REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2015 (prepared in accordance with Articles 3 and 4 of Regulations (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)
Date: 2014-11-28
Institutions: European Commission
Subjects: EU Member State, balance of payments assistance, economic disparity, economic growth, economic statistics, inflation, macroeconomics, public debt













EUR-Lex - 52014DC0904 - EN











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52014DC0904

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2015 (prepared in accordance with Articles 3 and 4 of Regulations (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances) /* COM/2014/0904 final */









The Alert
Mechanism Report (AMR) is the starting point of the annual cycle of the
Macroeconomic Imbalance Procedure (MIP), which aims to identify and address
imbalances that hinder the smooth functioning of the economies of Member
States, the economy of the EU, and may jeopardise the proper functioning of the
economic and monetary union. 
The AMR uses
a scoreboard of eleven indicators, plus a wider set of auxiliary indicators, to
screen Member States for potential economic imbalances in need of policy action.
Member States identified by the AMR are then given an In-Depth Review (IDR) by
the Commission to assess how macroeconomic risks in the Member States are
accumulating or winding down, and to conclude whether imbalances, or excessive
imbalances exist.
The Commission
will publish the IDRs in spring 2015 and the findings will feed into the
country-specific recommendations under the 'European Semester' of economic
policy coordination. 
1.         Executive Summary
Macroeconomic
imbalances remain a serious concern and underline the need for decisive,
comprehensive and coordinated policy action. EU
economies continue to progress in correcting their external and internal
imbalances. High and unsustainable current account deficits have been
considerably reduced, eliminated, or turned into surpluses and the process of
balance-sheet repair is progressing in all sectors in most countries.
Furthermore, the recovery in competitiveness is encouraging, as result of
endogenous corrections and market reforms, but
sustaining competitiveness going forward remains a key concern in particular
for Member States with large external imbalances. The high levels
of private and public debt in most countries, and the high external liabilities
in many, still constitute substantial vulnerabilities for growth, jobs and
financial stability. Unemployment and other social indicators remain very
worrying in several countries, and economic growth has been insufficient to
lead to a marked improvement in labour and social data.
Slow
growth and low inflation weigh on the reduction of imbalances and of macroeconomic
risks. Data released during the summer and the
latest economic forecasts[1]
show that economic activity has lost momentum and disinflationary tendencies
have strengthened in most of the EU. In 2014 and 2015, economic activity in the
EU is expected to grow at 1¼ and 1½ per cent, after having posted zero growth in
2013. In the euro area, real GDP growth rates are –½, +¾ and just above 1 per
cent in 2013, 2014 and 2015, respectively. The aggregate figures mask considerable
differences across Member States. While some Member States, such as the Baltic
countries, the Czech Republic, Luxembourg, Hungary, Poland, Slovakia and the
United Kingdom, reported relatively robust output growth in the first three
quarters of 2014, and Member States such as Spain and Slovenia succeeded in
catching up after a severe economic adjustment, other economies, both big and
small alike, have remained sluggish. These divergences reflect idiosyncratic
features, such as distinct deleveraging pressures, and different needs and
paces of fiscal consolidation, as well as different exposure to global
developments, but also differences in adjustment capacity and resolve with the
implementation of reforms.[2]
The weakness of economic activity in the EU as a whole is also related to the very
asymmetric nature of the rebalancing thus far, with weak domestic demand in
creditor countries sustaining persistently large current account surpluses.
Large negative output gaps in several countries, weak growth, considerable
slack in labour markets, and strong disinflationary developments in the global
economy imply that inflation has been very low and is expected to remain below
the ECB’s definition of price stability for a prolonged period. Very low
inflation adds to the risks related to excessive indebtedness and increases the
economic costs of rebalancing and deleveraging. 
This
Report initiates the fourth annual round of the MIP[3].
The procedure aims to identify imbalances that hinder the smooth
functioning of the Member States' economies, of the euro area, or of the EU as
a whole, and to spur the right policy responses. The implementation of the MIP is
embedded in the 'European Semester' of economic policy coordination so as to
ensure consistency with the analyses and recommendations made under other
economic surveillance tools. The Annual Growth Survey (AGS), which is adopted at
the same time as this report, takes stock of the economic and social situation
in Europe and sets out broad policy priorities for the EU as a whole for the
coming years.
This
Report identifies Member States that may be affected by imbalances in need of
policy action and for which further in-depth reviews should be undertaken. The AMR is thus a screening device for economic imbalances,
published at the start of each annual cycle of economic policy coordination. It
is 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. Since last year, the auxiliary indicators have also covered
a number of relevant employment and social indicators. The introduction of
these indicators in the Macroeconomic Imbalance Procedure should be fully used
to gain a better understanding of the labour market and social developments and
risks. The more detailed scoreboard of key employment and social indicators in
the draft Joint Employment Report also allows a broader understanding of social
developments. More detailed and encompassing analyses for Member States flagged
by the AMR will be performed in in-depth reviews (IDRs). To prepare the IDRs,
the Commission will base its analysis on a much richer set of data: all pertinent
statistics, all relevant data, all material facts will be taken into account. As
established by the Legislation[4],
it will be on the basis of the IDRs that the Commission will conclude whether
imbalances or excessive imbalances exist, and subsequently prepare the appropriate
policy recommendations for each Member State.
Based on the economic
reading of the MIP scoreboard, the Commission finds that IDRs are warranted to examine
in further detail the accumulation and unwinding of imbalances and their
related risks in 16 Member States. For several countries,
the IDRs will elaborate on the findings of the previous surveillance cycle[5], while for others, it
will be the first time the Commission will prepare an IDR. This is, in
particular, the case for the Member States that have recently completed, or are
on the point of completing, their economic adjustment programmes supported by
financial assistance. 
·        
For Croatia, Italy and Slovenia,
IDRs will assess whether previously identified excessive imbalances are unwinding,
persisting or aggravating, while paying due attention to the contribution of the
policies implemented by these Member States to overcome these imbalances;
·        
For Ireland, Spain, France, and Hungary, Member States with imbalances in need of decisive policy
action, IDRs will assess risks related to the persistence of imbalances; 
·        
For the other Member States previously
identified as experiencing imbalances (Belgium, Bulgaria, Germany,
the Netherlands, Finland, Sweden and the United Kingdom),
IDRs will assess in which Member States imbalances persist, and in which they have
been overcome;[6]

·        
For the first time, IDRs will also be prepared
for Portugal and Romania. After the completion of its
economic adjustment programme in mid-2014, Portugal joins the standard
surveillance procedures. For Romania, the surveillance of imbalances and
monitoring of policies has taken place under the adjustment programme, which is
supported by precautionary financial assistance. While this arrangement is
still ongoing, the delays in completing the semi-annual reviews imply that Romania should be re-integrated in the MIP surveillance.
For
the Member States that benefit from financial assistance, the surveillance of
their imbalances and monitoring of corrective measures take place in the
context of their programmes. This concerns Greece and Cyprus. However, the situation of Greece, in the
context of the MIP, will be assessed at the end of the on-going financial
assistance, depending on the arrangements to be eventually agreed. 
For
the other Member States, the Commission will not at this stage carry out
further analyses in the context of the MIP. On the
basis of the economic reading of the scoreboard, the Commission is of the view
that the macroeconomic challenges of the Czech Republic, Denmark, Estonia, Latvia, Lithuania, Luxembourg, Malta, Austria, Poland and Slovakia do not represent imbalances in the
sense of the MIP. However, careful surveillance and policy coordination are necessary
on a continuous basis for all Member States to identify emerging risks and put
forward the policies that contribute to growth and jobs.
In the context of multilateral surveillance,
and in line with Article 3(5) of Regulation (EU) No 1176/2011, 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. 
Taking into account those discussions with
the Parliament, and within the Council and the Eurogroup, the Commission will
prepare IDRs for the relevant Member States. These are expected to be published
in spring 2015, ahead of
the 'European Semester' package of country-specific recommendations.
2.         Imbalances and Risks: issues of a cross-country
nature
EU
Member States have made progress towards correcting their imbalances, but the
slow recovery has been an obstacle to the reduction of the imbalances and related
macroeconomic risks. Over the past few months,
economic news have been gradually worsening. Growth fell short of expectations and
either contracted or stagnated in Germany, Italy, and France. Credit growth remains low in the EU, despite accommodative monetary policies, as demand
is subdued and the private sector is still deleveraging. A protracted period of
very low inflation, reflecting a large negative output gap in several countries
and prices reacting more to the economic slack than previously[7], has also been an
obstacle to a smooth deleveraging. Geopolitical tensions could also weigh on economic
activity and generate macroeconomic risks, particularly in the countries with deeper
trade links and financial exposures to the Eastern neighbourhood. Moreover, the
low level of economic activity keeps unemployment, as well as other social
indicators, at unacceptable levels; this may in itself damage medium-term
growth prospects.
The
policy responses in each Member State should be adapted to their individual
situation but need also to consider the wider (EU and euro area) dimension and
the potential for spillovers. Macroeconomic
imbalances in their different guises raise macroeconomic risks and challenges;
these are first and foremost of a national nature. The imbalances related to
external sustainability, competitiveness, excessive indebtedness in the private
sector and deleveraging pressure, fiscal sustainability, asset prices,
financial stability concern mainly the capacity of each economy to generate
strong and sustained growth and to create jobs. However, given the
interconnection among EU economies, there are several channels, including trade, financial and monetary linkages, structural reforms, confidence
and uncertainty, through which imbalances can spillover from one country to
another and where efficiency losses in one Member State may imply foregone
welfare in another. The weakness of domestic demand, in particular of
investment, and disinflationary pressures appear to be prime examples of how
macroeconomic challenges in the Member States can affect the whole Union[8].
Promotion
of efficient investment to restore potential growth is a key priority. Over the last seven to eight years, since the start of the crisis,
there has been a substantial reduction in the EU’s growth potential.[9] According to the latest
estimates, the annual growth in potential output of the EU fell from slightly
above 2 per cent ten years ago to below 1 per cent currently.[10] Besides the long-term
demographic developments,[11]
the medium-term slowdown in the activity can be attributed to weak productivity
gains and the slow accumulation of capital.[12]
The role of capital formation (including R&D) as a driver of growth has
been limited in recent years, as the investment ratio remains substantially
lower than a few years ago in almost all EU countries.[13] 
Current
account rebalancing remains asymmetrical reflecting weak demand in both debtor
and creditor countries. (Graph 1) The
necessary correction in current accounts has continued in a number of
countries, notably Ireland, Cyprus, Greece, Spain, Portugal, Romania and Slovenia. Their large deficits of a few years ago have morphed in small deficits to
large surpluses and help in reducing risks related to external liabilities. Italy also posts a mild surplus whereas France has kept on running a moderately negative current
account balance. However, in many cases, much of the adjustment has been driven
by a contraction in demand, particularly investment (Graph 2), which could
have negative implications for medium-term potential if uncorrected. Higher exports
also played an important role in 2013, particularly in Bulgaria, Greece, Slovenia, Lithuania, Romania and Portugal, but also to a lesser extent in Spain and Ireland. In terms of sectoral adjustment, the vulnerable countries continue to adjust at different
paces. Spain and Portugal started to adjust from non-tradable to tradable
sectors early on in the crisis and the share of tradables in both employment
and gross value added has been rising since 2010.[14] This process of
adjustment has yet to start for Italy. Much of the rebalancing in these
countries is of a non-cyclical nature, i.e. it has been larger than the
output gaps of the Member States concerned and its partners would suggest.[15] 
Graph 1: Current Accounts Deficits (-) and
Surpluses (+)
2008, 2013 and 2015 (forecast)
 (% of GDP)
 
Note: Break in series in 2013 (CY, EL, ES, NL, SI, SK, BG, PL). SK figures
according to BPM5/ESA95 standards. Please refer to the statistical annex for
more details.
Source: Eurostat, Commission services.
The euro area as a whole is expected to maintain a relatively large
external surplus. The three-percentage point
increase in the euro area’s surplus between 2008-14 reflects the fact that surpluses
in some Member States have not sufficiently declined in reaction to the large
rebalancing efforts of the economies that used to register large current
account deficits. Germany and the Netherlands have continued to post very high
surpluses, above what economic fundamentals would imply, and well above the
scoreboard’s indicative threshold. In the case of Germany, when allowing for
the position in the business cycle, the cyclically-adjusted surplus may even be
higher than the headline figure. Given the reduction in current account
deficits, the geographic composition of the surpluses in creditor economies,
particularly Germany, has changed. The balance vis-à-vis the rest of the world
has increased, while the balance vis-à-vis the euro area has declined. The
latter has been driven mainly by a reduction in exports to the rest of the euro
area, rather than an increase in imports by Germany. Although current account
surpluses do not pose the same challenges as unsustainable deficits and are
partially justified, large and protracted surpluses may reflect economic
inefficiencies with low domestic investment and demand, which in the medium run
leads to wasted potential output domestically. An increase in domestic demand
through an acceleration of investment, would boost potential growth, and could
contribute to the recovery and to the ongoing adjustment in the euro area.[16]
Graph 2: Share of investment in GDP
(gross fixed capital formation; 2014 data
and change in 2007-2014)

Source: Commission services.
The range of
external liabilities in the EU is very wide and the risks to sustainability
remain high. (Graphs 3) As the reduction in
large deficits and the shift to external surpluses is only a recent development
in debtor countries, external liabilities in these countries have not yet
improved substantially, and in some cases may even have deteriorated. For the economies
with the largest negative international investment positions (NIIP), current
account balances are already sufficient to stabilise and slowly reduce their net
external indebtedness over the medium term (Graph 4). This is notably
the case for Ireland, Spain, Latvia, Romania and Portugal; but not yet Greece or Cyprus. But stabilising external indebtedness would not be a prudent objective, in particular
for countries where the large NIIPs essentially reflect debt. To reduce the
NIIP to safer levels over the next decade, moderate to relatively large
surpluses are necessary in all these countries. Moreover, there are important
risks that arise from what an environment of low inflation may imply for
competitiveness and indebtedness. Low price and wage inflation helps countries
regain competitiveness. However, the competitiveness adjustment is made
difficult when low inflation also concerns the main trade partners of each
economy. Coupled with the adverse effects arising from a less positive outlook
for growth, external sustainability remains an issue for those countries. The
data for France and the United Kingdom suggest a continuous increase in their
net external liabilities, though their external indebtedness remains quite
moderate.
Graph 3: Net International Investment Positions
2008, 2013 and 2015 (projection)
(% of GDP)
Note: 2015 projections assume no valuation gains/losses. BE,
IE, SK, DK, BG, HR, EA18 and EU28 figures according to BPM5/ESA95 standards.
CY, DE, ES, NL and PL: break in series in 2013.  Please refer to the
statistical annex for more details.
Source: Eurostat, Commission services.
Graph 4: Current Account Balances Necessary to Stabilise or
Reduce External Liabilities (NIIP) 
2014 (forecast), selected Member States (% of GDP)
 .
Note: This chart does not show data for Belgium, Denmark, Germany, Luxembourg,  Malta, the Netherlands, Austria, Finland and Sweden, the NIIP of which is
positive in 2013 or forecast to be positive in 2015. Cyprus is also excluded
due to data limitations. The current account balance required to stabilise or
reduce net external liabilities rests on the following assumptions: GDP
projections stem from the latest Commission forecasts (up to two years ahead); the
medium-term forecasting framework (between two and five years) and from the
latest fiscal sustainability long-run projections (beyond five years);
valuation effects are conventionally assumed to be zero in the forecast period,
which corresponds to an unbiased forecast for asset prices; and net capital
transfers are conventionally projected to be zero.
Source: Commission services.
Competitiveness
has improved in several economies. When the
three-year average is considered, the real effective exchange rate (REER) has
depreciated in most EU countries, but has remained within the indicative
thresholds in each of them. This was the case in Ireland and Greece, but also in France, the Czech Republic, Denmark, Croatia, Hungary, Latvia and Poland. It was also the case in other Member States such as Spain, Portugal, Cyprus or Finland, but for each of these, the real depreciation was much less than in Germany. In 2013, however, movements in the euro’s exchange rate[17] and the national
inflation rates meant that the HICP-based REER appreciated in several countries
including Germany, the Netherlands and Austria. This development could
contribute to a more symmetric rebalancing in the euro area. However, a number
of countries that still need to recover competitiveness, including Spain, Italy, Cyprus, France and Portugal, also saw their real exchange rates rise. Unit labour
costs decreased in 2013 in some of the euro area’s periphery countries,
particularly Greece, Cyprus, Spain and Ireland, as wages fell. These decreases
were widely spread across sectors (e.g. manufacturing, market services,
construction)[18]
in Spain and Greece. The other EU economies experienced small increases in
their ULCs driven by wage increases above productivity gains, which were
marginal in France and Italy. This pattern in ULCs is observed across main
industrial sectors as well as market services in these two economies[19]. Increasing ULCs
caused by wage developments exceeding labour productivity are also found in the
 Netherlands and Germany. Some of the Eastern EU economies showed a relatively large
increase in their ULC in 2013 despite favourable productivity developments.
This is particularly the case of Bulgaria, Estonia, Latvia, Hungary and Romania. Concerning non-cost competitiveness, data on the geographic destination of
exports is evidence of gains; however, analyses on the quality of exports have
been less conclusive.[20]
The decline
in export market shares for most European countries has eased. But it has not yet been reversed. Globally, most Member States have
lost significant market shares over the last few years with Greece, Croatia, Cyprus and Finland showing the most significant losses. Only some Eastern EU
economies (Bulgaria, the three Baltic nations and Romania), which together do
not represent more than 2½ per cent of the EU’s exports) have increased their global
market shares. In 2013, however, most Members States gained some market share, particularly
in services, thus moderating this trend. Part of the loss in market share over
the medium term may not be recovered as it is a result of the rise of emerging
economies. However, over the last five years, most Members States have also lost
ground to other advanced economies, as illustrated by the auxiliary indicator
of export performance vis-à-vis the OECD. The losses in export market shares,
which include intra-EU trade, need to be seen in the context of weak domestic
demand in the EU. In fact, in the post-crisis period, there has been a decline in
the relative relevance of intra-EU trade, while exports outside the EU have
generally been more dynamic.
The private
sector may still have a significant amount of deleveraging left to do (Graph 5). Private sector debt (both households and non-financial corporates) remains
high and above the indicative threshold of the scoreboard in a majority of
Member States. This has been in spite of notable reductions in the debt-to-GDP
ratio over 2012-13, especially in Denmark, Estonia and Ireland. In addition, the overall reduction in private indebtedness in the vast majority of
the EU Member States is dwarfed by the magnitude of increases before the crisis,
leaving sizeable further adjustment needs ahead. Moreover, the pace of
deleveraging has been much slower than in the United States.[21] Only in Germany, where private indebtedness was not a key concern before the crisis, has private
debt fallen below the levels of a decade ago. Member States have been facing
different challenges depending on whether excessive debt concerns the household
sector (as in the Netherlands and Denmark), the corporate sector (e.g. Bulgaria and Slovenia), or both (Ireland, Spain and Cyprus). Negative credit flows to the private
sector, signalling active debt repayment, were the main driver of the reduction
in household debt over the last few years, with an acceleration in 2013 in Spain, Portugal and Ireland, and in corporate debt in Malta, Slovenia, UK and Spain. In some other cases, the reduction in private debt-to-GDP ratios has been more passive
and compatible with positive net credit flows for both households and
corporations, notably in Estonia and the United Kingdom. Despite negative
credit flows, Greece has failed to significantly reduce its debt-to-GDP ratios
(especially of households').[22]
(Graphs 6a and 6b).
Graph 5: Non-Financial Corporate, Household and General Government Debt
2013 compared with 2008 (shaded)
(% of GDP)
 
Note: MT, EE, PL (general government): break in series in
2013. EA18 and EU28 data are still under ESA95 standards.  Please refer to the
statistical annex for more details.
Source: Eurostat.
Graph 6a: Drivers of the cumulative change in household debt, 2014Q1 
 5 years   || 1 year 
Note:  Data for IE and NL refer to the period up to 2013Q4. 
Source: Eurostat, Commission services
calculations.
Graph 6b: Drivers of the cumulative change in corporate debt, 2014Q1 
 5 years || 1 year 
Note: (1) Non-consolidated data.
Cumulative change of the debt ratio decomposed into the contributions of i. net
credit flows, ii. other changes in outstanding debt (e.g., valuation
effects or write-offs), iii. real GDP growth, and iv. inflation. (2) The x-axis
on the right-hand panel represents the contribution of net credit flows to the
decrease of the ratio over the period.
Data for IE,
HU and NL refer to the period up to 2013Q4.
ESA95 data.
Please refer to the statistical annex for more details
Source:
Eurostat, Commission
services calculations.
Thanks to the
fiscal consolidation efforts of recent years, the pace of fiscal adjustment is
set to ease. Member States in the euro area and the
EU as a whole plan to continuing reducing their deficits. However, compared to
the stability and convergence programmes of spring 2014, there is a slowdown in
the planned deficit reduction. This reflects a downward revision in economic
activity, but also a reduction in fiscal effort,[23] which comes to a halt
in 2014 and is not planned to resume in 2015. At the aggregate level, this
appears an acceptable balance between sustainability requirements and cyclical
conditions. Therefore, the drag on activity in several Member States and the
resultant spillovers in the euro area (and the EU) should be further reduced.
However, in a number of cases, significant challenges remain for the most
indebted governments (e.g. Greece, Portugal, Italy, Ireland, Cyprus and Belgium), or where the increase in the debt-to-GDP ratio has been fastest (e.g.
Spain, Croatia and Slovenia). The challenges in these countries are magnified
by high private sector debts (Graph 5) and economic and demographic
prospects.[24]
Risks to financial stability have subsided in the euro area. Spurred by the perspective of the comprehensive assessment, banks'
equity capital ratios improved further during 2013 and the first three quarters
of 2014. Central bank measures and benign market conditions helped to ease
liquidity shortages and kept banks' funding costs low in the euro area and
beyond. Likewise, fragmentation on the sovereign bond market has eased, as cross-border
trades in bonds from financially stressed sovereigns resumed. In particular, in
most of the countries of the euro area periphery, balance sheets shrinking because
of private sector deleveraging, rising non-performing loans and the return to
market funding, have led banks to decrease their reliance on central bank
funding. Banks focused on improving their equity ratios; given the results of
the asset quality review (AQR) and stress tests announced on 26 October 2014,
balance sheet repair for a vast majority of institutions is now largely
complete. Credit flows remain negative in the stressed countries, and
relatively low in most other euro area economies, although early signs of
improvement have been noticeable in recent quarters. Overall, for each Member State, the financial sector’s total liabilities decreased, or rose at a pace that
was lower than the scoreboard’s threshold.
Subdued credit reflects weak credit supply and demand. Banks face pressure to deleverage in view of impaired assets on
their balance sheets. Provisioning for bad loans is still ongoing and progress
in tackling them is uneven, though notable improvements in adequate loan-loss
recognition and provisioning have taken place following the completion of numerous
national exercises in vulnerable countries, and thorough the AQR and stress tests
of the ECB and the European Banking Authority. Loan write-downs, early
redemptions, and pre-payments, have started to make an impact on private debt
in several countries, such as Latvia, the United Kingdom and Spain, but have not advanced far in most EU economies. Throughout 2013, non-performing
loans continued to increase in several Member States including Spain, Italy,
Portugal, Ireland, Greece, Cyprus, and France (albeit from relatively low levels),
or stabilised at a relatively high level (such as in Hungary). Nevertheless, greater
certainty about banks' balance sheets over the course of 2013, and in
particular after the unprecedented scrutiny they underwent during the
comprehensive assessment, has helped to abate financial stability risks in most
economies. Recent events in Bulgaria and Portugal, however, illustrate that financial
risks from specific banks may remain. Fragmentation continues on the retail
banking market, with the euro area banks reducing their activities in Central
and South Eastern Europe. While some residual risks remain for credit provision
in those economies, asset wind-downs have mostly proceeded in an orderly
fashion in 2013 and 2014.[25]
The outlook for credit is subdued, as credit demand remains low, reflecting investment
and consumption levels dampened by uncertainty, high indebtedness and low prospects
for income and growth. 
In 2013, housing markets became more heterogeneous across the EU. The annual change in inflation-adjusted house prices in 2013 varies
from double-digit falls in Croatia and Spain to surges above the indicative
threshold of 6 per cent in Latvia and Estonia. This widening of the
distribution reflects the fact that the market in most Member States has
already bottomed out while others are expected to do so only in the coming
years. House prices continued to correct at a rapid pace in vulnerable
countries such as Greece, Cyprus and Slovenia, where house prices had already
fallen significantly from their peaks. Ireland, where house prices have begun
rising again after a deep correction during the crisis, is a notable exception.
While about one-third of EU housing markets were bottoming out, others have
picked up more clearly despite relatively high prices (e.g. Sweden and the United Kingdom). Elsewhere, (e.g. Denmark and Germany) recovery from past
falls and/or low prices has driven increases. Residential investment remains at
subdued levels, particularly in Member States where corrections are still
running their course. While in some cases this reflects the overinvestment of a
few years ago (e.g. Spain), in others, it is related to general economic
uncertainty, impaired credit supply and demand, and regulatory bottlenecks. Continued
reforms to institutional arrangements affecting housing markets, such as
changes to the tax system to remove home-ownership incentives, are expected to help
stabilise these markets in the medium term.[26] 

Graph 6: House prices (deflated)
2008, 2011 and 2013
(index 2000=100, u.o.i.)
Note: Base years = 2001 (BG), 2002 (CY), 2002 (SI), 2005 (EE), 2006 (SK, LT),
2007 (HU), 2008 (RO, PL), because of missing data. 
Source: Eurostat.
Graph 7: Unemployment rate
2008, 2013 and 2015(forecast)

Source: Commission services.
Box:
The labour market and social situation remains very serious
Employment
and unemployment developments.
Since
mid-2013 unemployment has stabilised at historically high levels in both EU-28
(10.7% 2014) and EA-18 (12.0% 2014), although the situation varied
significantly across the EU (Graph 7). With slower and weaker growth now
anticipated, high unemployment is expected to persist for longer with
wide-ranging differences across Member States. Long-term unemployment is still
rising due to the protracted nature of the crisis. 
Over the
last year, long-term unemployment as a percentage of total unemployment
increased from 45.3% to 48.7% in EU-28 (47.5% and 51.5% in EA-18). However, in
some countries employment in the tradable sector has stopped declining but
continued in the non-tradable sector (Spain, Portugal), reflecting ongoing
structural changes. The reduction in unemployment is mainly linked to a
slowdown in job destruction, while, albeit slightly improving, job finding
rates remain depressed. At the same time, employment started growing very
moderately against a backdrop of an uncertain outlook and protracted resilience
in activity rates and subdued dynamics in hours worked. 
The
at-risk-of-poverty and social exclusion rate increased by 8.7 million since the
crisis, with differences between Member States still growing. Since 2011,
household disposable incomes have been declining in real terms on average in
EU-28 and EA-18. The stabilising effect of social spending on household income
lessened after 2010, with distributional impacts of fiscal consolidation
varying substantially across countries.
Peaking at
23.6% in the first quarter of 2013 before receding to 23.1% at the end of the
year, youth unemployment affected 5.6 million young people in 2013. In almost
two thirds of Member States, youth unemployment rates in July 2014 were still
close to their historic highs – with youth unemployment rates still close to or
above 40% in those hardest hit (Greece, Spain, Croatia, Italy, Cyprus and Portugal). There are, however, some cautiously positive developments, with
averages declining both in EU-28 (decline of 1.2 pp) and EA-18 (0.5 pp). The EU-28
and EA-18 NEETS rate (young people not in employment, education-and training) averages
decreased only very slightly, leaving large divergences among Member States.
That said, the share of young people not in education, employment or training
increased significantly in nearly half of Member States over 2013. The current
state of play thus underpins an urgency for all Member States to deliver on the
Youth Guarantee.
Household
incomes continued to stagnate in real terms or decline strongly after 2011 in
countries most impacted by a further deterioration of economic conditions.
Household incomes have primarily been affected by the reduction of market
incomes and the weakening impact of social transfers over time. Income
inequality (S80/S20) is growing across and within Member States, particularly
in those Member States that suffered the largest increases in unemployment. The
working age population (18-64 years) is seeing its risk of poverty rise in many
Member States. In most of the affected countries, the extended period of
negative or close to zero growth, rising long-term unemployment and the
weakening over time of the impact of social transfers are giving rise to
poverty risks.  
Long, drawn-out
negative employment and social developments can have a negative impact on potential
GDP growth in a variety of ways and risk compounding macroeconomic imbalances.
Labour
mobility.
Intra-EU labour
mobility increased in 2013, although it remained below the flows recorded
before 2008. Flows from East to West, from new Member States with lower GDP per
capita to old Member States with higher GDP per capita continued to account for
the bulk of movements, although flows from other peripheral countries severely
affected by the crisis continued to increase rapidly. Reflecting the improved
economic situation, the net outflow declined in Estonia, Latvia and Ireland, while net outflows increased in Greece and Spain and most Cyprus, where the impact was most pronounced. The impact of these movements on potential
growth will require careful monitoring. Countries with more stable economies,
such as Germany, Austria, Sweden and Denmark saw some further increases in net immigration
from other EU Member States. Mobile EU citizens continue to have higher
employment rates on average than the populations of their host countries[27]
and on average do not use welfare benefits more intensively than nationals of
their host countries do.[28]
The over-qualification rate among mobile workers remains high, with many highly
educated workers taking low- or medium-skilled jobs[29]. 
For more details
on the labour market and social trends and the related challenges, see the
draft Joint Employment Report (JER), and its more detailed scoreboard of key
employment and social indicators. The reading of the JER scoreboard is
supplemented by the additional information derived from the Employment
Performance Monitor (EPM) and the Social Protection Performance Monitor (SPPM)
and the assessment of policy measures undertaken by the Member States. The JER
scoreboard succeeded in highlighting key employment and social challenges
in the context of the 'European Semester' of economic policy coordination and
feeding into debates on the institutional level.
3.         Imbalances and
Risks: country-specific commentaries 
This section provides a succinct economic reading of the scoreboard
and auxiliary variables in each Member State. Together with the discussion of
cross-country issues, it helps to identify the Member States for which in-depth
reviews (IDRs) should be prepared. As explained above, it will be on the basis
of the IDRs that the Commission will conclude whether imbalances or excessive
imbalances exist.
The MIP does not apply to Member States
benefiting from financial assistance in support of their macroeconomic
adjustment programmes,[30]
currently Greece, Cyprus and Romania. However, the commentaries below also
concern Greece and Romania. The situation of Greece in the context of the MIP,
including the preparation of an in-depth review, will be considered at the end
of the current financial assistance. The situation of Romania under the MIP requires a re-assessment, as the review of its precautionary
arrangement has been delayed for several months. 
Please refer to the Statistical Annex for the full set of statistics
on the basis of which this economic reading and the full report has been
prepared.[31]

Belgium:
In March 2014, the Commission concluded that Belgium was experiencing macroeconomic imbalances in need of monitoring and policy action,
particularly with regard to the external competitiveness of goods. In the
updated scoreboard, some indicators are beyond the indicative thresholds,
namely export market shares (despite an improvement compared to last years' figures),
private and public sector debt.
The three-year current account indicator recorded a relatively small
deficit in 2013, which is expected to improve slightly. The net international
investment position remains strongly positive. In 2013, for the first time
since 2009, Belgium’s exports gained market share, leading to a marked
improvement in the export market share indicator (five-year average), although
it still registers a loss beyond the threshold. Regarding cost competitiveness,
the three-year average unit labour cost (ULC) indicator increased but remained
within the threshold on the back of ULC growth in 2011-12. However, there has
been a deceleration since 2013, which is projected to continue over the medium
term. Private sector debt increased somewhat compared to 2012 and remains above
the threshold value, mainly reflecting the high level of corporate debt. Public debt, above 100 per cent of GDP, remains
broadly stable. Financial sector liabilities decreased in 2013 while financial
sector leverage fell to its lowest level in five years. Inflation-adjusted house
prices were stable in 2013 following a relatively flat trend in recent years. Overall,
the Commission finds it useful, also taking into account the identification of
imbalances in March 2014, to examine further the persistence of imbalances or
their unwinding.
Bulgaria: In March 2014,
the Commission concluded that Bulgaria was experiencing macroeconomic
imbalances in need of monitoring and policy action, in particular concerning
the protracted adjustment of the labour market, while the correction of the
external position and corporate deleveraging were progressing well. In the
updated scoreboard, some indicators are beyond the indicative thresholds,
namely the net international investment position (NIIP), unit labour costs,
private sector debt and the unemployment rate. 
The NIIP remains strongly negative despite the further improvement
observed in 2013 on the back of a current account surplus. A positive export
performance has resulted in market shares gains despite growing unit labour
costs. Private sector debt remains close to, but just above the scoreboard
threshold and is concentrated in the corporate sector. Over the first half of
2014, Bulgaria’s unemployment rate declined for the first time since 2009, but
remains high, at over 12 per cent in 2013. In addition, youth unemployment has
continued to grow, and long-term unemployment remains high. Combined with still
declining employment, this adds to the significant social challenges that the
country is already facing, as reflected in very high rates of poverty and
social exclusion. In June 2014, Bulgaria's banking sector experienced severe
turbulence when rumours of weaknesses sparked a bank run on some
domestically-owned banks. As a result, one bank was placed under special
administration, while another received liquidity support from the government.
The problems in the financial sector may have significant implications for
macroeconomic stability by weighing on economic growth, prolonging deflation
and aggravating fiscal challenges. Overall, the Commission finds it useful,
also taking into account the identification of imbalance in March 2014, to
examine further the persistence of imbalances or their unwinding.
Czech Republic:
In the previous rounds of the MIP, imbalances were not identified in the Czech Republic. In the updated scoreboard, two indicators are beyond the indicative
thresholds, namely the NIIP and, for the first time, losses in the market share
of exports. 
The current account deficit has narrowed in recent
years, a trend that is expected to continue. The NIIP remains well above the
threshold but broadly stable. Risks related to the external position remain
limited as much of the foreign liabilities are accounted for by foreign direct
investment and, consequently, net external debt is very low. However, the
primary income flows associated with this position require sustained trade
surpluses in order to ensure external sustainability, underlying the necessity
of maintaining competitiveness. The indicator on losses in the market share of
exports has moved beyond the threshold, although losses in 2013 decelerated
compared to 2012 and are expected to be contained over the coming years. At the
same time, there have been favourable developments in competitiveness
indicators, such as REER and ULC. Private sector debt levels have increased but
remain relatively low and well below the threshold. At the same time, credit
growth is weak. Despite a substantial increase in recent years, public debt
remains stable and below the threshold. The largely foreign-owned banking
sector remains stable, although total financial sector liabilities increased
quite substantially in 2013. Unemployment has been stable throughout the crisis
and has recently started to decline. Overall, the Commission will at this
stage not carry out further in-depth analysis in the context of the MIP.
Denmark: In March 2014, the Commission
concluded that the macroeconomic challenges in Denmark did not constitute
substantial macroeconomic risks that would qualify as imbalances in the sense
of the MIP. In the updated scoreboard, some indicators are beyond the
indicative threshold, namely the current account surplus, losses in export
market shares, and private sector debt. 
The current account surplus has been on an
increasing trend for a number of years, and has exceeded the threshold of the
scoreboard. To some degree, this reflects the weakness of domestic demand growth
in Denmark compared to the country’s main trading partners. The current account
surplus is expected to decrease as the recovery gains a firmer grip. Exports
gained market share in 2013, cushioning the decline of previous years. Cost
competitiveness indicators do not point to further losses. Private sector debt
remains high and beyond the scoreboard threshold, although it has been on a
declining path since 2009. High household debt is a specific feature of the
Danish economy, related to its mortgage credit system. As a result, household
debt is matched by a high level of assets, such as real estate and very high
pension savings. Furthermore, households have been able to withstand the house
price adjustments that took place until 2012 without significant increases in
arrears. Hence, risks vis-à-vis the real economy and financial stability appear
contained. Furthermore, the financial sector has been strengthened by
regulatory and supervisory measures. Overall, the Commission at this stage
will not carry out further in-depth analysis in the context of the MIP. 
Germany: In March 2014, the Commission
concluded that Germany was experiencing macroeconomic imbalances in need of
monitoring and policy action. These imbalances concern large and persistent
current account surpluses that are the result of low domestic demand, including
investment, as well as strong competitiveness. The need to address the weakness
of demand and investment, which is holding back Germany’s economic growth, is
particularly important given the prominent role of the German economy and its potential
spillovers onto the EU and euro area. In the updated scoreboard, some
indicators remain beyond the indicative threshold, namely the current account
surplus, the losses in export market shares and public sector debt. 
The three-year-average
indicator for Germany’s current account surplus has increased further and the
annual surplus, which accounts for most of the euro area’s current account surplus,
is expected to remain high in the years to come. Germany’s balance vis-à-vis
the euro area has declined, driven mainly by a reduction in exports, while its balance
vis-à-vis the rest of the world has increased. The positive net international
investment position continues to strengthen. The indicator for export market
share losses over a five-year horizon is beyond the threshold, although there
were small market share gains in 2013. Losses are more contained than in most
of the euro area and broadly in line with other advanced economies. Cost
competitiveness indicators show some recent deterioration, although large
accumulated gains over the previous decade remain. The HICP-based REER
appreciated more than the euro area average in 2013, partially compensating for
depreciations in previous years. ULC further increased in 2013, reflecting relatively
robust wage increases. Investment contributed negatively to growth in the years
2012 and 2013. Private investment declined in the second quarter this year,
interrupting a recovery that had started in 2013. Despite recent policy
initiatives, the backlog in public investment persists. Private sector
deleveraging has continued while credit growth remains subdued, reflecting low
credit demand and a high share of financing through internal funds. House price
dynamics and housing market developments in certain segments and regions may
warrant close monitoring. The public debt ratio decreased in 2013 and is
projected to continue falling. The labour market remains robust and
unemployment has been on a declining path. Overall, the Commission finds it
useful, also taking into account the identification of imbalances in March
2014, to examine further the persistence of imbalances or their unwinding. 
Estonia: In the previous rounds of the MIP, no
imbalances were identified in Estonia. In the updated scoreboard, a few
indicators are beyond the indicative thresholds, namely the negative NIIP, nominal
unit labour costs, inflation-adjusted house prices and unemployment. 
The negative NIIP remains beyond the threshold,
although it is declining. However, since half of the external liabilities
consist of FDI, external financing risks remain limited. Estonia’s current account is now in deficit and this is set to widen. The rise in nominal
unit labour costs reflects domestic demand-led economic growth and constrained
labour supply. Private sector debt in Estonia is below the threshold but still
relatively high compared to peers. The private sector, is however,
deleveraging, supported by relatively robust nominal GDP growth. House prices,
which are rising relatively rapidly, reflect a quality effect and a housing supply
that has only recently started to adjust to recovering demand. Government debt
is the lowest in the EU. Unemployment is on a declining trend and it can be
expected that next year the indicator will be below the threshold.
Nevertheless, the long-term unemployment rate of low-skilled workers and other
indicators related to poverty and social exclusion, remain relatively high. Estonia's exposure to geopolitical risks, in particular the conflict between Russia and Ukraine, worsens the country's growth potential and requires close monitoring. Overall,
the Commission will at this stage not carry out further in-depth analysis in
the context of MIP. 
Ireland: In March 2014, the Commission
concluded that Ireland was experiencing macroeconomic imbalances in need of specific
monitoring and decisive policy action, in particular involving financial sector
developments, private and public sector indebtedness, high gross and net
external liabilities and the labour market. As announced in March 2014 and in
line with the Recommendation for the euro area, the Commission has put
in motion a specific monitoring of policy implementation for Ireland.[32]
In the updated scoreboard, some indicators are beyond the indicative threshold,
namely the NIIP, private and public sector debt, and the unemployment rate. 
The NIIP remained strongly negative in 2013 but has
been declining since 2011 because of on-going deleveraging by the private
sector and the emergence of very large current account surpluses.  The indicator
on losses in the market share of exports is now below the threshold and in 2013
there were some gains as exports of services continued to grow rapidly.
Following a significant restoration of competitiveness in recent years, cost
competitiveness indicators are now broadly stable. Private sector debt has
declined but remains very high, indicating the need for further significant
deleveraging especially by households. Concerning the corporate sector, debt levels
are boosted by the presence of large multinationals with high levels of
foreign-funded investment that are based in Ireland but which operate mainly on
global markets. The public sector’s high debt burden increased further as a
percentage of GDP in 2013, but it is projected to fall from 2014 onwards. The
housing market has bottomed out and prices are now rising again, especially in Dublin. The unemployment rate remains above the indicative threshold and more than half of
those unemployed had been without a job for at least twelve months in mid-2014.
Still, unemployment has been declining since early 2013, driven by sustained job
creation, although unemployment (overall, long-term and youth unemployment) remains
very high. Overall, the Commission finds it useful, also taking into account
the identification in March 2014 of imbalances requiring decisive action, to
examine further the risks involved in the persistence of imbalances or their
unwinding. 
Greece: Since May 2010, Greece has benefitted from financial assistance in support of macroeconomic adjustment. The
surveillance of imbalances and the monitoring of corrective measures has taken
place in that context and not under the MIP. Under its programme, Greece has made substantial progress towards correcting its imbalances and reducing
macroeconomic risks. Nevertheless, in the updated scoreboard, several
indicators remain beyond the indicative thresholds: NIIP, losses in the market
share of exports; private and public debts and unemployment. 
In 2013, Greece's current account balance
continued to adjust, mostly driven by the contraction of imports, some import
substitution, and higher revenue from tourism. The performance of exports other
than tourism remains weak. Accumulated losses in export market shares over the
last five years are well beyond the threshold. Greece is, however, regaining
cost competitiveness, as reflected in the steep reduction of unit labour costs
supported by wide-ranging structural reforms under the programme. The
HICP-based REER has fallen substantially. The negative NIIP-to-GDP ratio
increased further from already high levels, reflecting the impact of the long
recession on the nominal GDP, and the lagged effects of current account
deficits. House prices fell in 2013, reflecting the deep recession and the
on-going adjustment in the real estate sector. Private sector debt has remained
high, slightly above the threshold, and deleveraging efforts have failed to
significantly dent the private debt ratio despite significantly negative credit
flows. Government debt also remains very high, although it is expected to peak
in 2014 and gradually decline afterwards. The unemployment rate is very high
but is expected to start declining in 2014. Economic developments have had a
large impact on other social indicators, like youth unemployment, long-term
unemployment and poverty indicators. Financial assistance and adjustment
programmes have helped Greece to reduce its excessive macroeconomic imbalances
and to manage the related risks. The situation of Greece in the context of the
MIP will be assessed at the end of the current financial assistance programme
and will depend on the post-programme arrangements to be eventually agreed.
Spain: In
March 2014, the Commission concluded that Spain was experiencing macroeconomic
imbalances in need of specific monitoring and decisive policy action, in
particular involving high domestic and external debt levels. As announced in
March 2014 and in line with the Recommendation for the euro area, the
Commission has put in motion a specific monitoring of policy implementation for
  Spain.[33]
In the updated scoreboard, several indicators are above the indicative
threshold, namely the net international investment position, export market
shares, private sector debt, general government debt and the unemployment rate.

The current account indicator is now well
below the threshold, as Spain reached a current account surplus in 2013, mostly
because of the contraction in domestic demand. As domestic demand picks up, the
durability of the external rebalancing is of prime importance, all the more, as
the negative NIIP remains very high. However, the increase in 2013 is mostly a
result of valuation effects, which reflect an improvement of investor
confidence in the Spanish economy. The cumulated loss of export market shares,
while still above the threshold, has been reduced considerably as a result of
gains in 2013, and the gap relative to other advanced economies has been
closed. The improvement in export performance is in part attributable to
restored cost competitiveness, visible in ULC data. Private sector debt remains
very high, while deleveraging continued in 2013, mostly on account of negative
credit flows, though early improvements in lending to SMEs have also been
observed. Bank restructuring has progressed, contributing to the gradual
restoration of credit supply conditions. Government debt increased
substantially, partially reflecting the financial sector balance sheet repair
process but also the still high general government deficit. House prices and
residential construction as a share of GDP fell further in 2013 but recent data
suggest the housing market is stabilising. The very high unemployment rate in Spain rose further in 2013 but is now declining as GDP growth turns positive and recent
labour market reforms are starting to bear fruit. Very high youth and long-term
unemployment undermine future growth prospects and increase social inequality. Overall,
the Commission finds it useful, also taking into account the identification in
March 2014 of imbalances requiring decisive action to examine further the risks
involved in the persistence of imbalances or their unwinding.
France: In
March 2014, the Commission concluded that France continued to experience
macroeconomic imbalances in need of specific monitoring[34] and decisive
policy action. The imbalances concerned the deterioration in the trade balance
and in competitiveness, as well as the implications of public sector
indebtedness. As announced in March 2014 and in line with the Recommendation
for the euro area, the Commission has put in motion a specific
monitoring of policy implementation for France. In the updated scoreboard, a
number of indicators remain above their indicative thresholds, namely losses in
the market share of exports, private debt and the general government sector
debt. 
The trade balance and trends in competitiveness
have shown no signs of a reversal. The current account remains in a stable
deficit position within the thresholds, while the NIIP is moderately negative. Export
performance remains weak, with substantial accumulated losses in the market
share of exports, although there were some limited gains in 2013. Unit labour
cost growth is relatively contained but shows no improvement in cost
competitiveness. The profitability of private companies remains low, limiting
deleveraging prospects and investment capacity. Private debt is above the
threshold and goes alongside the high and increasing government debt ratio,
which is approaching 100 per cent of GDP. The labour market situation is
worsening, with increases in unemployment to levels very close to the
threshold. Youth unemployment is also high and increasing. In a context of low
growth and inflation, it is particularly important to address France’s macroeconomic imbalances because of the size of the French economy and its potential
for spillovers that could affect the functioning of the euro area. Overall,
the Commission finds it useful, also taking into account the identification in
March 2014 of imbalances requiring decisive action to examine further the risks
involved in the persistence of imbalances or their unwinding.
Croatia: In March 2014, the Commission concluded that Croatia was experiencing excessive macroeconomic imbalances in need of specific monitoring
and strong policy action, relating to external liabilities, declining export
performance, highly leveraged firms and fast-increasing general government debt
in context of low growth and poor adjustment capacity. As announced in March
2014, the Commission has put in motion a specific monitoring of policy
implementation for Croatia.[35]
 In the updated scoreboard, some indicators are beyond the indicative
threshold, namely the NIIP, losses in the market share of exports, public
sector debt and the unemployment rate. 
The large negative NIIP has narrowed slightly as the current account
has turned to surplus. The current account adjustment has been driven by
falling domestic demand and investment, with potential detrimental impacts on Croatia's growth potential. Export performance is weak and accumulated losses in the market
share of exports remain very large, although there has been some deceleration
and moderate progress of late. Competiveness gains, nevertheless, remain
limited, with ULCs and REERs in 2013 even starting to rise again after having
been in decline since 2010. Private sector debt, while below the threshold, is
relatively high compared to peers and is not yet declining, despite negative
credit growth. The debt overhang of SOEs add significant contingent liabilities
for the government and signal weaknesses in their governance. The contracting
economy and high budget deficits have put the public debt-to-GDP ratio on a
rapidly increasing trend, where fiscal consolidation is difficult in a
recessionary environment. Slow wage adjustment contributes to accelerating employment
destruction and increasing and high unemployment. High youth and long-term
unemployment, as well as low activity rates further damage growth prospects,
enforce negative feedback loops, and strain the social fabric. Overall, the
Commission finds it useful, also taking into account the identification of
excessive imbalances in March 2014, to examine further the persistence of
macroeconomic risks and to monitor progress in the unwinding of excessive
imbalances.
Italy: In
March 2014, the Commission concluded that Italy was experiencing excessive
macroeconomic imbalances in need of specific monitoring and strong policy
action. The imbalances involve in particular the very high level of public debt
and weak external competitiveness, both rooted in sluggish productivity growth.
As announced in March 2014 and in line with the Recommendation for the euro area,
the Commission has put in motion a specific monitoring of policy implementation
for Italy.[36]
In the updated scoreboard, some indicators are beyond the indicative threshold,
namely, losses in the market share of exports, the public debt-to-GDP ratio and
the unemployment rate. 
Although the external position has been adjusting
and the current account surplus recorded in 2013 is expected to grow further, those
developments are mainly driven by a weak internal demand and modest export
growth. On a 5-year basis, accumulated losses in the market share of exports continue
to be high and export performance also remains weak compared to other advanced
economies. Cost competitiveness indicators are stable but do not show any
gains. Nominal ULC growth slowed in 2013, thanks in part to a stabilisation of
labour productivity after the large decline recorded in the previous year.
Private sector debt is moderate, while the very high general government debt-to-GDP
ratio continued to increase, driven by negative real growth and subdued
inflation. Economic weakness is also reflected in the declining weight of fixed
investment in GDP, which is driven by the uncertain economic outlook and the
large contraction in private-sector credit in 2013. Unemployment in Italy increased further in 2013, but stabilised in the first half of 2014. Youth
unemployment rose sharply to a very high level, while long-term unemployment
remained very high. The activity rate is the lowest in the EU. Though poverty
and social indicators were broadly stable in 2013, they remained worryingly
high and may negatively impact medium-term growth prospects. In a context of
low growth and inflation, the need to address Italy’s excessive imbalances is
particularly important given the size of the Italian economy and its potential
for spillovers that could affect the functioning of the euro area. Overall,
the Commission finds it useful, also taking into account the identification of
excessive imbalances in March 2014, to examine further the persistence of
macroeconomic risks and to monitor progress in the unwinding of excessive
imbalances. 
Latvia: In the previous round of the MIP, no macroeconomic imbalances were
identified in Latvia. In the updated scoreboard, some indicators are beyond the
indicative threshold, namely NIIP, unemployment and the change in inflation-adjusted
house prices. 
The negative
NIIP is significantly above the indicative threshold, although it has declined
in recent years. More than two-thirds of the net liability reflects FDI stocks
and net external debt is at a moderate level. Latvia’s current account shows a
small deficit. The market share gains of Latvia’s exports are decelerating but
are still substantial in accumulated terms. While unit labour costs are within
the threshold, projections show risks of some overshooting in the near term,
however, in the context of improving non-cost competitiveness and broadly in
line with developments in major trading partners. Public and private debt
ratios are significantly below the thresholds. The financial sector maintains
high liquidity and capital adequacy ratios but credit growth is still negative
in the context of ongoing deleveraging of the banking sector. In 2013, the
growth in inflation-adjusted house prices is beyond but close to the threshold
correcting a substantial dip in previous years. Latvia's exposure to
geopolitical risks, in particular the conflict between Russia and Ukraine, worsens the country's growth potential. The unemployment indicator (three-year
average) is moving closer to the threshold and is projected to subside further.
Youth unemployment continues to decrease. Long-term unemployment, although
still at a high level, has dropped substantially over the past year which is
also mitigating existing high social risks. 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, no macroeconomic imbalances were identified in Lithuania. In the updated scoreboard, a couple of indicators are beyond their indicative
thresholds, namely the NIIP and unemployment. 
Lithuania’s negative NIIP remains beyond the
threshold but has improved significantly. In addition, net external debt is
substantially lower, reflecting the stock of inward FDI. The current account
had a small surplus in 2013 but this is forecast to turn into a small deficit
in 2015 as domestic demand increases. Export performance appears strong, with
substantial gains in the market share of exports. Cost competitiveness
indicators are relatively stable even if ULCs have increased moderately because
of a tightening labour market. Sanctions imposed by Russia are likely to dampen
exports and GDP in the short term. More generally, Lithuania's exposure to
geopolitical risks, in particular the conflict between Russia and Ukraine, worsens the country's growth potential. Both private sector and government debt
ratios are relatively low. The private sector continues to deleverage and
growth of new credit to non-financial corporates is sluggish. Real house prices
have stabilised over recent years. Unemployment, youth unemployment and
long-term unemployment have decreased significantly, and total unemployment is
expected to fall close to threshold levels in the coming years. The better
labour market situation is contributing to a 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 March 2014, the Commission
concluded that the macroeconomic challenges in Luxembourg did not constitute
substantial macroeconomic risks that would qualify as imbalances in the sense
of the MIP. In the updated scoreboard, a couple of indicators are beyond the
indicative threshold, namely the unit labour costs, private sector credit
growth and private sector debt. 
Luxembourg’s substantial current account surplus fell
further in 2013 on the back of buoyant imports but also falling investments,
implying that the three-year indicator has now moved within the threshold.
Accumulated losses in export market shares fell below the threshold after some
substantial gains in 2013. Unit labour costs remain relatively dynamic even if
there has been a moderation of unit labour cost growth in 2013. The high level
of private indebtedness in Luxembourg, mainly of non-financial corporations,
broadly reflects large cross-border intra company loans that are
counterbalanced by sizable assets. While general government debt is currently
in a favourable position, high sustainability risks exist in the longer term
due to mounting age-related liabilities. Risks to domestic financial stability
stemming from the country’s large financial sector still exist, but they remain
relatively contained as the sector is diversified and specialized at the same
time. Domestic banks meanwhile, post sound capital and liquidity ratios.
However, the dynamism of house prices represents a source of concern. Even if
the risk of a sharp price correction appears low, there are supply side
concerns and investment in residential construction is falling. Overall, the
Commission will at this stage not carry out further in-depth analysis in the
context of the MIP.
Hungary: In March 2014, the Commission
concluded that Hungary was experiencing macroeconomic in need of monitoring and
decisive policy action, in particular involving the continued adjustment of its
very negative net international investment position (NIIP) and its relatively
high public debt.[37]
In the updated scoreboard, several indicators are beyond the indicative
threshold, namely, the NIIP, losses in the market share of exports, government
debt, and the unemployment rate. 
The increasing current and capital account surpluses since 2010 have
ensured a sustained decrease in the NIIP, although it remains very high. This
improvement in the current account has until recently been driven primarily by
weak domestic demand and the performance of exports has generally been weak,
resulting in large accumulated market share losses. At the same time, unit
labour cost growth has been relatively dynamic although the REER has
depreciated. Private sector deleveraging has continued in a difficult context
with a high level of non-performing loans, an excessive burden on the financial
sector, negative credit flows and a continuous decline in inflation-adjusted housing
prices. Nonetheless, since mid-2013, the pace of deleveraging has slowed down
due to subsidised lending schemes and a pick-up in growth. General government
debt has continued to decline gradually, but the decreasing trajectory is not
robust enough given the possibility of adverse shocks. Negative feedback loops
between the constrained growth potential of the economy and the exposure to
foreign exchange movements could aggravate the country’s vulnerabilities. The
unemployment indicator stands just above the threshold primarily because of the
increased participation rate and is expected to improve further. While the
situation of young people on the labour market has improved, long-term
unemployment remains high. The activity rate has been on the rise but continues
to be one of the lowest in the EU. However, all poverty indicators have continued
to deteriorate substantially since the start of the crisis. Overall, the
Commission finds it useful, also taking into account the identification in
March 2014 of imbalances requiring decisive action to examine further the risks
involved in the persistence of imbalances or their unwinding. 
Malta: In
March 2014, the Commission concluded that the macroeconomic challenges in Malta did not constitute substantial macroeconomic risks that would qualify as imbalances
in the sense of the MIP. In the updated scoreboard, some indicators are beyond
the indicative thresholds, namely the change in nominal unit labour costs, and public
and private sector indebtedness. 
The external rebalancing has progressed further and the current
account balance recorded a surplus in 2013. Higher imports related to
large-scale investment projects are expected to result in a temporary
deterioration of the current account balance in 2014-15. Despite the improvement
of the external balance in recent years, the market share of Malta’s exports declined for the fifth consecutive year in 2013, although the accumulated
change is still within the indicative threshold. Growth in nominal unit labour
costs is just above the threshold level. These developments reflect the
changing structure of the economy but may also indicate risks of
competitiveness erosion if they persist. Meanwhile, the relatively high level
of private debt, concentrated in non-financial corporations, remains on a
downward path, partially due to sustained economic growth but also due to
negative credit flow to the corporate sector as banks have tightened their
lending standards particularly for the construction sector. The public
debt-to-GDP ratio has continued to increase but is expected to stabilise and
decrease from next year on. Although the large and mainly
internationally-oriented banking sector is deleveraging, the impact on economic
activity has been limited because the share of resident assets and liabilities
on their balance sheets is small. Stable house price developments, robust
employment growth, though along a relatively low activity rate, and a low
unemployment rate reduce the risk that internal imbalances will emerge. Overall,
the Commission will at this stage not carry out further in-depth analysis in
the context of the MIP.
Netherlands: In March 2014, 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 of
the household sector. In the updated scoreboard, some indicators are beyond the
indicative threshold, namely: the current account surplus; market share losses
for exports; the private sector debt level and public sector debt. 
The persistently large current account surplus of
the Netherlands is the result of  high savings and structurally weak domestic
private investment, which fell further in 2013.  However, a gradual recovery is
expected to support investments in 2014 and onwards putting some limited
downward pressure on the current account surplus. Accumulated losses in the
market share of exports have narrowed somewhat after limited gains in 2013,
partially due to the dynamism of re-exports. Unit labour cost growth has been
positive and within the threshold. Private sector debt has been stable at a
level well above the threshold despite some active deleveraging of households.
Risks are reduced by the large stock of financial assets held by the private
sector. Moreover, policy changes, such as the reduction of mortgage interest
deductibility and loan to value ratios, will contribute to household
deleveraging and a better-balanced financial sector. The housing market appears
to be recovering with house prices picking up and the number of transactions
and building permits increasing, paving the way for an increase in household
investment. General government debt is stable above the threshold. Overall,
the Commission finds it useful, also taking into account the identification of
imbalance in March 2014, to examine further the persistence of imbalances or
their unwinding.
Austria In the previous rounds of the MIP, no macroeconomic imbalances were
identified in Austria. In the updated scoreboard, a couple of indicators remain
beyond the indicative thresholds, namely losses in the market share of exports
and general government sector debts. 
The current account remains in a stable and moderate
surplus, while the NIIP is close to zero. The considerable accumulated losses
in the market share of exports has narrowed after some limited gains in 2013, as
Austria’s economy has benefitted from its supply chain integration with Germany
and Central Europe. The more recent export performance is broadly in line with
the performance of EU partners. Cost competitiveness concerns appear limited
with unit labour cost growth moderate and below the threshold and REER
developments are in line with euro area partners. Private sector debt is
slightly below the threshold at a relatively stable level. Credit flows to the
private sector remain moderately positive. General government debt continues to
exceed the threshold due also to the crisis-related restructuring and
recapitalisation of financial sector institutions, which is expected to
increase public debt by about 6 percentage points of GDP in 2014. Although
substantial risks remain, negative feedback loops between the general
government and the financial sector have been reduced, thanks in part to the
restructuring process of key financial institutions. Nevertheless, the close
integration of the banking sector with Central-, Eastern- and South-Eastern European
countries implies that Austria’s banking system is exposed to geopolitical
risks as well as to macro-financial developments in those markets. This
exposure appears, however, to be somewhat lower overall than in the past and is
accompanied by gradual deleveraging by Austrian banks, which shows in the
decline in financial sector liabilities and a shift towards less risky
countries and more stable local sources of funding. Regarding housing prices, there
are indications,that the strong momentum in house prices observed in 2012 has eased
considerably albeit at different rates across the country. 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, no
macroeconomic imbalances were identified in Poland. In the updated scoreboard,
some indicators are beyond the indicative thresholds, namely the NIIP and the
unemployment rate. 
The NIIP remains
highly negative and continued to worsen moderately in 2013. However, net
external debt is significantly lower than the NIIP as FDI accounts for a large
part of foreign liabilities. Also, the current account deficit improved and is
within the threshold for the first time since 2007, thanks to a surplus in the
trade balance and a lower deficit in the income account. In accumulated terms,
the market share of exports has been stable over the last five years, although losses in recent years
were compensated by gains in 2013. Private sector debt as a percent of GDP
remains amongst the lowest in the EU and has increased only marginally. Public
debt has remained broadly stable at a level slightly below the threshold and is
expected to decline in 2014 mainly because of recent changes to the
second-pillar pension system. The banking sector is well capitalized, liquid
and profitable; credit flow to the private sector remains low compared to the
pre-2007 period but positive. Foreign currency mortgages still account for a
high proportion of total mortgages, but are steadily decreasing. While the
unemployment rate reached the threshold in the reference period, more recent
data show a downward trend, which could be at risk in light of the possible
economic fallout from the tensions between Russia and Ukraine, and weaker-than-previously-expected economic conditions in the EU. Overall, the
Commission will at this stage not carry out further in-depth analysis in the
context of the MIP.
Portugal: Between May 2011 and June
2014, Portugal benefited from financial assistance in support of a
macroeconomic adjustment programme.[38]
Accordingly, the surveillance of imbalances and monitoring of corrective
measures took place in that context and not under the MIP. Under its programme,
  Portugal made considerable strides towards correcting its economic weaknesses
and reducing macroeconomic risks. Nevertheless, in the updated scoreboard,
several indicators remain beyond the indicative thresholds: NIIP, private debt,
public debt and unemployment.  
The negative
NIIP is very high and has been on an increasing trend. However, the increase in
the NIIP has slowed to a near halt as the current account rebalances, driven by
export growth and import compression. Accumulated losses in the market shares
of exports fell below the threshold due to gains in 2013. These recent gains
are consistent with signs of cost competitiveness improvements reflected in
gradually falling unit labour costs and a stable REER. Private debt is very
high, and deleveraging efforts by households and corporates have only slightly
reduced private debt ratios. Government debt also remains very high, although
it is expected to have peaked in 2013 and gradually decline afterwards.  In
spite of the recent events concerning one specific bank, the Portuguese banking
sector has been successfully stabilised, with bank capitalisation adequate and
access to market-based liquidity continuing to improve. Nevertheless, high
non-performing loan levels and the weak overall economic environment continue to
leave banks vulnerable to macroeconomic shocks and restrains their ability to
provide financing to the real economy.  Unemployment remains very high,
although after peaking in early 2013, it has continued to fall gradually. Youth
unemployment and long-term unemployment are very high, and other social
indicators remain of concern.  In the context of Portugal’s integration into
the normal EU surveillance cycle, the Commission finds it useful to further
examine the risks involved in an in-depth analysis to assess whether imbalances
exist. 
Romania:
  Romania has benefited from financial assistance, currently on a precautionary
basis, in support of adjustment programmes since spring 2009, in the light of remaining risks to its balance of payments. The surveillance of imbalances and the monitoring of corrective
measures have taken place in that context. However, since the agreement of the
ongoing arrangement in autumn 2013, no review of the programme has been
successfully completed and the programme is set to end by September 2015. In the updated scoreboard, the net international investment
position (NIIP), is still well beyond the indicative threshold. 
Romania’s high negative NIIP reflects the accumulation of current
account deficits in the pre-crises period that to a large extent were financed
by FDI. This implies that net external debt is somehow lower than its NIIP,
although it remains high. The current account
has been rebalancing, but in 2013 there was still a small deficit, which is
expected to increase somewhat in the next years. FDI remains clearly
below pre-crisis levels. The performance of exports has been strong and Romania gained market shares, particularly in 2013. Labour productivity has substantially
recovered since 2012, but unit labour costs accelerated in 2013. Private sector
debt is relatively low and is estimated to have strongly declined in 2013,
helped by strong nominal growth. The financial sector
is well capitalized and liquid, but intermediation remains low. Though a
notable reduction has been observed in 2014,  deleveraging pressures and high
NPLs, are weighing on credit expansion to the private sector. In the
housing market, the correction of inflation-adjusted house prices continues,
albeit at a slower pace than in the previous years. The weak real estate market
poses challenges to banks' loans portfolios, which are largely mortgage-backed.
In the labour market, youth unemployment and the share of young people not in
employment, education or training remains high, while the activity rate remains
one of the lowest in the EU. Poverty and social exclusion are among the highest
in the EU. Successive programmes of
financial assistance have helped reduce economic risks in Romania. Given the delays in completing the semi-annual reviews of the precautionary
arrangement, which is set to end by September 2015, Romania should be
re-integrated under MIP surveillance. This includes preparation of an in-depth
review to examine further the persistence of imbalances and risks or their
unwinding.   
Slovenia: In March 2014,
the Commission concluded that Slovenia was experiencing excessive macroeconomic
imbalances, in need of specific monitoring and continued strong policy action. In
particular, decisive actions are required to address the risks stemming from an
economic structure characterised by weak corporate governance, a high level of
state involvement, a highly leveraged corporate sector, losses in cost
competitiveness and an increasing level of government debt. As announced in
March 2014 and in line with the Recommendation for the euro area, the
Commission has put in motion a specific monitoring of policy implementation for
  Slovenia.[39]
In the updated scoreboard, some indicators are beyond the indicative threshold,
namely the net international investment position, the change in the market
share of exports, and general government debt. 
The current account continued its sharp correction to reach a
sizeable surplus in 2013, as exports expanded and domestic demand contracted.
As a consequence, Slovenia’s net international investment position improved
considerably, although it remains just above the threshold. After five years of
decline, the market shares of Slovenia's exports increased in 2013. The
restoration of price and cost competitiveness has been limited as unit labour
costs have merely stabilised following the steep increases recorded in the
initial crisis years. Private sector debt has decreased further, driven by
declining corporate indebtedness. This was largely due to negative credit
growth, rather than the restructuring of existing stocks. The on-going
deleveraging of the financial sector accelerated significantly in 2013 because
of the transfer of non-performing loans to the state-owned Bank Assets
Management Company and bank recapitalisations by the government. Consequently,
the government's total debt rose sharply and is now significantly above the
threshold. The unemployment rate peaked in 2013,   below the indicative threshold.
However, in 2013, long-term unemployment reached record levels. Overall, the
Commission finds it useful, also taking into account the identification of
excessive imbalances in March 2014, to examine further the persistence of
macroeconomic risks and to monitor progress in the unwinding of excessive
imbalances.
Slovakia: In the previous rounds of the MIP, no
macroeconomic imbalances were identified in Slovakia. In the updated
scoreboard, a couple of indicators remain above the indicative thresholds,
namely the NIIP and the unemployment rate. 
Slovakia’s NIIP deteriorated
slightly in 2013, but its external debt remains low and relatively stable given
the high stock of FDI. The current account balance has improved, with small
surpluses recorded in 2012 and 2013. The performance of exports appears stable,
with only minor accumulated market share losses and some gains in 2013. Price
and cost competitiveness developments do not represent a cause for concern with
both REER and unit labour cost growth stable. Private sector debt has remained
stable, on the back of moderately positive credit flows. The banking sector
remains well-capitalised and total liabilities are estimated to have slightly
declined in 2013. The general government debt ratio continued to increase in
2013 but remains below the threshold. After declining for four years in a row,
house prices stabilized in 2013. The performance of the labour market reflects
the persistence of major regional disparities in economic growth and
employment. Unemployment remains the most pressing economic policy issue, given
the social implications. Most unemployment is long-term, which suggests its
nature is structural; youth unemployment is also a serious problem. Overall,
the Commission will at this stage not carry out further in-depth analysis in
the context of the MIP. 
Finland:
In March 2014, the Commission concluded that Finland was experiencing
macroeconomic imbalances, in particular involving developments related to
competitiveness. In the updated scoreboard, three indicators are above the
indicative thresholds, namely the change in the market shares of exports, the
change in unit labour costs and the level of private sector debt. 
The trend
decline of the external position leading to moderate current account deficits
stabilised in 2013, while Finland’s positive NIIP weakened slightly.  Finland’s
exports have lost market share faster than those of any other country in the
EU. Although most losses took place in 2009-10, Finland failed to record the
moderate export market share gains observed in most other EU countries.
Unfavourable unit labour cost developments are also weighing on cost
competitiveness. Although the restructuring of traditional industries is
ongoing, potential structural weaknesses underlying the loss in competitiveness
and limiting the adjustment capacity of both private and public sectors, merit
attention. The private sector’s debt-to-GDP ratio remains elevated, dominated
by corporate debt. At the same time, the decreasing liabilities of the
financial sector in 2013 indicate deleveraging. The slight decline in the real price
of housing continued in 2013, limiting the risks from overheating in the
housing market. Increasing regional differences, however, deserve close
attention.  Unemployment is increasing and the growth environment remains very
weak. Overall, the Commission finds it useful, also taking into account the
identification of imbalances in March 2014, to examine further the persistence
of imbalances or their unwinding. 
Sweden: In March 2014, the Commission
concluded that Sweden was experiencing macroeconomic imbalances, particularly
regarding household debt and inefficiencies in the housing market. In the
updated scoreboard, the current account surplus, the market share losses of
exports, and private sector debt are above their indicative thresholds.
The current
account surplus remains stable, just above the threshold, reflecting relatively
high savings both in the private and general government sectors as well as
subdued investment in recent years, although this is expected to recover. Sweden’s
exports have lost a lot of market share over the years and although these
losses slowed in 2013, the accumulated losses are above the threshold. However,
cost competitiveness indicators do not point to problems, as unit labour cost
growth is relatively low in 2013. The high level of private sector debt is
stable but continues to deserve attention. Corporate indebtedness has been
declining since 2009 but remains high and is expected to increase again as
credit flows are picking up. Increases in household debt slowed down after
mortgage reforms but household debt has been on the
rise again since 2012. General government debt is
relatively low. Inflation-adjusted house prices, which stabilised at high
levels over 2011 and 2012, have started to grow again more dynamically since
mid-2013 and the housing market is still prone to imbalanced development with
serious supply constraints. Bank risks appear constrained, although high
household debt levels leave banks more vulnerable to losses in confidence if
house prices drop markedly. As they extensively rely on market financing, a
confidence crisis could quickly increase banks’ funding costs and render
deleveraging pressures more acute. Overall, the Commission finds it useful,
also taking into account the identification of imbalances in March 2014, to
examine further the persistence of imbalances or their unwinding. 
United
Kingdom: In March 2014, the Commission concluded
that the United Kingdom was experiencing macroeconomic imbalances, in
particular involving the areas of household debt, which is linked to the high
levels of mortgage debt and structural characteristics of the housing market, and
because of the declining market share of UK exports. In the updated scoreboard,
three indicators exceed the indicative threshold, namely: losses in export
market shares, private sector debt and general government debt. 
The current account deficit continued to increase in
2013, although the three-year indicator remains just within the threshold
value. At the same time, the UK’s negative NIIP remains moderate. The
accumulated deterioration in the market share of exports remains well above the
indicative threshold although the rate of decline fell in 2013. Cost
competitiveness indicators are relatively stable. The high level of private
sector debt-to-GDP is gradually declining, helped by nominal growth, but
remains significantly above the indicative threshold. House prices continue to
increase again after a small correction phase. However, the regional variation
in house price growth, together with continued high levels of indebtedness,
suggest that the housing sector might be vulnerable to shocks in the medium
term that could spillover to the wider economy. The high general government
debt remains a concern, it has slowed recently but has yet to peak. Employment
continues to grow at healthy rates and youth unemployment and the NEET rate
have decreased. Overall, the Commission finds it useful, also taking into
account the identification of imbalances in March 2014, to examine further the
persistence of imbalances or their unwinding. 
[1]       'European Economic Forecast-Autumn 2014,' European Economy,
2014(7).
[2]       For synthetic indicators on compliance with policy
recommendation, see Deroose, S. and J. Griesse, 'Implementing Economic
Reforms–Are EU Member States Responding to European Semester Recommendations?' ECFIN
Economic Brief, 2014(37).
[3]       This Report is accompanied by a Statistical Annex
which contains a wealth of statistics on the basis of which this report has
been prepared. Compared to the last year's report, there has been no change in
the definitions of the scoreboard variables and auxiliary indicators, nor on
their indicative thresholds. However, the statistical standards have been
upgraded with the changeover from ESA95 to ESA2010, and from the 5th to the 6th
manual of the balance of payments and international investment position. See
also footnote 311.
[4]       Regulation (EU) No 1176/2011(OJ L 306, 23.11.2011,
p. 25).
[5]       In March 2014, the Commission identified imbalances in
Belgium, Bulgaria, Germany, Ireland, Spain, France, Italy, Hungary, the
Netherlands, Slovenia, Finland, Sweden and the United Kingdom, among which Croatia,
Italy and Slovenia were experiencing excessive imbalances ('Results of the
In-depth Reviews,'  COM(2014) 150 final, 5.3.2014 , and 'Macroeconomic
Imbalances-2014,' European Economy-Occasional Papers 172-188. For the
full set of country-specific recommendations, adopted by the Council, including
those which are MIP-relevant, see OJ C247, 29.7.2014.
[6]       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 after duly
considering all relevant factors in another in-depth review.
[7]       'Analysing Euro Area Inflation Using the Phillips Curve,' Quarterly
Report on the Euro Area, 2014(2):21-6.
[8]       On cross-border spillovers, with particular emphasis on the
euro area, see: 'Cross-Border Spillovers within the Euro Area,' Quarterly
Report on the Euro Area, 2014(4): forthcoming.
[9]       'The Euro Area's Growth Prospects over the Coming Decade,' Quarterly
Report on the Euro Area, 2013(4):7-16. See also 'The Growth Impact of
Structural Reforms,' Quarterly Report on the Euro Area, 2013(4):17-27, and 'Growth
Differences between Euro Area Member States since the Crisis,' Quarterly
Report on the Euro Area, 2014(2):7-20. 
[10]     For a detailed description of the current
version of the ECOFIN Council-approved methodology which is used for assessing
potential output and output gaps, see Havik, K. et al., 'The Production
Function Methodology for Calculating Potential Growth Rates and Output Gaps,' European
Economy-Economic Papers, 535.
[11]     See the recently published '2014 Ageing Report-Underlying
Assumptions and Projection Methodologies,' European Economy, 2014(8). 
[12]     'The Drivers of Total Factor Productivity in Catching-up
Economies,' Quarterly Report on the Euro Area, 2014(3):7-19.
[13]     'Drivers and Implications of the Weakness of Investment in the
EU,' box I.1 in 'European Economic Forecast-Autumn 2014,' European Economy,
2014(7):40-3.
[14]     'Market Reforms at Work,' European Economy, 2014(5).  
[15]     See Table I.4 in 'European Economic Forecast-Autumn 2014,' op.cit.:29.
[16]     Cf. Recital 17 of Regulation 1176/2011: "When assessing
macroeconomic imbalances, account should be taken of their severity and their
potential negative economic and financial spill-over effects which aggravate
the vulnerability of the Union economy and are a threat to the smooth functioning
of the economic and monetary union. Actions to address macroeconomic imbalances
and divergences in competitiveness are required in all Member States,
particularly in the euro area. However, the nature, importance and urgency of
the policy challenges may differ significantly depending on the Member States
concerned. Given vulnerabilities and the 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.
Furthermore, in Member States that accumulate large current-account surpluses,
policies should aim to identify and implement measures that help strengthen
their domestic demand and growth potential."  
[17]     'Member State Vulnerability to Changes in the Euro Exchange
Rate,' Quarterly Report on the Euro Area, 2014(3):27-33.
[18]     Fiscal consolidation may also have had an impact on wages. See
'The Relationship between Government and Export Sector Wages and Implications
for Competitiveness,' Quarterly Report on the Euro Area, 2014(1):27-34.
[19]     For sectorial analysis of competitiveness, see 'A
Competitiveness Measure Based on Sector Unit Labour Costs,' Quarterly Report
on the Euro Area, 2014(2):34-40. For estimates of the potential impact of a
selection of market reforms in selected economies, see 'Market Reforms at
Work,' op.cit. For more detailed assessments of sectorial reforms see
Turrini A. et al. 'A Decade of Labour Market Reforms in the EU,' European
Economy-Economic Papers, 522; Lorenzani, D. and J. Varga, 'The Economic
Impact of Digital Structural Reforms,' European Economy-Economic Papers,
529; Lorenzani, D and F. Lucidi, 'The Economic Impact of Civil Justice Reforms,'
European Economy-Economic Papers, 530; Connell, W. 'Economic Impact of
Late Payments,' European Economy-Economic Papers, 531; Ciriaci, D. 'Business
Dynamics and Red Tape Barriers,' European Economy-Economic Papers, 532,
and Canton E. et al., 'The Economic Impact of Professional Services
Liberalisation,' European Economy-Economic Papers, 533.
[20]     Vandenbussche, H. 'Quality in Exports,' European
Economy-Economic Papers, 528. 
[21]     'Corporate Balance Sheet Adjustment in the Euro Area and the
United States,' Quarterly Report on the Euro Area, 2014(3):40-6
[22]     For a detailed analysis of the ongoing deleveraging, including
on the deleveraging modes (active, passive and unsuccessful) and drivers, and
lingering deleveraging needs in the euro area's households and corporates, see
'Private Sector Deleveraging: Where Do We Stand?' Quarterly Report on the
Euro Area, 2014(3):7-19, and 'Private Sector Deleveraging: Outlook and
Implication for the Forecast,' box 1.2, in 'European Economic Forecast-Autumn
2014,' op.cit.:44-8.
[23]     On the methodology to estimate the fiscal efforts through the
cyclically-adjusted budget balance, see Mourre, G., et al., 'Adjusting
the Budget Balance for the Business Cycle: The EU Methodology,' European
Economy-Economic Papers, 536.
[24]     'Assessing Public Debt Sustainability in EU Member States: A
Guide,' European Economy-Occasional Papers, 200 and  'Identifying Fiscal
Sustainability Challenges in the Areas of Pension, Healthcare and Long-term
Care,' European Economy-Occasional Papers, 201. See also 'The Impact of
Unanticipated Disinflation on Debt,' box I.3, in 'European Economic
Forecast-Autumn 2014,' op.cit.:49-50.
[25]     On the impact that tight credit supply conditions could have on
underinvestment, see  'Firms’ investment decisions in vulnerable Member
States,' Quarterly Report on the Euro Area, 2013(4):29-35.
[26]     'Institutional Features and Regulation of Housing and Mortgage Markets,'
Quarterly Report on the Euro Area, 2014(3):27-33. See also 'Tax Reforms
in EU Member States 2014,' European Economy, 2014(6), which discusses
notably the debt bias in the tax systems and the taxation of immovable
propriety. 
[27]     See, e.g., Arpaia, A., A. Kiss, and B. Palvolgyi (2014),
'Labour Mobility and Labour Market Adjustment in the EU,' European
Economy-Economic Papers, forthcoming.
[28]     See Juravle, C. et al. (2013): 'A Fact-Finding Analysis
on the Impact on the Member States' Social Security Systems of the Entitlements
of Non-Active Intra-EU Migrants to Special Non-Contributory Cash Benefits and Healthcare
Granted on the Basis of Residence,' Report by ICF GHK for DG Employment, Social
Affairs, and Inclusion. 
[29]     According to Eurostat Labour Force Statistics, in 2013, the
over-qualification rate was 20 per cent for people born in the same country, 31
per cent for people born in another EU country, 36 per cent for people born
outside the EU.
[30]     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). 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 and macroeconomic risks
in those Member States, see the latest compliance reports: in European
Economy­-Occasional Papers, 192 (Greece), 197 (Cyprus) and 156 (Romania).
[31]     The changeovers from ESA95 to ESA2010, and from the 5th to the
6th manual of the balance of payments and international investment position have
been integrated in the scoreboard. As explained in more detail in the
statistical annex, when data based on the new statistical standards have not
yet been available at the cut-off date (1 November 2014) data under the old
standards have been used. The resulting breaks in the series have been
appropriately flagged. For most Member States, for most variables, the changes
in the data that result from the changeover to the new statistical systems are
not macroeconomically significant; it is only in a few cases that the statistical
changeover has led variables to be revised from below to above (or from above
to below) the indicative thresholds. The changeover from ESA95 to ESA2010, and
from the 5th to the 6th manual of the balance of payments constitutes an
improvement in the quality of data and is therefore positive for the economic
analysis, despite the temporary breaks in the series.
[32]     See COM(2014)150, 5.3.2014 and the Recommendation for the euro
area (2014/C 247/27, OJ 247, 29.7.2014, p. 141). This specific monitoring for
Ireland relies on post-programme surveillance. The latest report on
post-programme surveillance for Ireland is available at European
Economy-Occasional Papers, 195.
[33]     See COM(2014)150, 5.3.2014 and the Recommendation for the euro
area (2014/C 247/27, OJ 247, 29.7.2014, p. 141). This specific monitoring for
Spain relies on post-programme surveillance. The latest report on
post-programme surveillance for Spain is available at European
Economy-Occasional Papers, 193.
[34]     See COM(2014)150, 5.3.2014 and the Recommendation for the euro
area (2014/C 247/27, OJ 247, 29.7.2014, p. 141). The reports of the
specific monitoring will be made public.
[35]     See COM(2014)150, 5.3.2014. The report of November 2014 is
available at http://ec.europa.eu/economy_finance/economic_governance/documents/2014-11-07_croatia_mip_
specific_ monitoring_report_to_epc_en.pdf.
[36]     See COM(2014)150, 5.3.2014) and the Recommendation for the euro
area (2014/C 247/27, OJ 247, 29.7.2014, p. 141). The report of November 2014 is
available at http://ec.europa.eu/economy_finance/economic_governance/documents/2014-11-07_italy_mip_specific_
monitoring_report_to_epc_en.pdf.
[37]     Other than the MIP and other standard surveillance procedures,
economic development and policy implementation in Hungary have been closely
monitored by the Commission under post-programme surveillance. The latest
report is available at http://ec.europa.eu/economy_finance /assistance_eu_ms/documents/hu_efc_note_5th_pps_mission_en.pdf.

[38]     See 'The Economic Adjustment Programme for Portugal, 2011-2014,'
European Economy-Occasional Papers, 202 for an assessment of the overall
implementation of the adjustment programme and the policy challenges for the
Portuguese economy.
[39]     See COM(2014)150, 5.3.2014 and the Recommendation for the euro
area (2014/C 247/27, OJ 247, 29.7.2014, p. 141). The reports of the specific
monitoring will be made public.