REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2014 (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)
Date: 2013-11-13
Institutions: European Commission
Subjects: EU Member State, balance of payments, economic disparity, economic recession, economic statistics, euro area, fight against unemployment, indebtedness, international investment, property market, public debt, structural adjustment













EUR-Lex - 52013DC0790 - EN











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52013DC0790

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2014 (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances) /* COM/2013/0790 final */









The Alert Mechanism Report (AMR) is the starting point
of the yearly cycle of the Macroeconomic Imbalance Procedure (MIP), which aims
at identifying and addressing imbalances that hinder the smooth functioning of
the EU economies and may jeopardise the proper functioning of the Economic and
Monetary Union. The AMR identifies the Member States for which further analysis
(in the form of an in-depth review) is necessary in order to decide whether an
imbalance in need of policy action exists. In this regard, the AMR is an
initial screening device, based on a scoreboard of indicators with indicative
thresholds, plus a set of auxiliary indicators. The AMR is not a mechanical
exercise and it is not because a Member State reports an indicator beyond the
indicative thresholds that an in-depth review is launched, as the Commission
takes the complete economic picture into account.
It is only on the basis of the in-depth reviews that
the Commission will conclude whether imbalances, and potentially excessive
imbalances, exist and put forward the appropriate policy recommendations. The
in-depth reviews will be published in spring 2014 and will feed into the
analysis underpinning next year’s country-specific recommendations under the
'European Semester' of economic policy coordination.
1.         Executive Summary
The
EU economies continue to progress in correcting their external and internal
imbalances. These imbalances, notably abundant
credit, large and persistent current account deficits and surpluses, losses of
competitiveness and accumulation of debt contributed to the crisis. Over the
latest years, there has been progress in several areas. In particular, a
reduction in government deficits and significant improvements in cost competitiveness,
stimulated by structural reforms and market pressure, have been recorded in a
number of Member States. 
However,
further progress is needed to address the imbalances. The imbalances, which aggravated the crisis, accumulated for a
decade or so take time to overcome and the necessary policies should contribute
to the structural change of the economies. There has been little progress so
far in reducing excessive private debt, although credit flows have been very
low or even negative in many countries; improvement in the net international investment
position (NIIP) of the most indebted economies has been slow. Moreover, much
less rebalancing has occurred in Member States with high surpluses, suggesting
inefficient levels of saving and investment; as the Commission has recommended,
a strengthening of the contribution to growth of their domestic demand would smooth
the overall adjustment in the euro area. Several countries in which the
imbalances require urgent adjustment have experienced a severe deterioration of
their employment and social situation, with increases in unemployment and poverty
leading to strong divergences across Member States.
This
report initiates the third round of implementing the macroeconomic imbalance
procedure (MIP)[1]. The procedure aims at identifying and addressing imbalances
that hinder the smooth functioning of the Member States' economies, of the euro
area or of the EU as a whole. The implementation of the MIP is embedded in the
'European Semester,' with the aim of ensuring consistency with other economic
surveillance tools. This way, appropriate recommendations have been given to
Member States. The Annual Growth Survey (AGS)[2],
which is adopted at the same time of this report, elaborates on the
interlinkages between the correction of macroeconomic imbalances under the MIP,
and the urgent challenges of ensuring sustainable fiscal policies, restoring
lending, promoting growth and competitiveness, fighting unemployment and the
social consequences of the crisis, and modernising public administration. In
the comings days, the Commission is also adopting opinions on draft budgetary
plans of the euro area Member States (except those that are subject to a
macroeconomic adjustment programme), and on the euro area fiscal stance. It
also transmits to the Council proposal for opinions on the economic partnership
programmes of several Member States.
The
Alert Mechanism Report (AMR) identifies the Member States which may be affected
by imbalances, and for which further analysis should
be undertaken before concluding on the existence or persistence of imbalances and
their nature. In this regard, the AMR is an initial screening device, based on
a scoreboard of indicators with indicative thresholds, plus a set of auxiliary
indicators, at the beginning of the annual cycle of economic policy
coordination. In line with the Communication 'Strengthening the Social
Dimension of the Economic and Monetary Union'[3],
this report includes for the first time a set of social indicators which are
useful for the interpretation of the scoreboard. The more detailed analysis will
be performed in the subsequent in-depth reviews (IDRs). It will be on the basis
of the IDRs that the Commission will conclude whether imbalances, and excessive
imbalances, exist and put forward the appropriate policy recommendations. 
This report shows that it
is necessary to analyse in further detail the accumulation and unwinding of
imbalances, and the related risks, in 16 Member States. For some countries the IDRs will elaborate on the findings of the
previous MIP cycle[4],
while for others, it will be the first time the Commission will prepare an IDR.
The several Members States for which the Commission intends to prepare an IDR
have different challenges and potential risks including spillovers on their partners.
·       
For Spain and Slovenia, the IDRs
will assess whether the excessive imbalances persist or unwind, and the
contribution of the structural  policies implemented by these Member States to
overcome these imbalances;
·       
For France, Italy and Hungary,
Member States with imbalances and for which the Commission indicated the
necessity of adopting decisive policy actions, the respective IDR will assess the
persistence of imbalances;
·       
For the other Member States previously
identified as experiencing imbalances (Belgium, Bulgaria, Denmark,
Malta, Netherlands, Finland, Sweden and the United
Kingdom), the IDR will contribute to assess for which Member States imbalances
persist or for which they have been overcome. The Commission takes the view
that, since imbalances are identified after the detailed analyses in the previous
IDRs, the conclusion that an imbalance has been overcome should also take place
only after duly considering all relevant factors in another in-depth review,
which could potentially lead to the closure of the MIP for some Member States;
·       
IDRs will also be prepared for Germany and
Luxembourg in order to better scrutinise their external position and
analyse internal developments, and assess whether any of these countries is
experiencing imbalances;
·       
Finally, an IDR is also warranted for Croatia,
a new Member of the EU, given the need to understand the nature and potential
risks related to its external position, trade performance and competitiveness,
as well as internal developments.  
For
the Member States that are subject to macroeconomic adjustment programmes and benefiting
from financial assistance, the surveillance of their imbalances and monitoring
of corrective measures will take place in the context of their programmes. This concerns Ireland, Greece, Cyprus, Portugal and Romania; and the
situation of Ireland in the context of the MIP will be assessed after the conclusion
of the programme.
In the context of multilateral surveillance and in line with Article
3(5) of Regulation No 1176/2011[5], 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
appropriately liaising with relevant stakeholders. Taking into account the
discussions within the Council and the Euro Group, the Commission will prepare
in-depth reviews for the relevant Member States. These are expected to be
published in spring 2014, ahead of the
preparation of the National Reform Programmes and the 'European Semester'
package of country-specific recommendations.
2.         Progress in the Correction of Imbalances 
Over
the last year, most EU Member States advanced in correcting their imbalances. This concerns not only the current account deficits and the main
competitiveness indicators, but also the fiscal accounts, the private balance
sheets and the financial sectors. However, the deleveraging pressures faced by
the private and government sectors of many Member States keep weighing on
economic activity; domestic demand in several economies is dampened by the need
to increase the households' savings and in some cases by wage developments, and
for companies to reduce debt. Moreover, the low level of economic activity as a
consequence of the crisis has increased the unemployment rates, and
deteriorated a number of other social indicators.
The correction of
imbalances contributes to improve the fundamentals and to a gradual recovery. At the same time, the progressive normalisation in economic
conditions helps in reducing the imbalance-related macroeconomic risks. The
growth outlook[6]
is now better than a year ago, and progress in the correction of external and
internal macroeconomic imbalances will open up the way for growth and
convergence. Over the past few months, economic news has been encouraging.
After several quarters of contraction, GDP in the second quarter grew by 0.3
per cent in both the euro area, and in the EU. For the second half of the year,
key indicators are signalling a continuation along this path albeit at a
moderate pace. The gradual rebound of domestic demand and, supported by gains
in competitiveness, the expansion of exports also confirm the outlook for a
recovery gaining traction next year. As regards the different areas under the
scope of the MIP the following cross-country observations can be made:
·       
There has been a remarkable improvement in
the current accounts of the Member States which used to have large deficits (Graph 1). This has been in particular the case in Member States
implementing a macroeconomic adjustment programme supported by financial
assistance (EL, IE, CY, PT and RO), as well as in BG, EE, ES, LT, LV, SI and SK,
i.e. Member States that, until a few years ago registered the largest current
account deficits and were experiencing unsustainable developments. Although a
considerable improvement in their external accounts resulted from contractions
in imports, which stemmed from a reduction in domestic demand and expenditure
switching, there have also been favourable results in terms of exports. The
improvement in the external position of the Member States that used to register
large deficits includes cyclical and non-cyclical components. There is evidence
that the improvements in the current account contain a large non-cyclical
component, due to both expansion in exports and losses in income and thus
falling imports, which are not expected to disappear with the firming up of the
recovery[7].
The latest update of the scoreboard still shows an indicator for the current
account deficit (a 3-year average for 2010-2) above the threshold of 4 per cent
of GDP for PL, as well as for EL, CY, PT and RO. However, in 2013, ES, PT, SK
and SI are actually expected to be in surplus, and only CY and RO had in 2012 a
deficit of, or above, 4 per cent of GDP. Among the countries that have
registered a deterioration in their external position in recent years, a
specific attention should be given to FR and UK, which now post amongst the
largest deficits in the EU, although their deficits are below the threshold.
Graph 1: Current Accounts Deficits
(-) and Surpluses (+)
2008, 2012 and 2014 (forecast)
 (% of GDP)
Source: Eurostat, Commission services.
·       
However, the external sustainability of the
most vulnerable economies has not yet been firmly re-established (Graph 2). Most Member States register large negative NIIP. Inside
the euro area, this is particularly the case of ES and EE, as well as the four
programme countries PT, EL, IE and CY, and for BG, HR, HU, LV outside the euro
area: each of them has a negative NIIP beyond 50 per cent of GDP, and in some
cases (IE, EL, PT and HU) in excess of annual GDP. In particular the NIIP of CY
has deteriorated at a very fast pace in recent years. The NIIP of CZ, LT, PL, SK
and SI, and also RO are also more negative than the indicative threshold, but
stable. All these Member States (with the exception of EL and CY) register in
2013 current account balances above those that stabilise their external
liabilities in the medium term. Nevertheless, smaller deficits or even
surpluses for a protracted period and more dynamic economic activity are necessary
to reduce the NIIP to safer levels[8].
Moreover, the improvement in the NIIP ratios has not yet materialised in actual
data in some countries given very low nominal growth. Large negative NIIP make
these countries' financing conditions sensitive to changes in economic
prospects and market jitters. The risks related to negative NIIP, including the
impact on the economic activity and financial stability, depend a lot on the
composition of liabilities; in that respect, countries with large stocks of inward
foreign direct investment (notably BG, CZ, EE, SK, LT, LV and IE) are in better
condition than those whose negative NIIP mainly reflect external debt[9]. 
Graph 2: Net International Investment
Positions
2008, 2012 and 2014 (projection)
(% of GDP)

Note:  2014 projections assume no valuation
gains/losses.
Source: Eurostat, Commission services.
·       
For some Member States, the current account
surpluses remain very high, and well above the
indicative threshold of 6 per cent of GDP (Graph 1 and Box 1). This is the case
of DE, LU and NL and, to a lesser extent, also SE. The available forecasts
suggest that these surpluses will not fall substantially any time soon. Although
structural characteristics justify persistent moderate surpluses in each of these
countries, the levels registered in the latest years and forecast through 2014
are well above historical levels and above most estimates of what their fundamentals
would justify[10].
Since economic activity in DE has suffered less than in most partners, one may suspect
that its cyclically-adjusted surplus is above the actual figures, but this does
not appear to be the case for NL. The surpluses are the result of strong
competitiveness and specialisation in the sectors for which the world demand is
stronger – which are welcome developments –, but also mirror subdued domestic
demand, itself reflecting structural impediments to domestically generated growth[11]. An increase in investment and
reduction in their overall savings would be welfare-improving for these
countries, contribute to the sustainability of growth, without impairing their
competitiveness, all the more as surplus countries tend to have lower than EU
average investment-to-GDP ratios. At the same time, the large surpluses may
also reflect inefficiencies in financial intermediation. The combination of
these large surpluses and the above-described reduction in deficits mean that
the euro area, which used to have a balanced external position has shifted to a
surplus above 2 per cent of GDP[12].
This might put pressure on the euro to appreciate vis-à-vis other international
currencies and require even stronger efforts of the vulnerable countries to deleverage
and to recover competitiveness through cost adjustment.
·       
There have been gains in price and non-price competitiveness
in several countries, in particular the most vulnerable. In the latest update of the MIP scoreboard, in clear contrast with
the situation of just a few years ago, no Member State (except LU) registers an
increase in nominal unit labour costs (ULC) beyond the indicative threshold[13]. In the countries with the
most dynamic increases in the past, there have been tangible reductions in ES,
LV and LT, as well as in IE and EL[14].
The recovery in competitiveness is key to the adjustment process of the
economies with largest challenges in external sustainability. Without those
gains, the reduction in their deficits would take place mainly through contraction
in imports and reduction in standards of living. Moreover, no country registers
an appreciation in the real effective exchange rate (REER) above the
indicative threshold. Actually, for several Member States, the REER depreciation
rate has been beyond the threshold, given developments in the nominal exchange
rate of the euro (and, for outside the euro area, of other national currencies).
The non-price competitiveness is more complex to assess; however, there is also
evidence of gains in several countries, with expansion of their exports to new
markets and new sectors.
·       
Export performance has improved for several
countries, but most Member States keep losing market shares globally. Over the last five years, only BG, EE, LV, LT, MT, PL and also RO,
which together do not account for more than 5½ per cent of the EU exports, have
increased their market shares, and only LV and LT gained shares in 2012. Market
share losses have been particularly severe in HR, CY, IT, FI as well as EL. However,
over the latest years, the export performance has become less heterogeneous
among the EU countries, and there have been an improvement in the export
performance of countries like ES and PT. The assessment of developments in
export market share should take into account that the relative losses are
related to the expansion of big emerging economies, like China, Brazil, Russia,
India, among other. However, even when the performance is compared with other
advanced economies, like the OECD countries, the export performance of most
Member States over the last five years has not been favourable. 
·       
Balance sheet
adjustments continue in many Member States but the private debt stocks remain
high (Graph 3). Despite on-going deleveraging efforts, the
private sector debt still exceeds the indicative threshold in most Member
States[15].
The pace and extent of the on-going adjustment varies,
however, across countries. Indeed, sharp adjustments in ES, HU, LT and SI
concurred with significant increases in the consolidated private debt-to-GDP
ratios in BE, FR, and FI as well as CY and IE. The lion's share of the private
sector adjustment in 2012 can be attributed to the households' deleveraging
(particularly in DK, EE and UK, as well as PT)[16].
  
·       
The deleveraging
dynamics is influenced by the underlying credit market conditions and access to finance. In
2012, credit growth was generally below the threshold. This is related to both
supply and demand factors, which are not easily distinguishable. Banks have
downsized their balance sheets in several countries, as reflected in the
indicator on financial sector liabilities. Falling net credit in 2012 in the
programme countries EL, IE and PT presented an additional break on economic
activity, thereby temporarily increasing their debt ratio via a denominator
effect; negative feedback loops between necessary deleveraging pressures and economic activity continue to constitute a
source of concern for some countries. On the contrary, adjustment in BG, DE,
AT, PL and UK was done on the back of reduced credit market pressures and
stronger nominal GDP growth. The sectorial breakdown reveals that among the
countries experiencing deleveraging in the corporate sector, negative net
credit flows appear as a significant contributor in ES, HU and SI, as well as
in EL. Financing difficulties might ultimately lead to underinvestment in
vulnerable Member States, delaying the recovery and the effective rebalancing
of the economy towards more productive, export-oriented industries[17]. 
Graph 3: Non-Financial Corporate,
Household and General Government Debt
2012
(% of GDP)
Note:
EU28 and EA17 aggregates for private debt constructed as the weighted average
of consolidated country-level data.
Source:
Eurostat.
·       
Reduction in house prices became widespread
and gained pace (Graph 4). Real
house prices[18]
further adjusted in 2012, leaving BG, DK, ES, HU, IT, NL, SI and SK as well as
in IE, PT and RO with substantial negative growth rates, in line with tightened
credit conditions and household deleveraging efforts. Only in DE, EE, LU, MT
and AT did deflated house prices grow. Moreover, the correction accelerated in 2012
in countries already facing a large cumulated fall since their peak, such as BG,
ES, NL, SI and also CY. The downsizing of the property market
comes along with policies towards rebalancing incentives away from home
ownership and its debt financing. Important reforms aimed at fostering rental
markets, lowering fiscal incentives for mortgage-related instruments or
reducing household balance sheet vulnerability to income and interest rate
shocks may contribute to reduce the volatility in housing markets and mitigate
the economic impact of their ups and downs[19].
Graph 4: House prices
(deflated)
2008, 2010 and 2012
(index 2000=100, u.o.i.)
Note: Due to missing data, the base years are 2004 for CZ,
2003 for EE and SI, 2002 for CY, 2006 for SK,
2007 for HU and 2008 for PL, AT and RO. Moreover, because of incomplete data,
for AT,
the red diamond refers to 2011; available information indicates strong growth
for 2012.
Source: Eurostat,
ECB, OECD, BIS.
·       
The employment and social situation
deteriorated in a number of countries during the rebalancing process. In particular, unemployment has grown very substantially in
several Member States. ES, HR, LV, LT and SK, and also EL, IE, CY and PT register
high or very high unemployment rates (Graph 5). Only in DE was the unemployment
rate lower in 2012 than in 2008, and only a few Member States have recorded
contained increases in joblessness in the latest number of years. Other
measures of unemployment, like the youth and long-term unemployment also increased
substantially, in particular in EL, and ES, leading to strong divergences
within the EU. Weak economic activity and, in some cases, the downsizing of
important labour-intensive sectors such as construction (e.g. in ES and
SI, and IE) are part of the adjustment process inducing a shift of resources
from non-tradables to the tradable sector and the switching of expenditure to
domestically-produced goods. Still, whereas the reallocation of resources is
unavoidable and desirable, that process is not costless. In addition, high
unemployment points to underperformance of the overall economy, the depreciation
of human capital and lower potential growth prospects. Several reform streams,
both on labour and product markets help in smoothing the process, but the
increases in unemployment have been very substantial, exceeding previous peaks
in many Member States. To better
consider the social impact of the imbalances and of the adjustment, a number of
social indicators have been added to the auxiliary indicators for the economic
reading of the scoreboard. The unemployment rate shows deterioration in labour
market matching; increase rates of long-term and youth unemployment,
inactivity, poverty and social exclusion denote an underutilisation of
resources and deterioration in social cohesion.
Graph 5: Unemployment rate
2008, 2012 and 2014 (forecast)

Source: Commission services.
·       
Intra EU-labour mobility is increasing. In 2012, intra-EU migration amounted to 6½ million, an increase of
200 thousand in relation with 2011, increasingly reflecting the labour market
situation. In LV and LT, reflecting some improvement in the labour market, the
negative net migration was more moderate than in previous years. By contrast,
in PT and ES, increases in the unemployment rates have led to an acceleration
of net migration outflows in both countries, though comprising to a
considerable extent returning non-EU migrants. Simultaneously, countries with
relatively low unemployment rates, such as DE, AT and SE continued to register increases
in net immigration. Migration can play a role in the adjustment by facilitating
the reallocation of labour from areas affected by unemployment to areas where
labour demand is robust. However, countries experiencing negative net migration
outflows need to continue to implement policies to improve their potential growth
so that, in the medium term, they gain the capacity to attract skilled labour which
they may be losing during this adjustment phase.
3.         Country-specific
commentaries on the reading of the scoreboard
The commentaries below do not cover Member States which are subject
to surveillance under macroeconomic adjustment programmes supported by financial
assistance[20].
This concerns Greece, Cyprus, Portugal and Romania; the case of
Ireland is discussed in this report but its situation in the context of the MIP
will be assessed at the end of the on-going financial assistance, which is
expected for February 2014. 
Belgium: In
April 2013, the Commission concluded that Belgium was experiencing
macroeconomic imbalances in particular involving competitiveness and indebtedness,
especially concerning the implications for the real economy of the high government
debt. In the updated scoreboard, some indicators, the same as last year, exceed
their indicative thresholds, namely the losses in export market shares, as well
as private and government sector debts. The long-term trend in losses in export
market shares accelerated in 2012 with implications on the continued negative
development of the goods balance. The current account position has further
deteriorated, and now posts a small deficit. However the NIIP remains stable
and positive. Regarding cost competitiveness, the available indicators point to
some stabilisation. Nevertheless, ULC, while below the indicative threshold,
accelerated again in 2012, though is expected to moderate in 2013. The REER
depreciated somewhat in 2012 in line with the euro exchange rate. In 2012,
private debt increased and remains well above the threshold, even when
consolidating for domestic intercompany loans. The government debt has
continued to increase and is expected to surpass 100 per cent of GDP in 2013,
although it is forecast to broadly stabilize in the coming years. Moreover,
contingent liabilities also have to be monitored as they might impact the
position of public finances, as well as the real economy. Financial sector
liabilities decreased in 2012 while the sector leverage fell to the lowest
level in five years. House prices decreased slightly in 2012, after being
stable since 2008, indicating that the adjustment is gradually taking place. Overall,
the Commission finds it useful, also taking into account the identification of
imbalances in April, to examine further the persistence of imbalances or their
unwinding. 
Bulgaria: In April 2013, the Commission
concluded that Bulgaria was experiencing macroeconomic imbalances, in
particular involving the impact of deleveraging in the corporate sector as well
as the continuous adjustment of external positions, competitiveness and labour
markets. In the updated scoreboard, a few indicators are above the indicative
threshold, namely the NIIP and unemployment. The risks
from the external position appear to have been reduced compared to a few years
ago. The negative NIIP remains high, while net external debt is substantially
lower, given the stock of foreign direct investment (FDI). Moreover, both the negative NIIP and net external debt are on
a similar downward trend, driven by the adjustment of the current account
towards balance and a continued positive contribution of capital transfers. The
current account correction appears to be mainly non-cyclical and had a
relatively small impact on economic activity. Price and cost competitiveness
indicators have continued to improve and appear supportive for future exports
growth. The nominal ULC indicator has aligned with the scoreboard thresholds as
of 2012, based on lower wage growth and sustained productivity increases, reflecting
also labour shedding. Private sector deleveraging is on-going. Non-financial
corporates' debt is relatively high in Bulgaria compared to peer countries although
a large part of it results from cross border intra-company loans. Credit
remains subdued reflecting the sluggish economic recovery. The labour market
remains weak and unemployment, including youth and long-term unemployment, has
continued to increase, although it appears to be levelling-off in the course of
2013. Poverty and social exclusion have also increased in the latest years, and
NEET rate[21]
is the highest in the EU. Overall, the Commission finds it useful, also
taking into account the identification of imbalances in April, to examine
further the persistence of imbalances or their unwinding. 
Czech Republic: In the previous rounds
of the MIP, the Czech Republic was not identified as experiencing imbalances.
In the updated scoreboard, the NIIP is negative and continues to be beyond the
indicative threshold. This indicator has further deteriorated because of
deficits in the current account, which have been between 2½-3 per cent of GDP,
but are expected to decline over the coming years. The risks related to the
external position remain limited as much of the foreign liabilities are
accounted for by FDI and, consequently, net external debt is very low. While FDI
helped improve the export performance at the beginning of the century, gains in
export market shares have substantially eased and even turned to moderate
losses in 2010-2. Economy-wide competitiveness indicators, such as the REER and
ULC, have so far not improved strongly enough to make for improved prospects of
export performance over the coming years. On the internal side, the inflow of
foreign capital contributed to rapid growth in real house prices before the
crisis. While the ongoing correction in prices has not substantially impinged
on the soundness of the financial sector, credit growth has been subdued for a
number of years. The private sector debt ratio is still well below the
indicative threshold. Overall, the labour market has weathered the recent
weakness in the economic activity relatively well, with the unemployment rate
rising to 7 per cent in 2012. However, youth unemployment (19½ per cent in
2012), though below the EU average, has more than doubled since 2008 and is not
likely to improve before economic activity gathers pace again. Overall, the
Commission will at this stage not carry out further in-depth analysis in the
context of the MIP.
Denmark: In April 2013, the Commission
concluded that Denmark was experiencing macroeconomic imbalances involving the
high level of household debt and the continuing adjustment in the housing
market. In the updated scoreboard, the same indicators as last year are above
their indicative thresholds, namely the private sector debt and losses in
export market shares. The latter are linked to the deterioration of
competitiveness over the last decade. However, the current moderation in wage
growth and in nominal ULC as well as the depreciation in the REER are expected
to support the already on-going recovery of competitiveness. The current
account has been in positive territory for more than two decades and the
surplus is currently close to the upper threshold of the scoreboard, while the NIIP
has continued to strengthen. The increase in house prices in the years before 2008
pushed household debt to very high levels. The private sector debt is, thus,
well above the threshold but has been on a decreasing path since 2009. Moreover,
the concentration of debt in high-income households reduces the risks related
to interest rate shocks. The housing market is still sluggish, though prices
have picked-up somewhat over the last year. Overall, the Commission finds it
useful also taking into account the identification of imbalances in April, to
examine further the persistence of imbalances or their unwinding.
Germany: In the previous
rounds of the MIP, Germany was not identified as experiencing imbalances. In
the updated scoreboard a number of indicators exceed the respective indicative
thresholds, namely the current account surplus, the depreciation in the REER,
the losses in export market shares and the government sector debt. On the
external side, the indicator relating to the current account balance is well
above the indicative threshold and the German current account surplus accounts
for most of the euro area surplus, given the size of the German economy.
Following statistical revisions, the indicator has exceeded the threshold each
year since 2007. Latest quarterly data and the Commission autumn forecast
indicate a surplus in 2013 at the same level as in 2012: 7 per cent of GDP. Looking
ahead, according to the latest Commission services' forecasts, the surplus is
expected to remain above the indicative threshold over the forecast horizon,
thus suggesting that it is not a short-lived cyclical phenomenon. The large
surpluses are reflected in a strongly positive and increasing NIIP and positive
income balances. They may put pressure on the euro to appreciate vis-à-vis
other currencies. In case such pressures materialise, this would make it more
difficult for the peripheral countries to recover competitiveness through internal
depreciation. The large surplus reflects higher savings than investment in the German
economy. The household saving rate is among the highest in the euro area. Despite
the second-lowest share of private sector (firms and households) debt in GDP in
the euro area and favourable interest rate conditions, private sector
deleveraging has continued, albeit at a reduced pace, thus failing to support a
more buoyant private demand. Private credit flows have remained moderate while
gross fixed capital formation declined last year. Previous recommendations focused
on the need to strengthen domestic sources of potential growth against the
background of unfavourable demographic prospects. The dynamics of Germany's
external position warrant further investigation with a view to better
understanding i.a. the role of certain domestic features, including
financial flows, for the sectorial savings-investment balances and current
account developments. The HICP-based REER depreciated in 2010-12 mostly
vis-à-vis non-euro area partners, reflecting the nominal depreciation of the
euro, but less so vis-à-vis the euro peers. This has contributed to the German
firms' competitiveness vis-à-vis their non-euro competitors. ULC continue to
increase above the euro area average, on the back of a robust labour market,
with increasing wages, and relatively low productivity growth. The associated
appreciation of the corresponding REER is, however, small compared to the gains
recorded in the pre-crisis decade. General government sector debt is above the
indicative threshold but projected to decline from 2013. House prices have
increased moderately, with stronger hikes in some urban areas. Overall, the
Commission finds it useful to conduct an in-depth analysis with a view to
assessing whether imbalances exist.
Estonia: In the previous
rounds of the MIP, Estonia was not identified as experiencing imbalances. In
the updated scoreboard, a few indicators are still above the indicative
thresholds, namely the negative NIIP and unemployment. While the
negative NIIP remains significantly beyond the threshold (-54 per cent of GDP
in 2012), it is improving, despite a small current account deficit. The latter
is in turn explained by a shrinking trade surplus --owed to some losses in
export shares, which partly reflects rising nominal ULC -- and to a recovering
domestic demand. However, since half of the external liabilities consist of
FDI, risks remain limited. In terms of external debt, Estonia has turned into a
net creditor. In parallel, while the unemployment indicator exceeds the
scoreboard threshold, it is rapidly decreasing, to 9¼ per cent by end-2013.
Nevertheless, long-term unemployment remains relatively high as well as other
indicators related to poverty, social exclusion, severe material deprivation
and low work intensity. The country’s private sector indebtedness has continued
to contract, down to a level of 129 per cent of GDP in 2012, supported by
robust nominal GDP growth. However, private sector deleveraging has almost come
to a halt; the still relatively high private debt stock will likely limit
credit growth in the future and constitute a drag on output growth in the
medium term. Overall, the Commission will at this stage not carry out
further in-depth analysis in the context of MIP.
Ireland: Since December 2010 Ireland has
been implementing an macroeconomic adjustment programme
with financial assistance; the surveillance of imbalances and the monitoring of
corrective measures have taken place under that context and not the MIP. Under the programme, Ireland has made considerable strides towards
correcting its excessive imbalances. In the updated scoreboard, several
indicators are beyond the threshold, namely the negative NIIP, the depreciation
in the REER, losses in export market shares, private and government sector debt
and unemployment. As regards external imbalances, the current account has been
in surplus since 2010, but this has yet to translate into an improving NIIP,
largely as a result of valuation effects, which are, however, themselves a sign
of confidence in the economy. Also the external liabilities-related risks need
to be put in the perspective of large inward FDI stocks. Falling ULC and a
depreciation of the REER have corrected the excesses of the boom years and
translated into competitiveness gains. As a consequence, the loss in market
shares slowed in 2012, with the remaining erosion taking place against the
background of a significant shift in the composition of merchandise exports,
the effects of key exported drugs coming off patent and a shift towards
services exports. As regards internal imbalances, house prices, which fell for
five years and are currently undervalued according to several metrics, have
stabilised or started to rise modestly. Although the private sector debt
remains above the threshold, deleveraging has progressed well despite strong
headwinds from falls in disposable income. In parallel, banks have been
required to step up their efforts to reduce their non-performing loans portfolio,
particularly through completing sustainable solutions for mortgages in arrears.
The underlying health of the banks' balance sheet is also being assessed
through a comprehensive assessment under the programme. Strict adherence to the
fiscal targets agreed under the programme means that general government sector debt
as a percentage of GDP is projected to peak in 2013 and to decline thereafter.
Although the unemployment rate remains above the threshold, it has been on a
declining trend since mid-2012, falling to 13¼ per cent in September 2013 from
the peak of 15 per cent in early 2012. Nevertheless, long-term and youth
unemployment remain particularly critical issues, and poverty and social
exclusion increased markedly during the latest years. The on-going financial
assistance and adjustment programme contributed to reduce macroeconomic
imbalances and manage the related risks. The situation of Ireland in the
context of the MIP will be assessed after the conclusion of the programme.
Spain: In April 2013, the
Commission concluded that Spain was experiencing excessive macroeconomic
imbalances, in particular as very high domestic and external debt levels
continued posing risks for growth and financial stability[22]. Moreover, despite the on-going
rebalancing in the economy, the magnitude of the necessary adjustment and
additional vulnerabilities related to soaring unemployment and growing general
government sector debt represented a substantial challenge going ahead,
requiring continued policy action. In the updated scoreboard, several
indicators are above the indicative threshold, namely the negative NIIP; the
depreciation in the REER; losses in export market shares; private and general government
sector debts and unemployment. The significant adjustment in the current
account, driven by robust export growth and declining imports, has brought the
scoreboard indicator below the threshold. In 2013, the current account is
turning in surplus, which is expected to increase in next years. However, the
negative NIIP has not yet stabilised; a deterioration in 2012 was driven mainly
by valuation effects, which can be seen as a sign of confidence in the economy.
The recovery in competitiveness accelerated in 2012 as wage moderation added to
the on-going strong productivity advances (though largely driven by labour
shedding) in reducing ULC. The cumulative improvement in the REER has surpassed
the indicative threshold and is offsetting the appreciation registered in
previous periods. Losses in export market shares have continued. The relative
deterioration is, however, more moderate when considered against other advanced
countries. The government debt is rapidly increasing on account of public
deficits, bank recapitalisation and settlement of arrears to suppliers. Private
sector deleveraging has continued, primarily via negative credit flows; the deleveraging
of households has been somewhat slower than for corporates reflecting the
longer maturities of predominantly mortgage-related debt and less recourse to insolvency
procedures. The adjustment process in the housing market has accelerated, due
to a large overhang of unsold properties and weak fundamentals. The social
costs of the crisis are increasingly discernible. High shares of long-term and
youth unemployment, and an increasing number of households with very low work
intensity, combined with falling household incomes, are taking their toll,
leading to an increase in poverty and social exclusion. Overall, the
Commission finds it useful, also taking into account the identification of
excessive imbalances in April, to examine further the persistence of
macroeconomic risks and to monitor progress in the unwinding of imbalances.
France: In April
2013, the Commission concluded that France was experiencing macroeconomic
imbalances and indicated the necessity of adopting
decisive policy actions. The imbalances concerned in
particular the deterioration in the current account and in competitiveness and
high general government sector debt. In the
updated scoreboard, a number of indicators are above their indicative
thresholds, namely, as last year, losses in export market shares, private debt
and general government sector debt indicator and
now also the depreciation in the REER indicator. The reading of the scoreboard
still points to issues on both the external and internal sides. France
continues to lose market shares, although slightly less than the EU (or the
euro area) as a whole. These losses are reflected in a deterioration in the
current account balance and in the negative NIIP, although these remain
well below their indicative thresholds. This evolution has taken place in spite
of depreciating REER and relatively contained ULC, further putting the emphasis
on non-price competitiveness. Indeed, previous analyses have pointed to the
negative impact that the poor profitability of French companies has on their
investment potential as well as their innovation capacity to the detriment of
their competitiveness. The low profitability of firms also weighs on their
deleveraging capacity and therefore contributes to the increase in private
indebtedness. At the same time, household debt remains relatively low although
their creditworthiness was dented by the decrease in households' disposable
income in a context of rising unemployment. The increase in the level of
private debt is worrying in a context of still increasing general government sector
indebtedness, which is now beyond 90 per cent of GDP. Overall, the
Commission finds it useful, also taking into account the identification of
imbalances in April, to examine further the risks involved in the persistence
of imbalances.
Croatia joined the EU on
1 July 2013. In the MIP scoreboard, a number of
indicators are above the indicative thresholds, namely the NIIP, losses in
export market shares and the unemployment rate. The negative NIIP of close to
90 per cent of GDP at the end of 2012 is mainly the result of the accumulation
of current account deficits before the global crisis. Since of the onset of the
global crisis, the current account has gradually adjusted to an almost balanced
position in 2012, largely reflecting depressed domestic demand, while export
performance has been weak. Growing ULC, coupled with unfavourable product
specialisation and geographical orientation of exports, have led to a substantial
decline in export market shares. Large capital inflows in the pre-crisis period
resulted in the accumulation of private sector debt, although recently the
private debt ratio has been levelling off, and declined to slightly below the
indicative threshold at end-2012. The share of non-performing loans has
increased significantly since 2008, mainly in the corporate sector and also
partly due to higher debt service for households exposed to Swiss Franc-denominated
loans. Deleveraging pressures weigh on the prospects for an economic recovery.
At the same time, due to the contracting economy and the absence of any
substantial fiscal adjustment, general government sector debt has increased
rapidly. Furthermore, the debt overhang of state-owned enterprises implies
contingent liabilities for the government. The regulatory burden and
insufficient competition in many sectors of the economy remain serious
impediments to growth and job creation. The prolonged recession, coupled with
rigidities in the labour market and bottlenecks in social security has led to a
fall in employment, mostly in the private sector, while the unemployment rate
has increased substantially to almost 16 per cent in 2012. A youth unemployment
ratio above 40 per cent is a particular problem. The high share of long-term
unemployed suggests problems of a structural nature. The share of people at
risk of poverty is on an upward trend and among the highest in the EU. Overall,
the Commission finds it useful to conduct an in-depth analysis with a view to
assessing whether imbalances exist.
Italy: In April
2013, the Commission concluded that Italy was experiencing macroeconomic
imbalances and indicated the necessity of adopting
decisive policy actions. The imbalances concerned in
particular its export performance and underlying loss of competitiveness, as
well as high general government sector indebtedness. In the updated scoreboard,
a number of indicators are above the indicative threshold: the loss in export
market shares, the depreciation in REER, and general government sector debt. The
loss in market share remains significantly above the indicative threshold, and
export performance compares unfavourably to that of other advanced economies.
Exports towards non-euro area trade partners have been supported by a
significant fall in the REER up to mid-2012, mainly driven by a nominal
depreciation of the euro. Meanwhile, a dismal productivity performance
continues to sustain nominal ULC which in 2012 rose more than for most trade
partners. Falling domestic demand, and the strong contraction of investment in
particular, has been the main driver of the improvement in the current account
balance, which is forecast to turn into surplus in 2013. On the internal side,
the high level of general government sector debt remains a significant
vulnerability for the country, in particular given the weak growth outlook. In
2012, the government sector debt as a share of GDP rose to 127 per cent, due to
contracting economic activity and increasing interest expenditure, while the
primary surplus (at 2½ per cent of GDP) mitigated the increase. Achieving and
maintaining an elevated primary surplus remains critical to put the debt ratio
on a steadily declining path. Private-sector indebtedness remains below the
threshold; it is concentrated within the corporate sector which, against the
background of the protracted recession, has been the main driver of a strong
increase in non-performing loans. Although the unemployment indicator (3-year
average) is still below the threshold, unemployment increased substantially to
almost 11 per cent in 2012 and has risen further to 12¼ per cent in August
2013, while the youth unemployment and the NEET rates are very high. Poverty
and social exclusion (especially severe material deprivation) have also
increased markedly. Overall, the Commission finds it useful, also taking
into account the identification of imbalances in April, to examine further the
risks involved in the persistence of imbalances.
Latvia: In the previous rounds of the
MIP, Latvia was not identified as experiencing imbalances. In the updated
scoreboard, some indicators are beyond their indicative thresholds: NIIP and
unemployment. However, both indicators are moving in
the right direction and the pace of improvement is substantial.  The external position remains sound, as competitiveness indicators
and export market shares continue rising and the current account deficit has
stabilised at low levels. While the negative NIIP remains beyond the indicative
threshold, a large part of the external liabilities is composed of inward FDI,
hence posing less macroeconomic risks than debt. Both the NIIP and external
debt are falling relatively fast and the positive trend is expected to be
sustained over the forecast horizon.  On the side of internal indicators, general government sector debt remains significantly below the threshold and is forecast to
fall below 40 per cent of GDP in 2015, when Latvia is scheduled to have repaid ¾
of the EU loans disbursed in 2009-11. Also private debt levels are below the
threshold. House prices and credit flows are slowly
recovering from the steep correction during the crisis; no big swings are
expected in the medium run, as the on-going deleveraging in the household
segment is projected to continue. The unemployment indicator (3-year average) has
improved marginally but the latest dynamics on the labour market are more
positive and unemployment is dropping fast; the
unemployment rate is now expected to move below the EU average in 2014 and
below 10 per cent in 2015. The upturn in the labour market has started to
contribute to the reduction in poverty and social exclusion, which remain at
very high levels. Overall, the Commission will at
this stage not carry out further in-depth analysis in the context of the MIP.
Lithuania: In the previous rounds of the
MIP, Lithuania was not identified as experiencing macroeconomic imbalances. In
the updated scoreboard, a few indicators are beyond their indicative thresholds,
namely the NIIP and unemployment. The NIIP is markedly negative even though it
has gradually improved since 2009. However, net external debt is substantially
lower, as inward FDI explains a lot of the external liabilities. The current
account turned to a small surplus in the first half of 2013 but is expected to
return to a small deficit as domestic demand picks up further. The deficit is
expected to be financed mainly through inflow of FDI and portfolio investment.
Exports kept gaining market share, supported by a depreciating REER and falling
ULC. However, the latter resumed growing recently on the back of revived wage
increases. On the internal side, private sector debt is relatively low as is
government sector debt; moreover, the latter is expected to start declining
over the next years. Growth of new credit to non-financial corporates turned
positive and, therefore, the deleveraging of the private sector slowed down.
Housing prices have remained relatively stable over the past years.
Unemployment has decreased significantly and is expected to fall below 11 per
cent in 2014. The upturn in the labour market is contributing
to the reduction in poverty and social exclusion, which remain at very high
levels. Overall, the Commission will at this stage
not carry out further in-depth analysis in the context of the MIP. 
Luxembourg: In the previous rounds of
the MIP, Luxembourg was not identified as experiencing macroeconomic
imbalances. In the updated scoreboard a number of indicators are above their
indicative thresholds, namely the current account surplus, unit labour costs, the
private sector debt and the loss in export market shares. The very large
surplus hides a persistent deficit of the trade balance. Moreover, recently
losses in export market shares have become a source of concern. Not only the
trade balance hit a new historical deficit, but the country has also lost
market shares in (mostly financial) services since 2007. Moreover, the nominal ULC
have risen substantially faster than in the euro area since 2008, and exceeds
the threshold, in spite of recent measures to contain wages, and have weakened
the competitive position of the domestic industry. The high private
indebtedness, mainly of non-financial corporates, increases the vulnerability
of enterprises and may partly be due to the existence of a bias in favour of
debt rather than equity in the tax legislation. While the financial sector
remains overall sound, the financial crisis has dented the growth potential of
the sector and raises concerns about the impact of a less dynamic sector for
both the employment and the sustainability of public finances, also taking into
account costs related to an ageing population. Overall the Commission finds
it useful to conduct an in-depth analysis with a view to assessing whether
imbalances exist.
Hungary: In April 2013, the Commission concluded that Hungary was
experiencing macroeconomic imbalances and indicated the
necessity of adopting decisive policy actions. The very negative NIIP, in
particular, raised concerns. In the updated scoreboard, this variable continues
to exceed the indicative threshold by a large margin as it is above the annual
GDP. In addition, indicators on losses in export market share, the government sector
debt, and the unemployment rate also stay above the thresholds. As regards
external imbalances, sustained current account surpluses have contributed to an
improvement in the NIIP since 2009. However, the surpluses reflect the
persistent weakness of domestic demand while export performance has been weak; the
losses in export market shares have accelerated even if there are no strong
signals of losses in cost competitiveness. This questions the sustainability of
the external correction. As regards internal imbalances, despite a sharp
external adjustment reflecting the on-going private and general government
sector deleveraging, important vulnerabilities remain. Against a background of
policy uncertainty, the rapid fall in corporate credit has contributed to
historically low investment rates, which may erode growth potential. The
continuous decline in nominal house prices, together with an excessive burden
on the financial sector, hinders restoring normal lending to the economy and
poses risks to financial stability. General government sector debt has been
slightly diminishing, but still stands significantly above the threshold; combined
with a weak growth potential it makes Hungary vulnerable, which is reflected in
a relatively high sovereign financing cost. The unemployment rate stands above
the threshold, but youth unemployment and the severe material deprivation rate
increased substantially since the start of the crisis. Overall, the
Commission finds it useful, also taking into account the identification of
imbalances in April, to examine further the risks involved in the persistence
of imbalances.
Malta: In April 2013, the Commission
concluded that Malta was experiencing macroeconomic imbalances arising from the
significant exposure of the financial sector to the property market and the
risks for the long-term sustainability of public finances. The updated
scoreboard shows improvements in several areas, although a number of indicators
continue to exceed their indicative thresholds, namely the depreciation in the REER,
and private and general government sector debts. The external position of the
economy has improved and current account indicators moved to within the
threshold, while the positive NIIP increased. The depreciation in the REER to
below the lower threshold, largely on account of the nominal depreciation of
the euro, played a supporting role. Nevertheless, the loss in export market
shares in recent years could point to an erosion of competitiveness even if the
indicator measuring the 5-year change is still within its threshold. On the
internal side, private debt continues to exceed the threshold, although the
asset side of the private sector balance sheet appears sound. The government
debt also exceeds the threshold and is on an upward path due to persistent
primary deficits, while risks to the long-term sustainability of the public
finances relating to the ageing population remain to be addressed. The housing
market appears to have stabilised, although it continues to warrant monitoring
given the interlinkages with the domestic banking sector. Concrete action to
strengthen loan-loss provisioning policies is needed in view of the continued
increase in non-performing loans also in the first half of 2013. Overall,
the Commission finds it useful, also taking into account the identification of
imbalances in April, to examine further the persistence of imbalances or their
unwinding.
Netherlands: In April 2013, the
Commission concluded that the Netherlands was experiencing macroeconomic
imbalances, in particular involving the continuing adjustment in the housing
market and the high level of indebtedness in the household sector. In the
updated scoreboard, a number of indicators are beyond their indicative
thresholds, namely the large and increasing current account surplus, the depreciation
in the REER, losses in export market shares, and private and general government
sector debts. On the external side, persistently large current account
surpluses, well above the indicative threshold, are mainly driven by the trade
balance, including positive re-exports and gas exports. The large surplus
reflects high savings not absorbed by domestic investment. Looking ahead, the on-going
household sector deleveraging that is needed to reduce the high household debt,
together with cyclically subdued investment (particularly in the construction
sector) may imply a further increase in the surplus. Moderate losses in
competitiveness of domestically produced goods and services have broadly been
offset by the dynamism of re-exports. The losses in export market shares are in
line with those of other advanced economies at large. Risks to the economy
mainly relate to the housing market and high household debt. The high mortgage
debt of households relative to their disposable income is largely due to tax
incentives favouring large mortgages and easy access to credit. Since the onset
of the crisis, house prices have been declining and are currently showing first
signs of a flattening-out. Also, recent policy changes, e.g. the
legislation regarding the tax treatment of mortgages, the change from
interest-only to annuity mortgages and the stepwise reduction of the
loan-to-value ratio may contribute to a gradual reduction of household debt and
reduce the vulnerabilities in the financial sector in the medium term. The on-going
deleveraging of households, with the household debt to GDP ratio decreasing for
a few quarters already, together with negative prospects for unemployment and
disposable income holds back private consumption and the impact of these
measures on the financial sector require further analysis. Overall, the
Commission finds it useful, also taking into account the identification of
imbalances in April, to examine further the persistence of imbalances or their
unwinding. 
Austria: In the previous rounds of the
MIP, Austria was not identified as experiencing imbalances. In the updated
scoreboard, a few indicators exceed their indicative thresholds, namely losses
in export market shares, and private and general government sector debts. There
are also indications that house prices increased strongly to close or even
beyond the indicative threshold in 2012. The loss in market shares mainly
reflects a sharp decrease in exports towards the euro area in 2007-10. The more
recent export performance, however, is broadly in line with the performance of its
EU partners, and benefits from the tight supply chain integration with Germany
and Central Europe. Overall, the external position was hardly impaired by the losses
in market share and, on the back of resuming investment, the current account
surplus stabilised at a moderate level. The NIIP remains close to zero.
Moreover, the REER and ULC indicators do not point to issues with cost
competitiveness. Nevertheless the decline in market shares may signal a need
for better exploiting the economy's innovative capacity. On the internal side,
the ratio of private debt to GDP ratio has exceeded the threshold since 2007,
when non-financial corporates switched some of their financing from equity to
long-term debt in a weak growth environment, but is now declining gradually.
Credit flows to the private sector remain at a moderate, but positive, level. The
general government sector debt continues to exceed the threshold but has not
grown significantly during the crisis, and is forecast to decline from 2014. Going
forward, public finances may be subject to risks linked to delays in the
restructuring of the nationalised banks. Negative feedback loops between the general
government and the financial sector seem contained, although the integration of
the banking sector with Central European neighbours requires continued
attention. Overall, the Commission will at this stage not carry out further
in-depth analysis in the context of the MIP.
Poland: In the previous rounds of the
MIP, Poland was not identified as experiencing macroeconomic imbalances. In the
updated scoreboard, some indicators breach their indicative threshold, namely
the current account deficit and the negative net international investment
position. The current account deficit, which is slightly above the threshold,
has been largely financed since 2004 through FDI inflows. It is forecast to
shrink substantially in 2013 on the back of a strong improvement in the trade
balance, supported by both cyclical (with weak domestic demand depressing
imports) and non-cyclical factors (diversification of exports towards non-EU
economies, partially compensating for recent losses in export market shares).
Other factors that are likely to contribute to an improvement in the current
account are the depreciation in the nominal exchange rate and the containment
of nominal ULC, reflecting the weak labour market. In spite of the negative
NIIP beyond the threshold, net external debt is low. Nevertheless, a growing
dependence of the sovereign on foreign debt holders, exacerbated by the
announced changes in the pension system, might be a source of risk. As regards
internal developments, the share of private debt in GDP remains moderate. The
high share of foreign currency-denominated mortgages, which was perceived as a
major risk for the economy, is decreasing as the supply of new such loans was
brought to a halt in 2011-2. House prices have been falling continuously since
2008, although at a moderate pace, and the repercussions on the financial
sector have been contained. Wage moderation and flexible labour market
regulations mitigated the increase in the unemployment rate in 2012 and first
half of 2013 in the context of the sizeable economic slowdown. Overall, the
Commission will at this stage not carry out further in-depth analysis in the
context of the MIP. 
Slovenia: In April 2013, the Commission
concluded that Slovenia was experiencing excessive macroeconomic imbalances[23], particularly involving  risks
to financial stability stemming from fragile corporate balance sheets,
compounded by rigidities in labour and capital markets and high state ownership
that limits the adjustment capacity of the economy. In the updated scoreboard
the NIIP and losses in export market shares are beyond their indicative
thresholds. On the external side, a strong adjustment has taken place on the
current account mainly driven by weak domestic demand, in particular falling
investment, bringing the indicator to a small surplus. Nevertheless, the NIIP further
deteriorated, mainly driven by valuation effects. ULC has stabilised following
strong increases in the years up to 2009. The export market share has
deteriorated strongly; the export dynamics is significantly worse compared to advanced
economies, giving Slovenia a clear outlier status among the new EU Member
States. On the internal side, the private sector debt has decreased, driven by
negative credit flows to both households and non-financial corporates.
Notwithstanding the fact that the private debt is below the threshold, debt is particularly
weighing on firms. Their poor domestic and export revenues, combined with elevated
costs of labour and capital, prevent them from generating the cash flows needed
to maintain working capital and pay down debt. The adjustment in the housing
market has resumed, which will depress the value of collateral held by banks.
The financial sector has continued to reduce its total liabilities for a third
consecutive year, as the woes of the corporate sector further deteriorate the
quality of banks' credit portfolios and puts pressure on their already thin
capital buffers. The government sector  debt is rising rapidly and will exceed 60
per cent of GDP by end-2013, with further potential bank recapitalisations
still to come. The unemployment indicator has continued increasing, leading to
rising social costs of the adjustment. Overall, the Commission finds it
useful, also taking into account the identification of an excessive imbalance
in April, to examine further the persistence of macroeconomic risks and to
monitor progress in the unwinding of imbalances.
Slovakia: In the previous
rounds of the MIP, Slovakia was not identified as experiencing macroeconomic
imbalances. In the updated scoreboard, a couple of indicators remain above the
indicative thresholds: the negative NIIP and the unemployment rate. The indicator
on the current account deficit (3-year average) has improved and is now only
slightly negative, due to a surplus in 2012. Further improvements of the external
balances are expected on the basis of strong manufacturing exports in 2013 and
good expectations for 2014. The NIIP has only marginally improved in 2012 compared
to 2011. Nevertheless, the external debt remains low and relatively stable, as
most external liabilities are non-debt instruments. Price competitiveness
developments seem benign, as the REER indicator fell, albeit less than in most
euro area peers, and remains within its thresholds. Due to gains in labor
productivity, nominal ULC have slightly decreased. Gains in export market
shares have decelerated compared to previous years. Private sector debt has
remained stable, on the back of moderately positive credit flows. The banking
sector is stable and total liabilities expanded only slightly. General government sector debt has increased
significantly in 2012 but remains below the threshold. House prices continued
to adjust and fell for the fourth year in a row. The performance of the labour market reflects the persistence of major regional disparities
in economic growth and employment. Unemployment remains
the most pressing issue affecting the domestic economy.
Most unemployment is long-term, which suggests its nature is structural rather
than cyclical and constitutes a vulnerability. Youth unemployment is also a
serious problem with the sixth highest youth unemployment rate in the EU. Overall,
the Commission will at this stage not carry out further in-depth analysis in
the context of the MIP.
Finland: In April 2013, the Commission
concluded that Finland experienced macroeconomic imbalances, in particular as
regards developments related to competitiveness. In the updated scoreboard, a
number of indicators are above the indicative thresholds, namely the
depreciation in the REER, losses in export market shares and the level of
private sector debt. The most pressing issues remain on the external side.
Finland has been continuously losing market shares at the fastest pace in the
EU. Losses have also been large when comparing with the performance of advanced
countries at large. Although most losses took place in 2009-10, the export
losses are still continuing. The current account, traditionally in surplus, has
been in deficit since 2011 and continued its decline in 2012. Cost
competitiveness through high growth in ULC over a longer period of time plays a
role even if the indicator fell below the threshold in 2012. Also losses in
terms of trade are noticeable. At the same time the HICP-deflated REER depreciated in 2009-12, to a large
extent driven by the nominal exchange rate of the euro. Nevertheless, over the
same time period the REER has appreciated slightly compared with the euro area
countries. On the internal side, the private sector debt to GDP ratio remains
above the threshold, dominated by corporate debt, and further increased in
2012, partly due to the contraction in GDP. The growth in liabilities of the
financial sector has normalised, supporting the finding in the previous round
of the MIP that it was due to unique circumstances arising from the structure
of the Nordic financial markets. The decline in real house prices has continued
in 2012, decreasing the risks from overheating in the housing market. Overall, the Commission finds it useful, also taking into account
the identification of imbalances in April, to examine further the persistence
of imbalances or their unwinding.
Sweden: In April 2013, the Commission
concluded that Sweden experienced macroeconomic imbalances, in particular as
regards private sector debt and deleveraging, coupled with inefficiencies in
the housing market. In the updated scoreboard, a
number of indicators are above their indicative thresholds, namely the current
account surplus, the losses in export market shares and private sector debt. As
regards the external position, Sweden is marked by indicators pointing
in opposite directions. The losses in export market shares decelerated slowly in
2010-1, but re-accelerated in 2012 and are well above the indicative threshold.
When compared to advanced economies, Sweden has also lost market shares but to
a lesser extent. Domestic prices and labour cost developments cannot explain
this fully as prices and ULC have been growing more slowly than in the main
trading partners. However, the REER has appreciated since 2010 due to the
strong krona. In the meantime, Sweden has recorded sizeable current account
surpluses since 2001. On the internal side, the high private debt continues to
deserve attention while government sector debt is relatively low. Corporate
debt adjusted somewhat in 2009-12 but remains high. Due to a slowdown in credit
growth, caused by a loan to value cap of 85 per cent on mortgages, household
debt levels have been stabilising since 2010 but remain high. House prices have
stabilised in 2011-2 at high levels. Despite some recent measures, the housing
market is still prone to unfavourable developments. Housing supply remains
constrained by cumbersome planning processes, limited competition within the
construction sector and regulation of rental markets. Together with a
debt-biased housing taxation, these inefficiencies tend to push house prices
and household indebtedness up, implying risks for macroeconomic stability. In
the short to medium term, corporate debt is expected to decrease, following on
recent reforms in company taxation, whereas household debt and nominal house
prices are likely to grow moderately. The risks for banks appear overall contained
but the high level of household debt makes Swedish banks more vulnerable to a
loss in confidence if house prices drop markedly. Overall, the Commission
finds it useful, also taking into account the identification of imbalances in
April, to examine further the persistence of imbalances or their unwinding.
United Kingdom: In April
2013, the Commission concluded that the UK was experiencing macroeconomic
imbalances, in particular regarding household debt, the housing market and
external competitiveness. In the updated scoreboard some indicators are above
the indicative threshold, namely the losses in export market shares, and
private and government sector debts. On the external side, the current account
indicator has deteriorated further but remains within the threshold. The
current account deficit of close to 4 per cent of GDP in 2012 may have been
driven by temporary factors, namely a weakness in the income balance and the
disruption in oil production and unfavourable conditions in trading partners.
The NIIP remains slightly negative, although with an improvement in 2011-2. The
losses in export market shares have decelerated in 2012. While there have been
signs of a gradual improvement in the second half of 2012, important structural
challenges still confront the UK in improving its trade performance. These
include the need to boost productivity and non-cost competitiveness of the
goods-producing sector, and recuperating the pre-crisis dynamism of service
exports. On the internal side, private sector debt is still considerably above
the indicative threshold. Both households and non-financial corporations
deleverage at a very slow pace, while credit flows remain slightly positive.
Household deleveraging may lose momentum because of a pick-up in house price,
driven by a combination of persistently tight housing supply and policies that
are likely to revive demand. Recent data show a steady rise in mortgage
approvals and signs of an increase in nationwide prices. The high and
increasing level of government sector debt remains a concern as it has
increased substantially in 2009-12. On current trends, government sector debt
is expected to increase in the short term but should fall back thereafter as
growth picks up and if the deficit declines. Finally, the on-going balance
sheet repair of the financial sector and the persistent scarcity of credit for
smaller firms may continue to hold back economic growth. Overall, also
taking into account the identification of imbalances in April, the Commission
finds it useful to examine further the persistence of imbalances or their
unwinding.
­­­­­­­­­­­­­­­­­­______________________
Box 1: Surveillance of current accounts surpluses
in the MIP[24]
The surveillance in
MIP covers both current account deficits and surpluses. However, the nature, importance and
urgency of the policy challenges differ significantly depending on the Member
States concerned. Given the vulnerabilities and magnitude of the adjustment
required, the need for policy action is particularly pressing in Member States
showing persistently large current account deficits and competitiveness losses.
Persistent surpluses may be justified by fundamentals. Nevertheless,
large and persistent current account surpluses can also be caused by
market failures or policy settings that constrain domestic demand and
investment opportunities. However, current account surpluses do not
raise concerns about the sustainability of external debt or financing
capacity.'
Current account
deficits and surpluses are not necessarily macroeconomic imbalances in the sense of developments which are
adversely affecting, or have the potential to affect the proper functioning of
economies, of the monetary union, or on a wider scale. Deficits and surpluses
are a natural consequence of economic interactions between countries. They show
to which extent a country relies on borrowing from the rest of the world or how
much of its resources it lends abroad. In this way, external borrowing and
lending allows countries to trade consumption over time: a country with a
current account surplus transfers consumption from today to tomorrow by
investing abroad. In turn, a country with a current account deficit can
increase its consumption or investment today but must transfer future income
abroad to redeem its external debt. Deficits and surpluses can thus
simply be the result of an appropriate allocation of savings, taking into
account different investment opportunities across countries. Differences in
economic prospects lead to differences in saving behaviour, with brighter
expectations reducing the tendency of economic agents to save and hence
contributing to the accumulation of deficits. In particular, countries with a
rapidly ageing population may find it opportune to save today (i.e. run
surpluses) to smooth consumption over time. 
Current account
deficits and surpluses are part of the adjustment process in a monetary
union. They absorb
asymmetric shocks in the absence of independent monetary policy and nominal
exchange rate adjustment. Market-driven changes in cost and price
competitiveness facilitate adjustment, with competitiveness losses taking place
in overheating economies and gains in countries in cyclical downturn and with
high unemployment. Besides cyclical swings, structural factors also play a role.
Catching-up countries with higher growth prospects tend to run current account
deficits as they borrow resources from abroad, which also lead to trend
appreciations in their real exchange rates. Such 'downhill' financial flows
from the core EU economies to the periphery are a normal feature of savings
looking for the highest return. External imbalances, however, may be
problematic if they become entrenched, either due to structural shifts in the
economy or due to mispricing of the risks and overestimating the expected
returns.
Surpluses can be the result of distortions due to
incorrect expectations, mispricing of risks, market distortions or if they
reflect misguided policy interventions or weaknesses in financial supervision. These market or policy failures imply a
misallocation of resources and a build-up of imbalances and vulnerabilities in
both surplus and deficit countries. The misallocation of resources will entail
welfare losses also in the surplus countries. In these cases, it would
be in the self-interest of the surplus countries to reduce their surpluses,
by removing the obstacles hampering their domestic demand. The large valuation
losses sustained by some surplus countries since the start of the
financial crisis due to inefficient investment of their excess savings signal
that the expectations on future returns on investment were inflated and imply a
reduction in the expected consumption opportunities and a welfare loss. To
avoid these inefficiencies it is important to ensure that financial markets
make decisions on the basis of properly risk-adjusted returns on investment and
that appropriate macro-prudential supervision is in place to prevent excessive
concentration of risks in both capital-originating and -receiving countries.
The predominance of debt instruments in financing deficits in vulnerable
countries was a particular factor that contributed to the concentration of
risks.
The negative
implications of excessive current account deficits and surpluses affect
both the country concerned and its partners. This is particularly so in a monetary union, where
the single exchange rate and the common monetary policy cannot respond to
adjustment needs of individual economies. If a large share of a monetary union
increases savings or reduces investment, and therefore increases its surplus
and exports capital, the current account deficit in the rest of the monetary
area will most likely deteriorate: either through bilateral financial flows, or
through the impact on the common exchange rate. Unless the real effective
exchange rate appreciates in the surplus countries due to relatively stronger
increases in wage and price levels, the nominal exchange rate of the euro will tend
to appreciate. This may have competitiveness and deflationary effects on the
rest of the area, particularly in countries whose exports are more
price-sensitive. In this respect, the current accounts of the euro area countries
as a whole, but also of each one of them individually, are issues of common
interest.
It is not possible to
establish causality between deficits and surpluses in any pair of
countries; but deficits and surpluses in the euro area (and EU) are
closely connected due to intensive cross-border trade and financial links. In particular, the excess savings of the surplus
countries financed deficits in the euro-area periphery. Moreover, some of the
core economies intermediated large financial flows from non-EU investors into
the EU periphery countries. In the absence of adequate financial supervision,
which would have helped to identify and limit the risks involved, this resulted
in credit-driven booms, reductions in savings and excessive investment in
non-productive activities in the periphery, and excessive risk concentration in
the financial systems of the core countries. A spatial correlation analysis
confirms that, in the EU, a country is more likely to run a deficit in its financial
account if its major financial partners run surpluses, and vice versa. On the
other hand, spillovers through bilateral trade relations are dominated by
positive interactions between countries closely integrated in supply chains: a
country is more likely to run a trade surplus, if its major partners also
run surpluses. There is no evidence that the export performance of the
surplus countries significantly crowded out the exports of the euro-area
periphery.
An increase in demand in the euro-area surplus
economies would improve the trade balance of the euro area peripheral economies. However, the impact of such a development
on the rebalancing of surpluses and deficits and on the economic
activity of the deficit economies should not be overestimated. First,
given the sectorial and geographical links, an increase in domestic demand of a
big surplus country, such as Germany, has a much stronger impact on the exports
of the neighbouring countries, including those with a surplus, rather than in
the EU peripheral economies. However, this impact could be larger if the
increase in demand also applied to the other surplus economies. Second,
the impact would be stronger if such an increase in demand (and reduction in
the trade balance) of the surplus countries took place in parallel with
a weakening of the euro exchange rate.
Box 2: What is an imbalance? 
Regulation (EC) No 1176/2011 on the
prevention and correction of macroeconomic imbalances defines a macroeconomic
imbalance as 'any trend giving rise to macroeconomic developments which are
adversely affecting, or have the potential adversely to affect, the proper
functioning of the economy of a Member States or of the economic and monetary
union or of the Union as a whole,' while the excessive imbalances are 'severe
imbalances that jeopardise of risk jeopardising the proper functioning of the
economic and monetary union.'
In general, any deviation from a desirable
level can be considered as an imbalance. However, not all imbalances are
worrisome or require policy interventions as they may be part of the economy's
dynamic adjustment. Imbalances that require close monitoring and possibly
policy interventions relate to developments that could significantly impede the
proper functioning of the economy of a Member State, the euro area or the EU. 
In practice, imbalances  require close monitoring if they are either at
dangerous levels (e.g. high debts) or reflect unsustainable
dynamics (e.g. very dynamic house prices or credit),  that
threaten to result in abrupt and large, and hence damaging, adjustment. For
example, having a large and persistent current account deficit is considered an
imbalance if it runs the risk of leading to a 'sudden stop' and large welfare
costs.
The extent of an imbalance refers to the
degree of obstructing the smooth functioning of economic activity and to the
risk of an abrupt adjustment, that is, the likelihood of an adjustment
occurring within a given period. In general, one can refer to any economic
variable and evaluate their probability of a large change (or of a change in a
combination of them) in the next period. For example, the probability that the
current account deficit or house prices will decline by given percentage points
during the next year. In most cases, however, one is mainly concerned about the
implications to an abrupt adjustment to economic activity and employment. 
The theoretical and empirical literature
provides background for identifying variables that depict imbalances.
Theoretical models have provided underpinning for evaluating whether
developments are unsustainable and hence constitute an imbalance. Empirical
studies have helped improve the theoretical model and highlight the values that
may reflect and suggest unsustainable developments. While this set of variables
captures qualitatively imbalances quite well, the difficulty lies in providing
more quantitative evaluations. That is, qualitatively one can say that if a
country runs unsustainable dynamics such as a persistent and large current
account deficit, it is likely to face an abrupt adjustment at some point.
However, the exact timing and transmission is much more difficult to gauge.
Against this background, when identifying risks
of potential imbalances and selecting Member States for an IDR, the following
broad principles have guided the Commission's work in the reading of the
scoreboard and its auxiliary indicators: 
External debt sustainability: The key scoreboard indicators are the
NIIP (stock) and the current account deficit/surplus (flow). A large negative
NIIP and a large current account deficit are reasons for particular concern. In
case of negative NIIP, it should be qualified by the net external debt to cater
for inward FDI stocks, as those liabilities raise fewer risks than debt[25]. Surpluses do not raise the
same risks as deficit, but they may also be imbalances if they are excessive
and reflect market or policy distortions which lead to misallocation of
resources and welfare losses in the country or in its partners.
Trade performance and competitiveness: The key scoreboard indicator is the
export market shares, but also the price competitiveness indicators, REER and
nominal ULC. Weak trade performance and losses in competitiveness are concerns
by themselves, in particular if there are also external sustainability issues,
a need for a more positive external performance to support a wider deleveraging
effort or reallocation of resources. Relevant auxiliary indicators are the net
trade balance of energy products[26],
change in REER in relation to the euro area, and alternative ULC indicators. An
indicator on the export performance relative to the advanced economies is also
useful. In addition, aspects related to non-price competitiveness could be
taken into account as qualifiers such as information on product and
geographical specialisation, although these issues are in principle to be
considered in the subsequent steps of the MIP. Developments in trade performance
and competitiveness need to be interpreted at the light of the sustainability
issues. Although the reduction in very large surpluses is not to be expected to
take place fundamentally through reduction in exports and losses in market
shares, a loss in market shares in a country in deficit, with very negative
NIIP or with a recent deep deterioration of the current accounts balance cannot
be interpreted in the same manner as a loss in market shares in countries in
surplus.
Private sector indebtedness, deleveraging
and credit: The scoreboard
has been designed to identify excessive leverage and credit growth. Given the
current economic situation, the focus has shifted to deleveraging pressures (i.e.
high stocks of debt, and not so much on excessive credit flows). This is
captured by looking at the stock of private sector debt, acknowledging the
distinction between households and non-financial corporations, and the dynamics
of their debt, and the interaction with general government liabilities. The
stock of sectorial debts can be qualified by looking at both consolidated and
non-consolidated figures (to take into account domestic intra company loans). Private
sector deleveraging pressures should also be qualified taking into account their
interaction with the general government sector[27],
with regard to the combined impact on economic activity. 
Financial sector risks for the real economy: The scoreboard indicator is the growth
rate of financial sector liabilities while a leverage indicator appears among
the auxiliary indicators. Since the aim is to capture the increases of
financial sector-related risks and the way they could amplify shocks in the
real economy, the two indicators should be assessed together. Exposure to
sovereign debt or risks from excessive private debt (mortgages and link with
house prices) are highly relevant. Highly-leveraged sectors can signal an
overexpansion of the banks' balance sheet, feeding credit bubbles and
amplifying any unfavourable economic development. 
Unemployment: The unemployment rate appears in the scoreboard as a
contextual variable, which helps understanding the interaction between the
several areas of an economy pointing towards misallocation of resources
(mismatch) and general lack of adjustment capacity.
Housing and mortgage markets: Key objectives are to capture the risk of
house price bubbles building up and the risks stemming from large additional
corrections, including implications of negative equity positions of households
and on growth conditions through wealth effects. The main indicator is the
yearly change of real house prices put in perspective of accumulated price
changes. Different indicators of over/under-valuation can be used as supporting
evidence, although these are not part of the scoreboard. The risks from further
adjustment need to be qualified by the level of household debt and
interlinkages with the financial system. The supply of credit is relevant in
this context. In some cases, it can also be relevant to take into account
adjustment pressures from the supply side. Given the financial circumstances of
the several Member States, the objective should not only be understanding
whether there are housing bubble building up, but also how the deflating of
bubbles is progressing and risks of either slow or excessively fast
developments.
­­­­­­­­­­­­­­­­­­______________________
   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 || % change (3 years) of real effective exchange rate, HICP deflators relative to 41 industrial countries (a) || % 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 (consolidated) as % of GDP (d), (e) || Unemploy-ment rate - 3-year average   || Private sector debt (consolidated) as % of GDP (d), (e) || General government sector debt as % of GDP   || y-o-y % change in total financial sector liabilities, non-consolidated data 
 Data source || EUROSTAT (Balance of Payments statistics)   || EUROSTAT (Balance of Payments Statistics) ||   DG ECFIN (data base Price and Cost competitiveness).     || 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) 
 Indicative thresholds || -4/+6% Lower quartile (also used as a reference for upper threshold)   || -35% Lower quartile || +/-5%  for €A +/-11%  non€A Lower  and Upper Quartiles of EA -/+ s.d. of EA || -6% Lower quartile || +9% €A +12% non-€A Upper Quartile €A +3% || +6% Upper quartile || +15% Upper Quartile || +10% || 133% Upper Quartile || +60% || 16.5% 
 Some additional indicators to be used in economic reading || Net lending/ borrowing vis-à-vis ROW as % of GDP || Net External Debt as % GDP   Inward FDI flows and stocks as % of GDP || Real effective exchange rate  vis-à-vis rest of the euro area || Relative export market shares relative to advanced economies; 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 || Participation rate, long-term and youth unemployment poverty indicators || Private sector debt based on non-consolidated data ||   || Debt over equity ratio 
Notes:       (a) For EU trading partners HICP is used while
for non-EU trading partners, the deflator is based on a CPI; (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; (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. 
[1]       This Report is accompanied by two working documents: a first
note elaborates on a number of technical changes in the indicators used in the
scoreboard and auxiliary indicators. A second document  contains a wealth of
statistics on the basis of which this report has been prepared. Refer also to
the Eurostat News Release 166/2013, and to the recent proposal for a
Regulation on the provision of statistics for the macroeconomic imbalances
procedure - COM(2013) 342, 7.6.2013. The latter aims to ensure the appropriate monitoring
by Eurostat of the quality of data, as well as issues linked to compilation and
transmission of data and metadata.
[2]       COM(2013) 800, 13.11.2013.
See also the Commission draft for the Joint Employment Report.
[3]       COM(2013) 690, 2.10.2013. The Communication also proposes a
scoreboard of key indicators to be used in the draft Joint Employment Report to
follow employment and social developments and identify problems in those areas
at an early stage. The Council will assess in December whether to use it in the
2014 European Semester.
[4]       In April 2013, the Commission identified imbalances in
Belgium, Bulgaria, Denmark, Spain, France, Italy, Hungary, Malta, the
Netherlands, Slovenia, Finland, Sweden and the United Kingdom, among which
Spain and Slovenia were experiencing excessive imbalances (cf. 'Results
of the In-depth Reviews,' - COM(2013) 199, 10.4.2013, and 'Macroeconomic
Imbalances,' European Economy-Occasional Papers, 132-144). For the full
set of country-specific recommendations adopted by the Council, including those
which are relevant to overcome imbalances, see OJ C 217, 30.7.2013, p. 1.
[5]       OJ L 306, 23.11.2011, p. 25.
[6]       Cf. 'European Economic Forecast-Autumn 2013,' European
Economy, 2013 (7).
[7]       In other words, this means that the reduction in current
account deficits has generally been more than one could expect given the
estimated output gaps in the Member States concerned and their trading
partners. For one method of estimating the cyclical component of current
account balances, see Salto, M. and A. Turrini (2010), 'Comparing Alternative
Methodologies for Real Exchange Rate Assessment,' European Economy-Economic
Papers, 427. 
[8]       Cf. 'The Dynamics of International Investment Positions,'
Quarterly Report on the Euro Area, 2012(3):7-20.
[9]       Cf. 'The Role of FDI in Preventing Imbalances in the Euro
Area,' Quarterly Report on the Euro Area, 2013 (2): 17-25.
[10]     See e.g. IMF (2013), 'Multilateral Policy Issues Report
- 2013 Pilot External Sector Report,' (June), and 'Germany-Staff Report for the
2013 Article IV Consultation,' (August).
[11]     These issues were already addressed in  previous years'
recommendations (CSRs) to these Member States. 
[12]     Cf. 'Current Account Surpluses in the EU,' European
Economy, 2012 (9).
[13]     On the link between ULC, export prices and rebalancing, cf.
'Labour Costs Pass-Through, Profits and Rebalancing in Vulnerable Member States,'
Quarterly Report on the Euro Area, 2013 (3): 19-25.
[14]     Cf. 'Labour Market Developments in Europe-2013,' European
Economy, 2013 (6) and 'Benchmarks for the Assessment of Wage
Developments,' European Economy-Occasional Papers, 146.
[15]     Cf. 'Refining the MIP Scoreboard - Technical Changes to
the Scoreboard and Auxiliary Indicators,' op. cit., on changes in the
definition of private sector debt in the scoreboard.
[16]     Cf. 'Assessing the Private Sector Deleveraging Dynamics,'
Quarterly Report on the Euro Area, 2013 (1): 26-32, and
Cuerpo, C. et al. (2013), 'Indebtedness, Deleveraging Dynamics and
Macroeconomic Adjustment,' European Economy-Economic Papers, 477.
[17]     Cf. 'Product Market Review-2013,' European Economy,
2013 (forthcoming), and 'Drivers of Diverging Financing Conditions
across Member States,' Quarterly Report on the Euro Area, 2013 (1): 19-25.
[18]     Relative (or real) house prices, i.e. prices deflated by
the consumption deflator.
[19]     Cf. 'Assessing the dynamics of house prices in the euro
area,' Quarterly Report on the Euro Area, 2012 (4): 7-18, 'Taxation
of Housing,' Quarterly Report on the Euro Area, 2012 (4): 25-30 and
'Tax Reforms in EU Member States 2013,' European Economy, 2013(5), in
particular Section 2.6. On housing-related risks, see Pataracchia, B., R.
Raciborski, M. Ratto and W. Röger (2013), 'Endogenous Housing Risk in an Estimated
DSGE Model of the Euro Area ,' European Economy-Economic Papers, 505.
[20]     This approach which avoids duplication of procedures and
reporting obligations has been established in Regulation (EU) No 472/2013 (OJ L
140, 27.5.2013, p. 1), which is part of the so-called 'two-pack.' It is
also in line with the Commission proposal on a facility for providing financial
assistance for Member States outside the euro area - COM(2012) 336, 22.6.2012.  For
detailed discussions of the economic situation and progress in the unwinding of
imbalances in those Member States, see the latest compliance reports: in European
Economy­-Occasional Papers, 162 (Ireland), 159 (Greece), 161 (Cyprus), 156
(Romania) and 153 (Portugal). Spain is discussed in this report though it benefits
from official financing for the recapitalisation of banks; cf. European
Economy­-Occasional Papers, 155. On the 'two-pack,' see 'The Two-Pack on
Economic Governance,' European Economy­-Occasional Papers, 147.
[21]     Young people not in employment, education
or training.
[22]     However, the corrective arm of MIP was not triggered given the
ambition of the national reform programme (NRP) and stability programme (SP) of
Spain. The Commission is closely monitoring the implementation of the policy
reforms and compliance with the MIP-relevant recommendations adopted by the
Council in July. This monitoring shows that there has been a visible stepping
up of the pace of reforms over the last months. Despite some delays, the
reforms have been progressing largely in line with the commitments in the NRP
and SP and the MIP-relevant recommendations adopted by the Council in July.
[23]     However, the corrective arm of MIP was not triggered given the
ambition of the Slovenian national reform programme and stability programme.
The Commission is closely monitoring the implementation of the policy reforms
and compliance with the MIP-relevant recommendations adopted by the Council in
July. This monitoring shows that over the last months, there has been a
stepping up of the pace of structural reforms relevant for the adjustment of
imbalances, with crucial progress being achieved in the area of the banking
sector. 
[24]     This box is an extract of the main findings of 'Current Account
Surpluses in the EU,' op.cit.
[25]     When looking into year-to-year developments of the NIIP and
external debt, one should take into account that these variables are measured
at market value: an improvement or deterioration of these variables may depend
as much on an improvement (or deterioration) of the fundamentals, as well as on
the market perceptions of the countries' creditworthiness.
[26]     See in this respect 'Member States' Energy Dependence: An
Indicator-Based Assessment,' European Economy-Occasional Papers, 145,
and 'Energy Economic Developments in Europe,' European Economy, (forthcoming).
[27]     On the government debt sustainability, see 'Fiscal
Sustainability Report-2012,' European Economy, 2012 (8). For a
detailed description of fiscal surveillance, see 'Report on Public Finances in
EMU,' European Economy, 2013 (3).