been  limited  losses  in  price 
competitiveness in 2006-8, driven by a nominal exchange rate appreciation, but the trend has 
reversed somewhat since 2009, as increased global risk aversion amplified volatility and led 
to  the  depreciation  of  domestic  currency.  Despite  these  losses,  Poland  experienced  large, 
though  decreasing,  gains  in  export  market  shares  and  contained  increases  in  nominal  unit 
labour  costs,  which  are  expected  to  moderate  further  as  labour  market  situation  worsens. 
Furthermore,  the  share  of  private  debt  in  GDP  remains  moderate,  despite  sizeable  credit 
growth  in  2006-9.  In  the  past,  a  significant  proportion  of  new  loans,  especially  mortgages, 
used to be in foreign currency, which increased the risks for the stability of the banking and 
household  sector,  especially  during  the  recent  period  of  intensified  volatility  and  currency 
depreciation.  However,  overall  credit  growth  slowed  considerably  and  the  supply  of  new 
loans  in  foreign  currencies  decreased  sharply  in  2010-2.  House  prices  have  been  falling 
continuously since 2008, although at a moderate pace, and the repercussions on the financial 
sector  have  been  manageable,  with  non-performing  loans  originating  mostly  from  the 
corporate sector and consumption credit. Overall, the Commission will at this stage not carry 
out further in-depth analysis in the context of the MIP. 

Slovenia:  In  May  2012,  the  Commission  concluded  that  Slovenia  was  experiencing  serious 
macroeconomic imbalances, in particular as regards developments related to corporate sector 
deleveraging, banking stability and to some extent also external competitiveness. Slovenia has 
since  made  some  progress  with  bank  recapitalisations  and  fiscal  consolidation  but  the 
situation  remains  fragile.  In  the  updated  scoreboard,  a  couple  of  indicators  are  above  their 
indicative  thresholds,  namely  the  net  international  investment  position  and  this  year  also 
changes  in  export  market  shares.  On  the  external  side,  the  net  international  investment 
position  remains  above  but  close  to  the  indicative  threshold.  In  the  absence  of  any  large 
valuation changes, the projected increase in the current account surplus would tend to reduce 
this imbalance. The unit labour cost indicator is no longer above the indicative threshold, as a 
result  of  continued stability of nominal wages combined with continued  labour  productivity 
growth  and  this  trend  is  expected  to  continue.  At  the  same  time  the  indicator  for  losses  in 
export market shares have moved marginally to just above the threshold. However, Slovenia 

16 

 
 
is more vulnerable than these indicators might suggest, due to the significant risks stemming 
from the banking system and the difficulties of the on-going deleveraging process, which are 
not fully captured in the modest decline in the new indicator on financial sector liabilities. The 
construction sector has shrunk to a fraction of its pre-crisis size but high house prices and low 
transaction  volumes  suggest  that  the  housing  market  is  still  not  clearing.  This  could  imply 
potential  further  adjustments,  particularly  as  regards  collateral  valuations.  Non-financial 
corporations remain over-leveraged and problem loans in these segments continue weighing 
on  the  banking  sector.  Finally,  in  a  context  of  heightened  sovereign  funding  stress,  the 
difficulties in actually implementing reforms are a constant source of vulnerability. Overall, 
the  Commission  finds  it  useful,  also  taking  into  account  the  identification  of  a  serious 
imbalance  in  May,  to  examine  further  the  risks  involved  and  progress  in  the  unwinding  of 
imbalances in an in-depth analysis. 

Slovakia:  In  the  previous  round  of  the  MIP,  Slovakia  was  not  identified  as  experiencing 
imbalances.  In  the  updated  scoreboard,  a  couple  of  indicators  are  above  the  indicative 
thresholds,  namely  the  net  international  investment  position  and  the  unemployment  rate.  In 
2011, the net international investment position recorded a marginal improvement, but most of 
the external liabilities are in non-debt instruments (notably foreign direct investment, which 
has been directed primarily towards export-oriented industries). An improving position on the 
goods and services balances and an increasing outflow of income has contributed to a stable 
current account balance since 2009. Due to strong growth in manufacturing export, the trade 
balance and the current account are expected to improve from 2012 onwards. The indicators 
for  the  real  effective  exchange  rate  and  the  nominal  unit  labour  cost  are  now  below  their 
respective thresholds, as the impact of the strong nominal appreciation prior to euro adoption 
and the recession-induced drop in productivity in 2009 is fading away. With unemployment 
expected  to  remain  well  above  the  pre-crisis  level  in  the  coming  years,  wage  pressures  are 
accordingly forecast to remain in check. The continued relatively favourable development of 
competitiveness indicators is also reflected in an on-going increase in labour productivity and 
export market shares. The largely foreign-owned banking sector avoided a strong expansion 
in  lending,  which  spared  Slovakia  from  excessive  credit  growth,  and  helped  to  keep  public 
and  private  debt  relatively  contained.  However,  the  public  debt  ratio  has  increased 
substantially  in  recent  years.  The  unemployment  rate  –  well  above  the  threshold  –  remains 
one  of  the  most  pressing  structural  issues  weighing  on  the  domestic  economy.  Persistently 
high unemployment reflects a lack of labour market improvements since the outbreak of the 
crisis and the persistence of major regional disparities in economic growth and employment. 
Overall,  the  Commission  will  at  this  stage  not  carry  out  further  in-depth  analysis  in  the 
context of the MIP. 

Finland: In May 2012, the Commission concluded that Finland experienced macroeconomic 
imbalances,  in  particular  as  regards  developments  related  to  competitiveness.  A  number  of 
scoreboard  indicators  are  above  the  indicative  thresholds,  namely  changes  in  export  market 
shares, nominal unit labour costs, private sector debt and the growth rate of financial sector 
liabilities. On the external side, the competitiveness issues persist, with Finland continuing to 
experience important losses of export market shares, albeit at a slightly lower pace compared 
to the sharp falls in 2009-10. Before 2009 there were small yearly losses in Finland's export 
market  shares,  sometimes  interrupted  by  small  gains.  However,  in  2009-2010  large  losses 
were registered and further losses, although at a slower pace, took place in 2011. The decline 
to  non-price 
in  Finland's  export  market  shares  partly  reflects  challenges  related 
competitiveness factors and the declining exports of the electronics sector. This evolution has 
been accompanied by rising nominal unit labour costs and a gradual move from surplus to a 

17 

 
 
small  current  account  deficit  in  2011.  Unit  labour  costs  are  projected  to  continue  to  grow 
faster  than  the  euro  area  average  and  the  current  account  deficit  is  expected  to  remain  and 
widen  somewhat.  On  the  internal  side,  the  economy  appears  more  balanced  than  last  year: 
private  sector  debt  (of  non-financial  corporations)  declining  but  still  remaining  above  the 
threshold.  The  non-financial  corporate  sector  has  started  to  deleverage,  households  are 
expected  to  slightly  start  deleveraging  in  2013.  Meanwhile  real  house  prices,  which  grew 
above  the  indicative  threshold  in  2010,  instead  declined  slightly  in  2011,  supporting  the 
assessment in the previous in-depth review that there was a limited risk of overheating in the 
housing  market.  The  financial  sector  remains  strong  with  solid  solvency  positions  while 
liquidity  could  be  improved.  There  has  been  a  strong  growth  in  financial  liabilities  of  the 
financial  sector  but  a  large  part  of  the  growth  rate  is  due  to  the  decision  by  one  financial 
institution to centralise its derivatives in the Finnish subsidiary. Overall, the Commission finds 
it  useful,  also  taking  into  account  the  identification  of  an  imbalance  in  May,  to  examine 
further the persistence of imbalances or their unwinding. 

Sweden: In May 2012, the Commission concluded that Sweden experienced macroeconomic 
imbalances,  in  particular  as  regards  developments  related  to  private  sector  debt  and  the 
housing market. In the updated scoreboard, a number of indicators are above their indicative 
thresholds, namely the current account surplus, the change in export market shares and private 
sector  debt.  The  current  account  surplus  has  been  on  a  declining  trend  since  2007  and  is 
expected to decrease further in the medium term. The strong surpluses reflect ambitious fiscal 
rules  and  high  pension-related  savings  by  households,  rather  than  policies  that  would 
artificially  hold  back  domestic  demand.  The  significant  losses  in  export  market  shares  in 
2005-9  slowed  down  considerably  in  2010-11.  These  losses  do  not  appear  to  be  rooted  in 
unfavourable domestic price and cost developments, as prices and unit labour costs have been 
growing more slowly than in the country's main trading partners, as for other Member States, 
the  losses  reflect  rather  the  integration  of  fast-growing  economies  into  the  global  market. 
Looking forward, unit labour costs are expected to grow moderately. On the internal side, the 
high  level  of  private  debt  deserves  attention  and  is  significantly  above  the  threshold. 
Corporate debt adjusted somewhat in 2009-11, but remains high even if intercompany loans 
are  excluded.  The  level  of  household  debt  implies,  despite  some  mitigating  factors,  a 
heightened  risk  to  macroeconomic  stability  by  making  households'  balance  sheets  more 
sensitive to negative shocks. Although house prices stabilised in 2011 and the 2012 in-depth 
review did not identify any significant misalignment in house prices, the previous house price 
increases  calls  for  caution.  The  housing  market  continues  to  be  prone  to  imbalanced 
development  due  to policies that tend  to create upward pressure on prices and  contribute to 
the build-up of household debt. Despite the high level of private debt, the risks for banks are 
constrained by their high capitalisation and liquidity buffers, a good debt-servicing ability of 
companies and households, and a long period of very low default rates. On the other hand, the 
high level of private debt makes Swedish banks more vulnerable to a possible loss in investor 
confidence in the event of a larger drop in house prices. In the short to medium term, private 
debt-to-GDP and nominal house prices are likely to remain broadly stable in view of slowing 
credit to households and corporations and recent policy action in the housing market. Overall, 
the Commission finds it useful, also taking into account the identification of an imbalance in 
May, to examine further the persistence of imbalances or their unwinding. 

United  Kingdom:  In  May  2012,  the  Commission  concluded  that  the  UK  was  experiencing 
macroeconomic imbalances, in particular as regards developments related to household debt, 
the  housing  market  and  to  some  extent  also  external  competitiveness.  In  the  updated 
scoreboard, a number of indicators are above their indicative thresholds, namely, the change 

18 

 
 
in  export  market  shares,  general  government  debt  and  private  sector  debt.  On  the  external 
side,  export  market  shares  experienced  large  losses  in  2007-8,  which  pushed  the  indicator 
well beyond the threshold, but remained broadly stable in 2011. The current account deficit 
was  1.9  per  cent  of  GDP  in  2011,  contributing  to  keep  the  indicator  within  the  threshold. 
However,  the  current  account  balance  is  likely  to  deteriorate  in  2012  due  to  weaker-than-
expected  net  trade  outturns  in  2012,  explained  in  turn  by  weak  external  demand  and 
surprisingly buoyant imports. However, in the coming years the deficit is expected to narrow 
as the economy continues to slowly rebalance towards net exports, though with a significant 
goods  trade  deficit  persisting.  Important  structural  challenges  still  confront  the  UK  in 
improving  its  trade  performance.  These  include  the  need  to  boost  the  productivity  and  non-
price  competitiveness  of  the  goods-producing  sector,  sustaining  the  pre-crisis  dynamism  of 
service  exports  and  continuing  to  reorient  exports  towards  fast-growing  markets.  The  UK's 
net external position is slightly negative but sustainable, with the net international investment 
position  improving  in  2011.  As  regards  the  internal  dimension,  households  continued  to 
gradually  deleverage  as  housing  market  activity  stayed  depressed  and  credit  to  the  private 
sector  remained  anaemic.  However,  private  sector  debt  is  still  considerably  above  the 
indicator threshold. Deleveraging may lose momentum if the economy recovers since a tight 
housing  supply  means  that  house  prices  are  likely  to  remain  high  in  the  medium  term,  and 
mortgage debt could rise again once credit conditions improve. Alternatively if house prices 
were to fall sharply, it could hit consumer spending and create risks for lenders. The high and 
increasing level of government debt remains a concern and, although the government deficit 
is still forecast to fall gradually, progress on fiscal consolidation has slowed in a context of 
weak economic growth. Finally, continuing balance sheet repair in the financial sector– which 
is among the most highly leveraged in the EU - means that bank liabilities are not expected to 
expand rapidly, although the scarcity of credit is in turn holding back economic growth and 
hence  progress  on  fiscal  consolidation.  Overall,  the  Commission  finds  it  useful,  also  taking 
into account the identification of an imbalance in May, to examine further the persistence of 
imbalances or their unwinding. 

4. 

CONCLUSIONS  

Macroeconomic imbalances like large and persistent external deficits and surpluses, losses in 
competitiveness,  and  the  build-up  of  private  and  public  indebtedness  have  contributed  to 
aggravate the crisis. The second implementation of the Macroeconomic Imbalance Procedure 
takes  place  against  the  background  of  continued  financial  tensions,  uncertainty  and  low 
growth  prospects.  The  unwinding  of  imbalances  shapes  the  economic  landscape.  Member 
States continue to adjust to the impact of the crisis, although their individual challenges and 
spillovers differ in terms of scope and severity. As the Commission's Annual Growth Survey7 
explains, in addition to correcting significant imbalances that built up over previous years, the 
Union  and  Member  States  are  also  dealing  with  the  interrelated  challenges  of  tackling  low 
growth and high unemployment, ensuring sustainable public finances and restoring stability to 
the  financial  system.  A  well-functioning  Single  Market  also  contributes  to  improve  the 
growth potential and the unwinding of imbalances8. 

7  COM(2012) 750, 28.11.2012.  
8  This requires a swift delivery of the key actions included in the Single Market Acts I and II and increased 
reform efforts at country level, as laid down in the Communication on the Annual Report on Single Market 
Integration - COM(2012) 752, 28.11.2012. 

19 

 
 
                                                 
An adjustment of macroeconomic imbalances is underway in many Member States, especially 
those  which  have  had  high  external  deficits  and  large  imbalances  in  household  and/or 
corporate balance sheets and in their public sectors. This process still has some way to go, and 
has  led  in  a  number  of  Member  States  to  a  significant  rise  in  unemployment  levels  and  a 
reduction in the level of economic activity in the short term.  

In  the  previous  round,  the  Commission  identified  twelve  Member  States  warranting  an  in-
depth analysis9 and in all these cases the existence of imbalances under the preventive arm of 
MIP was confirmed.  The  broad  approach taken reflected the fact that last year was the first 
application of surveillance under this procedure and that it, therefore, had to cater also for the 
adjustment  to  previously  accumulated  imbalances.  Some  Member  States  need  to  correct 
accumulated imbalances on both the internal and external side. They will have to reduce high 
levels  of  overall  indebtedness  and  regain  competitiveness  so  as  to  improve  their  growth 
prospects  and  export  performance.  In-depth  analysis  will  help  to  assess  the  drivers  of 
productivity,  competitiveness  and  trade  developments  as  well  as  the  implications  of  the 
accumulated  level  of  indebtedness  and  the  degree  of  related  imbalances  in  several  Member 
States.  Some  countries  are  experiencing  rapid  adjustment  partly  due  to  catching-up  effects 
and these developments also require a closer examination.  

Given the conclusions in May 2012 on the existence of macroeconomic imbalances, and the 
updated scoreboard, the Commission considers that it is necessary to analyse in further detail 
developments  in  the  accumulation  and  unwinding  of  imbalances  and  the  related  risks  in  14 
Member  States:  Belgium,  Bulgaria,  Denmark,  Spain,  France,  Italy,  Cyprus,  Hungary, 
Malta, Netherlands, Slovenia, Finland, Sweden and the United Kingdom. Countries that 
are  currently  implementing  a  programme  of  reforms  negotiated  with  the  Commission  and 
supported by external financial assistance are already under enhanced economic surveillance, 
and  therefore  their  economic  situation  and  policies  are  not  examined  under  MIP.  This 
concerns Greece, Ireland, Portugal and Romania. 

The 14 Members States for which the Commission intends to initiate an in-depth review have 
different challenges and potential risks including spillover effects. The in-depth reviews will 
contribute  to  assess  risks  involved,  which  of  these  Member  States  have  imbalances  or 
excessive imbalances, and progress in unwinding imbalances. 

In the context of multilateral surveillance and in line with Article 3(5) of the Regulation, the 
Commission invites the Council and the Euro Group to discuss this report. The Commission is 
also  looking  forward  to  feedback  from  the  European  Parliament  and  other  stakeholders. 
Taking into account these discussions, the Commission will start to prepare in-depth reviews 
for the relevant Member States. 

9  These Member States were Belgium, Bulgaria, Denmark, Spain, France, Italy, Cyprus, Hungary, Slovenia, 

Finland, Sweden and the United Kingdom.  

20 

 
 
                                                 
Annex 1: The alert mechanism scoreboard definitions and developments 

The MIP scoreboard is established and made public by the Commission in line with Article 4 
of Regulation No 1176/2011. In the February 2012 Alert Mechanism Report the scoreboard 
consisted of ten indicators covering the scope of surveillance in line with Article 4(3) of the 
Regulation10. As previously agreed, for this year’s round an eleventh indicator on the growth 
rate of financial sector liabilities has been added related to the scoreboard11. The definitions of 
the other ten indicators have remained unchanged. 

Although  the  first  vintage  of  the  MIP  scoreboard  already  captured  a  number  of  financial 
issues (like private sector credit flow, private sector debt and public sector debt) the European 
Parliament12  and  the  Council13  supported  the  Commission's  intention  of  adding  to  the 
scoreboard,  in  time  to  the  second  round  of  MIP,  an  additional  indicator  aimed  at  better 
capturing  the  interlinkages  between  the  real  economy  and  the  financial  sector14.  Also  the 
ESRB provided comments and their view on the initial design of the scoreboard as well as on 
the plans for an additional financial sector indicator15.  

The scoreboard aims to allow for an early identification of imbalances. To this end the choice 
of indicators focuses on the most relevant dimensions of external and internal imbalances: it 
includes in particular data on current account balances, net international investment positions, 
real effective exchange rates, export market shares, as well as asset prices, including housing, 
public and private indebtedness, credit growth and unemployment. Indicative thresholds were 
set at prudent levels with a view to avoid excessive numbers of 'false alarms' but which are 
not set so stringently set as to only identify problems once they have become entrenched16.  

The  definitions  of  the  scoreboard  indicators  are  shown  in  Table  A1.  Table  A2  shows  the 
values of the updated scoreboard indicators, and the respective indicative thresholds. Values 
of  indicators  for  previous  years  are  reported  in  the  accompanying  Statistical  Annex17.  The 
shaded  areas  mark  where  the  indicator  value  surpasses  the  indicative  thresholds.  These 
thresholds are the same for all countries (except for indicators on real effective exchange rates 
and unit labour costs where a differentiation has been made between euro area and non-euro 
area countries). It should be noted that the assessment also takes into account the most recent 

10  See  also  'Scoreboard  for  the  Surveillance  of  Macroeconomic  Imbalances,'  European  Economy¬—

Occasional Papers, 92. 

11  See  the  accompanying  document  on  'Completing  the  Scoreboard  for  the  MIP:  Financial  Sector  Indicator,' 

SWD (2012) 389. 

12  Point 9 of the European Parliament Resolution of 15.12.2011: 'The European Parliament (…) [T]akes note 
of  the  Commission's  intention  to  provide,  by  the  end  of  2012  and  in  time  for  the  subsequent  European 
Semester, a new set of indicators and related thresholds for the financial sector'. 

13  Point  9  of  the  ECOFIN  Council  Conclusions  of  8.11.2011:  '(…)  The  Commission  is  also  requested  to 
present, before the end of 2012 and in line with the Regulation, suggestions on an indicator related to the 
financial sector, with a view to its inclusion for the 2013 European Semester.' 

14  Article  4(3)(a)  of  Regulation  (EU)  No  1176/2011  calls  for  the  scoreboard  to  encompass,  inter  alia,  '(…) 
internal imbalances, including those that can arise from public and private indebtedness, financial and asset 
market developments including housing (...).' 
'Views  of  the  ESRB  on  the  Envisaged  Scoreboard  Indicators  Relevant  for  Financial  Market  Stability,' 
available at http://www.esrb.europa.eu/pub/html/index.en.html. 

15 

16  The scoreboard thresholds have been kept at the same level as in the previous AMR. The threshold for the 
new indicator has been defined as the third quartile of the available distribution. This is the same statistical 
approach used for other indicators (bar the public debt indicator). 

17  See the accompanying document 'Statistical Annex to the Alert Mechanism Report - SWD(2012) 421; see 

also Eurostat News Release of 28 November 2012.  

21 

 
 
                                                 
 
data,  as  well  as  the  economic  outlook  in  the  Commission's  autumn  forecast  published  on 
7 November 201218.  

The assessment of imbalances – or more precisely, the assessment whether the situation of a 
given Member State warrants a more detailed scrutiny in an in-depth review – does not derive 
from a mechanical application of the scoreboard indicators and the related thresholds. Such an 
assessment  by  the  Commission  is  the  outcome  of  an  economic  reading  of  the  scoreboard 
complemented  by  additional  information  and  indicators  taking  due  account  of  country-
specific  circumstances  and  institutions,  and  considering  also  the  conclusions  in  the  in-depth 
reviews of May 2012.  

In line with the Regulation, additional indicators are considered; these are presented in Table 
A3. These additional indicators cover aspects linked to the general macroeconomic situation 
(including  economic  activity  and  investment)  nominal  and  real  convergence  inside  and 
outside  the  euro  area,  including  additional  aspects  of  trade  performance,  and  more  detailed 
data on the external liabilities, including foreign direct investment and net external debt. They 
also  reflect  the  potential  for  the  development  of  imbalances,  as  well  as  the  adjustment 
capacity of an economy such as productivity. The set of auxiliary indicators now also include 
an  additional  indicator  on  the  financial  sector  leverage,  which  should  help  interpreting  the 
new indicator on the growth rate of financial sector liabilities.  

The scoreboard is, and should remain, a simple and clear tool to work as a filter that helps to 
focus the surveillance under the MIP. In this context, stability over time is valuable. At this 
point  in  time,  the  Commission  does  not  foresee  the  addition  of  new  indicators  to  the 
scoreboard.  Having  said  this,  the  Commission  is  committed  to  improving  the  quality  of  the 
scoreboard. To  this end the Commission  will  continue to liaise at a technical level with the 
Member States, the ECB and the ESRB to ensure that the scoreboard remains up to date in its 
design.  This  may  lead  to  technical  adjustments  in  the  definitions  of  the  variables  in  the 
scoreboard.  Moreover,  the  Commission  (Eurostat)  is  committed  to  assuring  a  reliable  and 
legally binding quality procedure for the scoreboard statistics and other MIP-relevant data19. 

18  European Economy, 8/2012. 
19 

In  the  course  of  2012,  the  Commission  (Eurostat)  has  pursued  work  on  a  number  of  statistical  issues 
identified during the first round of MIP, in particular the statistics of private sector debt and credit flows. On 
special purpose entities, Eurostat conducted missions in several Member States in order to collect detailed 
data and information on the statistical sources and methods used. On intercompany loans, work was carried 
out in the context of the ECB sub-group on private debt. The information gathered in these exercises will 
support  the  work  of  the  two  task  forces  that  have  been  set  up  for  developing  more  specific  guidelines  on 
holding companies, head offices and special purpose entities, and on non-consolidated versus consolidated 
data. Concerning house price indices, work is on-going in cooperation between the Commission (Eurostat), 
OECD,  ECB  and  BIS  in  order  to  extend  back  in  time  the  quarterly  series  and  improve  metadata.  While 
several  headline  indicators  are  subject  to  a  detailed  quality  scrutiny  framework,  other  headline  indicators 
and  additional  relevant  indicators  require  more  precise  quality  monitoring  frameworks  and  improvement 
actions. 

22 

 
 
 
                                                 
Table A1. Scoreboard indicators and their indicative thresholds 

External imbalances and competitiveness 

Internal imbalances 

Indicator 

3-year average 
of current 
account 
balance  
as a % 
of GDP 

Net 
International 
Investment 
Position as a 
%  
of GDP 

Data 
source 

EUROSTAT 
(Balance of 
Payments 
statistics) 

EUROSTAT 
(Balance of 
Payments 
Statistics),. 

-4/+6% 
Lower quartile 
(also used as a 
reference for 
upper threshold) 

-35% 
Lower quartile 

% change  
(3 years) of  
Real Effective 
Exchange 
Rate, HICP 
deflators 
relative to 35 
industrial 
countries (a)  

DG ECFIN 
(data base 
Price and Cost 
competitivenes
s). 

+/-5%  for €A 
+/-11%  non€A 
Lower  and 
Upper 
Quartiles of 
EA -/+ s.d. of 
EA 

% change  
(5 years) in  
export market 
shares 

% change  
(3 years) in 
nominal unit 
labour cost (b) 

y-o-y % 
change in 
deflated house 
prices (c) 

private sector 
credit flow  
as % 
of GDP (d), (e) 

unemploy-
ment rate 
- 3-year 
average 

private sector 
debt 
as % 
of GDP (d), (e) 

general 
government 
debt 
as % 
of GDP 
(f) 

y-o-y % 
change in 
Total 
Financial 
Sector 
Liabilities, 
non-
consolidated 
data 

EUROSTAT 
(Balance of 
Payments 
Statistics),. 

EUROSTAT 
(National 
Accounts) 

EUROSTAT,. 

, EUROSTAT  
(National 
Accounts) 

EUROSTAT  
(Labour Force 
Survey) 

,  
EUROSTAT  
(National 
Accounts) 

EUROSTAT 
(EDP – treaty 
definition). 

,  
EUROSTAT  
(National 
Accounts) 

-6% 
Lower quartile 

+9% €A 
+12% non-€A 
Upper 
Quartile € A 
+3% 

+6% 
Upper quartile 

+15% 
Upper 
Quartile 

+10% 

160% 
Upper 
Quartile 

+60% 

16.5% 

1970-2007 

First available 
year (mid-
1990s)-2007 

1995-2007 

1995-2007 

1995-2007 

First year 
available-2007 

1995-2007 

1994-2007 

1994-2007 

1991-2007 

Net 
lending/borrowi
ng vis-à-vis 
ROW (CA+KA) 
as % of GDP 

Net External 
Debt as % 
GDP 

Real effective 
exchange rate  
vis-à-vis rest of 
the euro area 

Export market 
shares based on 
volumes of 
goods; Labour 
productivity; 
Trend TFP 
growth 

Nominal unit 
labour costs 
(changes over 
1, 5, 10 years); 
Effective unit 
labour cost 
relative to the 
rest of euro-
area 

Real house 
price changes 
(cumulated 
over 3 years); 
Nominal house 
price index 
Value-added in 
residential 
construction 

Change in 
private debt 

Private sector 
debt based on 
consolidated 
data 

Debt over 
equity ratio 

(a) for EU trading partners HICP is used while for non-EU trading partners, the deflator is based on a CPI close to the HICP in methodology; (b) index providing ratio of nominal 
compensation per employee to real GDP per person employed; (c) changes in house prices relative to the consumption deflator of EUROSTAT; (d) private sector is defined as non-
financial  corporations;  households  and  non-profit  institutions  serving  households;  (e)  sum  of  Loans,  and  Securities  other  than  shares;  liabilities,  non  –consolidated;  (f)  the 
sustainability of public finances will not be assessed in the context of the MIP given that this issue is already covered by the SGP. However this indicator is part of the scoreboard    
because public indebtedness contributes to total indebtedness of the country and therefore to the overall vulnerability of the country.  

23 

Indicativ
e 
threshold
s 

Period 
for  
calculatin
g 
threshold
s 
Some 
Additi-
onal 
indicator
s to be 
used in 
economic 
reading 

Notes: 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A2: The MIP scoreboard with values for 2011  
External imbalances and competitiveness 

3 year average 
of Current 
Account 
Balance as % 
of GDP  

Net Interna- 
tional Invest- 
ment Position 
as % of GDP 

% Change (3 years) of 
Real Effective 
Exchange Rate with 
HICP deflators 

% Change (5 
years) in 
Export 
Market 
Shares 

Internal imbalances 

% y-o-y 
change in 
deflated 
House 
Prices 

Private Sector 
Credit Flow as 
% of GDP 

Private Sector 
Debt as % of 
GDP 

General 
Government 
Debt as % of 
GDP 

Unemploy-
ment rate 
- 3-year 
average 

Year 2011 

Thresholds 

BE 

BG 

CZ 

DK 

DE 

EE 

IE 

EL 

ES 

FR 

IT 

CY 

LV 

LT 

LU 

HU 

MT 

NL 

AT 

PL 

PT 

RO 

SI 

SK 

FI 

SE 

-4/+6% 
-0.3 

-3.4 

-3.0 

5.0 

5.9 

2.8 

0.0 

-10.4 

-4.3 

-1.6 

-2.9 

-8.4 

3.1 

0.0 

7.5 

0.6 

-4.3 

7.5 

2.2 

-4.6 

-9.1 

-4.3 

-0.4 

-2.1 

0.6 

6.6 

-35% 
65.7 

-85.6 

-49.3 

24.5 

32.6 

-57.8 

-96.0 

-86.1 

-91.7 

-15.9 

-20.6 

-71.3 

-73.3 

-52.6 

107.8 

-105.9 

5.7 

35.5 

-2.3 

-63.5 

-105.0 

-62.5 

-41.2 

-64.4 

13.1 

-8.3 

UK 
-2.2 
Note: Cut-off date 1 November 2012. 

-17.3 

-6% 
-10.2 

17.2 

8.4 

-16.9 

-8.4 

11.1 

-12.2 

-18.7 

-7.6 

-11.2 

-18.4 

-16.4 

23.6 

25.2 

-10.1 

-2.8 

11.7 

-8.2 

-12.7 

12.8 

-9.5 

22.8 

-6.1 

20.9 

-22.9 

-11.6 

-24.2 

±5% & ±11% 
-0.5 

3.1 

0.3 

-1.7 

-3.9 

0.8 

-9.1 

3.1 

-1.3 

-3.2 

-2.1 

-0.9 

-0.6 

3.6 

0.8 

-3.3 

-3.0 

-1.6 

-1.0 

-10.9 

-1.9 

-2.4 

-0.3 

4.3 

-1.3 

3.9 

-7.1 

24 

 % Change  
(3 years) in 
Nominal unit 
labour cost 

+9%  & +12% 
6.2 

20.3 

3.3 

4.7 

5.9 

-6.2 

-12.8 

4.1 

-2.1 

6.0 

4.4 

8.8 

-15.0 

-8.4 

12.5 

3.7 

5.8 

5.8 

5.9 

4.3 

0.9 

+6%  
-0.1 

-9.0 

0.0 

-4.9 

1.4 

3.3 

-15.2 

-5.1 

-10.0 

3.8 

-2.0 

-8.5 

4.9 

2.4 

1.5 

-4.1 

-2.3 

-4.0 

-8.0 

-5.7 

-3.6 

12.9 

-18.9 

8.3 

4.4 

9.1 

1.2 

8.1 

1.0 

-5.6 

-0.3 

1.0 

-5.4 

15% 
11.6 

-6.7 

2.5 

-2.2 

4.8 

6.8 

4.0 

-5.5 

-4.1 

4.0 

2.6 

16.1 

-2.5 

-0.8 

2.5 

6.4 

2.2 

0.7 

4.1 

7.1 

-3.2 

1.8 

1.9 

3.3 

4.6 

6.3 

1.0 

160% 
236 

146 

78 

238 

128 

133 

310 

125 

218 

160 

129 

288 

125 

70 

326 

167 

210 

225 

161 

80 

249 

72 

128 

76 

179 

232 

205 

60% 
98 

16 

41 

47 

81 

6 

106 

171 

69 

86 

121 

71 

42 

39 

18 

81 

71 

66 

72 

56 

108 

33 

47 

43 

49 

38 

85 

10% 
7.8 

9.4 

6.9 

7.0 

6.9 

14.4 

13.3 

13.2 

19.9 

9.6 

8.2 

6.6 

18.1 

15.6 

4.8 

10.7 

6.8 

4.2 

4.4 

9.2 

11.9 

7.2 

7.1 

13.4 

8.1 

8.1 

7.8 

y-o-y % change in 
Total Financial 
Sector Liabilities, 
non-consolidated 
data 

16.5% 
4.7 

5.6 

3.8 

4.7 

2.1 

-4.4 

-0.6 

-3.4 

3.7 

7.3 

3.8 

-0.2 

-4.5 

8.9 

11.3 

-2.6 

1.4 

7.2 

-0.3 

4.4 

-0.7 

4.3 

-1.3 

1.2 

30.8 

3.6 

8.5 

 
 
  
 
Table A3: Additional indicators used in the economic reading of the MIP scoreboard, 2011  

% y-o-y 
growth 
of real 
GDP 

Gross 
fixed 
capital 
formati
on as % 
GDP 

Gross 
domestic 
expenditur
e on R&D 
as % GDP 

Current 
Account 
balance as 
% of  
GDP, BoP 
data 

Net 
lending / 
borrowing 
% GDP, 
BoP data 

Net 
external 
debt as % 
GDP 

foreign 
direct 
invest
ment 
Inflows 
as % 
GDP 

Net Trade 
Balance of 
energy 
products 
as % GDP 

% Change 
(3 years) 
in real 
effective 
exchange 
rate  vs. 
EA (17) 

% y-o-y 
change in 
Export 
Market 
Shares, 
volumes 

% y-o-y 
growth of 
Labour 
Produc-
tivity 

% y-o-y 
growth of 
Employ- 
ment 

% Change 
(10 years) 
in 
Nominal 
unit 
labour 
cost 

% Change 
(10 years) 
in 
Effective 
unit 
labour 
cost vs. 
EA (17) 

% 
Change 
(3 years) 
in 
Nominal 
house 
Prices 

Resi-
dential 
Constru
ction  
as  
% GDP 

Private 
Sector 
Debt as 
% 
GDP, 
consoli-
dated 
data 

Financial 
sector 
leverage 
(debt to 
equity)  

Year 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

2011 

BE 

BG 

CZ 

DK 

DE 

EE 

IE 

EL 

ES 

FR 

IT 

CY 

LV 

LT 

LU 

HU 

MT 

NL 

AT 

PL 

PT 

RO 

SI 

SK 

FI 

SE 

UK 

3.7 

1.4 

-0.9 
3.2 
-6.5 
4.6 
0.4 
-0.4 
0.9 
0.7 

1.8 
1.7 
1.9 
0.8 
3.0 
8.3 
1.4 
-7.1 
0.4 
1.7 
0.4 
0.5 
5.5 
5.9 
1.7 
1.6 
1.9 
1.0 
2.7 
4.3 
-1.7 
2.5 
0.6 
3.2 
2.7 
3.9 
0.9 

20.7 
20.9 
23.9 
17.2 
18.1 
21.7 
10.1 
15.1 
21.1 
20.1 
19.6 
16.3 
21.3 
17.8 
19.0 
17.9 
14.8 
17.7 
21.4 
20.3 
18.1 
24.6 
18.5 
23.1 
19.6 
18.4 
14.2 

143 
136 
73 
238 
109 
132 
281 
125 
204 
139 
126 
281 
118 
67 
267 
147 
169 
224 
146 
77 
223 
71 
116 
76 
153 
216 
na 
Note: Cut-off date 1 November 2012. Source: EUROSTAT except for deflated House Prices (Eurostat data completed with ECB), Export Market Shares volumes (WEO 
IMF), Real Effective Exchange Rate with HICP deflators (DG ECFIN), Effective unit labour cost vs EA (DG ECFIN).  

-127.6 
33.9 
1.1 
18.0 
-2.9 
6.5 
-339.2 
-98.0 
93.5 
36.1 
49.0 
37.9 
46.4 
32.3 
-3022.2 
52.6 
-158.3 
36.8 
24.4 
35.8 
83.4 
38.0 
37.5 
21.7 
30.9 
62.4 
45.2 

20.3 
69.5 
23.2 
29.3 
5.5 
64.4 
15.4 
31.1 
25.3 
22.3 
28.3 
34.6 
94.4 
33.6 
35.7 
44.3 
23.7 
20.0 
13.2 
5.7 
19.4 
154.9 
38.9 
28.8 
21.9 
8.1 
26.2 

20.1 
4.5 
2.5 
3.8 
1.1 
1.2 
5.2 
0.4 
2.0 
1.5 
1.6 
5.5 
5.1 
3.4 
645.3 
3.7 
4.7 
1.6 
3.5 
3.7 
4.4 
1.3 
2.0 
2.2 
1.0 
2.7 
2.3 

5.1 
-32.4 
-5.0 
-11.9 
5.4 
-28.0 
-38.7 
-3.5 
-15.3 
3.5 
0.4 
-16.7 
-38.7 
-30.8 
6.5 
-8.5 
-4.6 
-7.5 
-2.9 
-7.6 
2.0 
-39.5 
-6.8 
-17.8 
11.1 
13.8 
-2.0 

-3.7 
-0.6 
-1.4 
0.7 
-19.8 
na 
na 
-2.7 
-8.5 
-12.7 
-13.9 
na 
-0.2 
-0.5 
na 
-1.4 
0.0 
-4.6 
-2.8 
na 
na 
-0.7 
-0.5 
-1.0 
-1.4 
-1.6 
-2.2 

0.4 
6.1 
1.6 
1.2 
1.6 
1.2 
3.6 
-1.6 
2.2 
1.2 
0.3 
0.0 
14.8 
3.8 
-1.2 
1.2 
-0.5 
0.5 
1.3 
3.3 
-0.1 
2.0 
2.2 
1.4 
1.6 
1.6 
0.4 

-1.6 
5.2 
5.2 
1.2 
2.5 
25.7 
-1.7 
-6.0 
3.2 
-0.8 
-0.2 
-2.3 
6.8 
7.9 
-2.2 
2.7 
-4.8 
-1.9 
0.9 
1.5 
2.7 
4.1 
1.0 
5.0 
-6.6 
0.6 
-1.2 

-1.7 
1.6 
-2.5 
5.9 
5.7 
6.3 
1.0 
-8.6 
-3.0 
-2.0 
-3.0 
-4.5 
0.0 
-1.3 
6.8 
3.3 
0.7 
9.7 
0.4 
-2.9 
-5.3 
-3.9 
-0.3 
1.3 
-1.5 
6.3 
-1.7 

-1.4 
0.3 
-2.8 
5.6 
5.7 
2.1 
1.1 
-9.9 
-3.5 
-2.0 
-3.1 
-4.7 
-2.2 
-3.7 
7.1 
0.9 
-0.3 
9.7 
0.6 
-4.9 
-6.5 
-4.4 
0.0 
0.1 
-1.6 
6.4 
-1.9 

1.3 
-4.2 
0.6 
-0.5 
1.4 
6.7 
-2.1 
-5.6 
-1.6 
0.5 
0.3 
0.4 
-8.4 
2.0 
2.6 
0.8 
2.5 
0.6 
1.7 
1.1 
-1.9 
-1.3 
-1.4 
1.5 
1.1 
2.2 
0.5 

2.0 
0.6 
1.8 
3.1 
2.8 
2.4 
1.7 
na 
1.3 
2.3 
1.3 
0.5 
0.7 
0.9 
1.4 
1.2 
0.7 
2.0 
2.8 
0.8 
na 
0.5 
2.5 
0.7 
3.8 
3.4 
1.8 

na 
na 
3.8 
4.7 
5.6 
3.5 
2.6 
4.7 
6.4 
6.1 
5.5 
5.0 
1.5 
1.8 
3.4 
1.8 
2.5 
4.9 
4.4 
2.6 
3.4 
na 
3.0 
2.3 
6.8 
3.7 
3.2 

-14.1 
44.8 
0.1 
11.5 
4.3 
5.1 
11.1 
12.4 

21.0 
12.6 
3.8 

7.0 
3.2 
-1.6 

1.8 
0.0 
1.2 

0.4 
5.0 
2.2 

14.0 

-0.5 

1.4 

2.0 

2011 

641 
414 
624 
377 
524 
373 
158 
2728 
941 
461 
1172 
2539 
704 
633 
50 
562 
362 
231 
378 
377 
542 
662 
639 
1079 
616 
305 
1187 

25