REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2022 Prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances
Date: 2021-11-24
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: coronavirus disease, economic disparity, economic growth, economic recovery, economic statistics, epidemic, euro area, macroeconomics, multilateral surveillance, national accounts, public debt

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.11.2021  COM(2021) 741 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2022                  Prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances {SWD(2021) 361 final}  
 
 
CONTENTS 

Executive summary 

1.  The macroeconomic context and evolution of imbalances in the euro area 

2.  Imbalances, risks and adjustment: main developments across countries 

2.1.  A snapshot of the scoreboard outcomes 
2.2.  External sector and competitiveness 
2.3.  Private debt and housing markets 
2.4.  Government sector 
2.5.  Financial sector 

3.  Summary of main challenges and surveillance implications 

4.  Member States specific commentaries 

Annex 1: Forecasts and nowcasts of the headline scoreboard indicators 

Annex 2: MIP scoreboard 

2 

8 

15 

15 
17 
28 
38 
41 

47 

50 

77 

79 

This  alert  mechanism  report  (AMR)  initiates  the  eleventh  annual  round  of  the  macroeconomic 
imbalance procedure (MIP). The procedure aims at detecting, preventing and correcting imbalances 
that hinder the proper functioning of Member State economies, the economic and monetary union or 
the Union as a whole, and at eliciting appropriate policy responses. The implementation of the MIP is 
embedded in the European Semester of economic policy coordination to ensure consistency with the 
analyses  and  recommendations  made  under  other  economic  surveillance  tools  (Articles  1  and  2  of 
Regulation (EU) No 1176/2011).  

The  AMR  analysis  is  based  on  the  economic  reading  of  a  scoreboard  of  selected  indicators, 
complemented by a wider set of auxiliary indicators, analytical tools and assessment frameworks, and 
additional relevant information, including recently published data and forecasts. This AMR includes a 
reinforced  forward-looking  assessment  of  risks  to  macroeconomic  stability  and  for  the  evolution  of 
macroeconomic imbalances. The AMR also includes an analysis of the euro area-wide implications of 
the Member States macroeconomic imbalances. 

The AMR identifies Member States for which in-depth reviews (IDRs) should be undertaken to assess 
whether  they  are  affected  by  imbalances  in  need  of  policy  action  (Article  5  of  Regulation  (EU)  No 
1176/2011).  Taking  into account  discussions  on  the  AMR  with  the  European  Parliament  and  within 
the  Council  and  the  Eurogroup,  the  Commission  will  then  prepare  IDRs  for  the  Member  States 
concerned. The IDRs will be published in spring 2022, and will provide the basis for the Commission 
assessment  regarding  the  existence  and  severity  of  macroeconomic  imbalances,  and  for  the 
identification of policy gaps. 

1 

 
 
 
EXECUTIVE SUMMARY 

This  Alert  Mechanism  Report  is  the  second  one  marked  by  the  COVID-19  pandemic,  as  the 
economy  recovers  from  the  crisis  that  hit  suddenly  and  unexpectedly  in  2020.  The  COVID-19 
pandemic caused an economic crisis unique in its severity. Following the disruptions in the first half of 
2020,  an  initial  phase  of  the  economic  recovery  was  quick  to  materialise  when  containment  measures 
were eased across Europe. The deployment of vaccines marked a change in the economic outlook for the 
better. While differences among Member States persist, the efforts in dealing with immediate effects of 
the economic shock are bearing fruit. The successful rollout of vaccinations, accompanied by an effective 
and targeted containment strategy, brought a stronger revival of economic activity from spring 2021, and 
economic policy coordination has shifted to laying the foundations for a solid and inclusive recovery and 
stronger resilience. According to the Commission autumn 2021 economic forecast, most Member States 
are  expected  to  close  the  distance  to  their  pre-crisis  output  levels  by  the  end  of  2021,  with  only  a  few 
countries closing it next year. 

The pandemic struck as most imbalances were undergoing a process of correction amid favourable 
macroeconomic conditions  while  new risks associated with signs of overheating were emerging. A 
sustained  period  of  economic  growth  over  most  of  the  past  decade  facilitated  a  gradual  correction  of 
imbalances. These were related to high levels of private and public debt-to-GDP ratios, which were the 
legacy of both the global financial crisis and the build-up that preceded it. Large current account deficits 
or buoyant credit growth had also been corrected, resulting in external debt being gradually reduced and 
banking systems being  strengthened. In  more recent  years, there had been a  build-up of challenges and 
risks associated with signs of overheating in some sectors in some countries after a continued economic 
expansion,  mainly  at  the  level  of  house  prices  and  cost  competitiveness,  especially  in  countries  where 
economic growth was more buoyant.  

The  pandemic  interrupted  the  reduction  in  debt-to-GDP  ratios,  while  housing  prices  accelerated, 
suggesting an overall aggravation of macroeconomic risks. Imbalances related to high government and 
private debt worsened, driven by the sharp drop in GDP and the fiscal impact of the necessary measures 
taken to address the COVID-19 crisis, protecting production capacities and limiting the employment and 
social impact. House prices, which had already been buoyant, accelerated further and are a risk in several 
countries, in particular where they are accompanied by a significant increase in mortgage debt. Thanks to 
their  strong  capital  ratios  and  high  liquidity  buffers,  banks  were  able  to  keep  providing  credit  to  the 
economy. However, second round effects in the banking sector could materialise as protective measures 
are  lifted  and  the  longer-term  impact  of  the  pandemic  on  firm  solvency  works  its  way  through  the 
economy.  External  accounts  worsened  in  countries  dependent  on  cross-border  tourism  revenues. 
Extended  policy  support  helped  contain  unemployment  and  stabilised  household  incomes.  As  the 
recovery takes hold, labour shortages and cost pressures are emerging in some countries, and substantial 
wage increases are foreseen in a number of countries.  

The swift and coordinated policy response to the pandemic cushioned its economic impact, and the 
Recovery and Resilience Facility (RRF) provides a unique opportunity to emerge stronger from the 
crisis. The general escape clause of the Stability and Growth Pact was activated right after the pandemic 
outbreak,  supporting  national  fiscal  measures.  Agreement  on  the  State  Aid  Temporary  Framework 
enabled Member States to use the full flexibility foreseen under state aid rules. The European instrument 
for  temporary  Support  to  mitigate  Unemployment  Risks  in  an  Emergency  (SURE)  helped  protect  jobs. 
Governments delivered unprecedented fiscal and policy support, and the European Central Bank (ECB) 
implemented a broad range of measures to preserve financial stability and ensure the smooth functioning 
of financial markets. As the recovery unfolds, the effective implementation of reforms and investment in 
the  recovery  and  resilience  plans  (RRPs)  will  help  foster  a  durable  recovery,  strengthen  resilience  and 
accelerate  EU’s  green  and  digital  transitions.  The  implementation  of  RRPs  can  support  a  reduction  in 
imbalances  and  mitigate  macroeconomic  risks.  The  plans  provide  a  unique  opportunity  to  place  the 
Member  States  most  affected  by  the  COVID-19  crisis  on  a  sustained  higher  growth  path,  which  will 
foster job creation, improve debt sustainability and help to rebalance the European economy as a whole.   

2 

 
 
The horizontal analysis presented in the AMR can be summarised as follows: 

  The  COVID-19  crisis  has  temporarily  affected  external  positions,  but  has  not  fundamentally 
changed  current  account  patterns.  Countries  with  important  cross-border  tourism  sectors  have 
generally seen a marked increase in current account deficits or a reduction in their modest surpluses. 
This  is  expected  to  correct  gradually  with  the  recovery  in  travel.  Some  of  the  large  current  account 
surpluses declined  mildly in  2020, bringing the current account  for the euro area as a  whole in line 
with  fundamentals.  However, the data  for the  first half of  2021 show a  marked increase in the euro 
area  current  account  surplus,  driven  mainly  by  a  higher  balance  of  trade  in  services.  The  euro  area 
current account is currently forecast to return to its 2019 level in 2021, reflecting continued subdued 
domestic  demand.  Overall,  the  largest  changes  in  current  accounts  have  been  compositional:  in  all 
Member States, the private sector has increased its net saving position while the government sector’s 
net lending positions decreased  markedly because  of the impact of  the  COVID-19 pandemic and of 
measures taken to mitigate it. Several Member States with large negative net international investment 
positions (NIIP) recorded a worsening of their current accounts in 2020, but the impact on their NIIP-
to-GDP ratios is forecast to gradually reverse. 

  The disruption of economic activity in 2020 led to large increases in unit labour costs, which are 
expected to be partially reversed with the recovery, but labour shortages and cost pressures are 
emerging  in  a  number  of  cases.  Unit  labour  costs  rose  across  the  EU  as  a  result  of  stable 
employment headcounts despite sharply falling production, enabled by the various public job retention 
initiatives,  especially  short-time  work  schemes,  which  favoured  a  reduction  in  hours  worked  rather 
than  employment  levels.  These  effects  are  reflected  in  temporary  reductions  in  headline  labour 
productivity in 2020. With the recovery, productivity is edging up and reversing part of the losses in 
unit labour costs. In some countries though, wage increases are picking up sometimes resuming trends 
from before the pandemic. However, the labour market situation differs across sectors and countries, 
and while in some cases employment has broadly recovered to pre-crisis levels, in others gaps remain 
significant. In some cases, increased reallocation between jobs, firms and sectors may continue in the 
recovery and  may lead to some permanent changes to the productive capacity of countries. In some 
other cases, labour shortages are emerging, especially in countries less affected by the crisis and amid 
higher demand. In combination with other factors, such as rapidly rising energy prices, cost pressures 
may turn significant and become a risk going forward. 

  A  range  of  policy  measures  preserved  jobs  and  production  capacity  during  the  crisis  by 
supporting  private  sector  liquidity  and  solvency.  Support  measures  such  as  moratoria  on  debt 
repayments  and  government  guarantees  for  credit  helped  avoid  private  sector  liquidity  shortages 
turning into solvency troubles at the beginning of the COVID-19 crisis. Moratoria allowed a delay in 
debt repayments, increasing the nominal debt stock and related interest burden. With the phasing out 
of those measures, possible repayment difficulties may surface, especially in sectors more affected by 
the  crisis  and  among  firms  already  vulnerable  beforehand.  In  many  countries,  increases  in  both 
corporate and households borrowing have been accompanied by increased net savings.  

  Corporate  indebtedness  increased  in  most  EU  countries  in  2020,  sometimes  sharply.  New 
borrowing  to  cover  sudden  revenue  losses  and  liquidity  shortages  resulting  from  the  pandemic 
contributed  to  the  increase  in  the  corporate  debt-to-GDP  ratios  on  top  of  the  effect  of  the  sharp 
recession.  While  significantly  increased  net  credit  flows  lasted  until  early  2021,  their  more  recent 
moderation  could  be  both  a  sign  of  lower  demand,  which  could  be  related  to  corporations  using 
accumulated liquidity, or lower supply of credit.  

  Household borrowing has picked up as the recovery strengthens. In 2020, higher household debt-
to-GDP ratios  were  mostly due to the large fall in GDP. Credit flows at the height of the pandemic 
were muted, mainly on account of a sharp fall in consumption loans. At the same time, many countries 
saw increases in mortgage loans in the face of high real estate market activity and accelerating house 
prices.  Since  early  2021,  net  credit  flows  have  become  more  significant  in  several  countries  as  the 
recovery unfolds.  

3 

 
  The COVID-19 crisis and the measures governments took to cushion it have had a major impact 
on government debt. The vital extensive support that governments have delivered has contributed to 
redirecting  part  of  the  adverse  economic  impact  of  the  pandemic  away  from  households  and  firms, 
protecting  jobs  and  growth  potential.  Government  debt-to-GDP  ratios  have  increased  more  in  the 
countries  disproportionately  affected  by  the  recession,  principally  due  to  their  tourism  sectors.  With 
the recovery, debt-to-GDP ratios are expected to stabilise and some have already started declining; but 
overall  governments  are  emerging  from  this  crisis  with  clearly  higher  indebtedness.  The  supportive 
fiscal stance and monetary policy measures have been mutually reinforcing in maintaining confidence 
and stability. Borrowing conditions for governments have remained supportive despite their increased 
financing needs, both due to monetary policy measures and longer-term factors such as the excess of 
savings over investment in the euro area. In light of inflation developments, costs of borrowing have 
tightened slightly but remain  overall low. Borrowing costs have increased somewhat  more for some 
Member States outside the euro area with floating exchange rates. Some of them have non-negligible 
shares of debt denominated in foreign currency or relatively short debt maturities. 

  The  pandemic  has  been  accompanied  by  a  further  acceleration  of  housing  prices.  Following 
years of increases, house prices accelerated further in 2020 and the first half of 2021 and reached their 
fastest  growth  rates  since  the  global  financial  crisis.  Various  EU  countries  are  displaying  risks  of 
overvaluation.  That  raises  concerns  particularly  where  household  debt  is  high  or  rising  fast.  The 
growth  of  house  prices  has  been  driven  by  a  variety  of  factors  fuelling  demand  and  constraining 
supply. Supply constraints were already present before the pandemic and lockdowns exacerbated them 
temporarily. The pandemic may have led to some structural changes in housing demand as the shift to 
more  remote  working  may  change  geographical  preferences.  Financial  conditions  have  been 
accommodative  and  overall  are  likely  to  continue  supporting  elevated  housing  demand,  while 
household incomes growing with the recovery are likely to sustain further house price growth.  

  The banking sector has maintained strong capital ratios but profitability weakened in 2020 and 
the full impact of the crisis on bank balance sheets may only be visible with a delay. Conditions 
in the banking sector have improved considerably since the global financial crisis with capital buffers 
built  up  in  the  pre-pandemic  years  and  capital  ratios  increased  further  in  2020,  including  due  to 
temporary regulatory limits on dividend payments. The impact of the COVID-19 crisis on the banking 
sector has been limited thanks to the strengthening of the sector achieved after the financial crisis and 
due  to  extensive  temporary  policy  measures  such  as  credit  guarantees,  debt  repayment  moratoria  or 
temporary regulatory relaxation. Non-performing loans continued decreasing in 2020, particularly  in 
countries  where  they  were  sizeable  and  where  banks  disposed  of  legacy  assets.  However,  the  long-
standing  issue  of  low  profitability  remains.  Moreover,  the  full  impact  of  the  crisis  on  asset  quality, 
profitability  and  capital  buffers  may  still  materialise  once  the  policy  measures  are  withdrawn. 
Potential  feedback  loops  between  banks,  sovereigns  and  the  corporate  sector  should  be  closely 
monitored.  

While the impact of the pandemic  has been  mitigated by the decisive policy action, the pandemic 
exacerbated  divergences  among  euro  area  countries.  Member  States  with  a  significant  cross-border 
tourism  sector  were  most  exposed  to  the  economic  impact  of  the  COVID-19  pandemic,  leading  to 
divergent  impacts  on  employment  and  growth.  As  these  countries  were  also  characterised  by  relatively 
large public, private or external debts, this has led to a wider dispersion of indebtedness within the euro 
area. Some of these patterns are linked to temporary factors, such as the impact of the travel restrictions, 
but, despite the success of the decisive policy action in mitigating the widening of economic and social 
divergences, the crisis risks leaving a legacy and entrenching divergences.  

A large current account surplus persists for the euro area as a whole, which highlights that there is 
room to sustain the recovery at the euro area aggregate level. This would also contribute to a faster 
reduction in imbalances. The current account for the area as a whole has temporarily declined to a level 
close to its fundamentals, but is projected to return to pre-crisis levels above fundamentals. The outcomes 
at Member State level vary  very significantly.  The external rebalancing in the euro area is all the  more 
important given the limited room for additional monetary support to sustain demand.  

4 

 
In  light  of  the  interconnections  among  euro  area  economies,  an  appropriate  combination  of 
macroeconomic  policies  across  Member  States  is  needed  in  order  to  sustain  the  recovery,  while 
correcting  imbalances  and  addressing  emerging  risks.  An  economic  expansion  in  euro  area  net-
creditor countries, including on the basis of supportive demand conditions, would not only be beneficial 
for  those  countries  themselves,  but  also  for  net-debtor  countries,  as  higher  growth  in  the  euro  area 
supports growth and deleveraging as well as the improvement in external positions in the latter group of 
countries. A withdrawal of the extraordinary policy support taken over the crisis timed to the adjustment 
needs would help in that respect. Marked and lasting improvements in productivity and competitiveness 
in net-debtor countries would also contribute to external rebalancing and help easing the debt burdens. An 
effective use of instruments put in place at euro area and EU level, with effective implementation of the 
necessary reforms and investment would help fostering a durable recovery and strengthening resilience, 
including by addressing imbalances and emerging risks. It will be crucial that Next Generation EU and 
Multiannual  Financial  Framework  (MFF)  financing  is  fully  absorbed  and  channelled  to  the  most 
productive  uses.  This  would  maximise  the  economic  impact  of  the  funds  and  contribute  to  balanced 
growth.  

The full impact of the pandemic on imbalances will only be clear with a lag, as second round effects 
may play out. On the corporate side, pockets of underlying financial vulnerabilities due to depletion of 
equity following protracted losses and high debts remain. Some corporates could be affected by structural 
changes  that  necessitate  adjustments  to  their  business  models.  The  expiration  of  support  measures  may 
lead to an increase in non-performing loans and bankruptcies at least in the sectors most affected by the 
COVID-19 crisis and among  firms that  were vulnerable prior to the  crisis. This  may take some time to 
materialise, depending on the types of forbearances that may be offered to otherwise insolvent borrowers. 
The ability of insolvency proceedings to  clear existing impairments are important to ensure  the  flow of 
new  credit  to  the  economy.  Government  provision  of  guarantees  for  corporate  loans  help  to  preserve 
viable  corporate  entities,  but  if  sizeable  could  also  result  in  feedback  loops  between  the  corporate  and 
government sectors, also affecting banks. Corporate balance sheet weaknesses risk having an impact on 
the labour market, and by extension the ability of some households to repay their credit. Strong increases 
in  mortgage  credit  are  an  additional  risk  factor,  particularly  in  the  event  of  a  correction  in  housing 
markets.  Likewise,  a  further  deterioration  of  commercial  real  estate  asset  prices  might  also  weaken  the 
financial sector. 

Financing  conditions  will  affect  the  evolution  of  imbalances.  The  low  interest  rate  environment  has 
enabled governments, corporations and households to take  on higher debt and cushion the effect of the 
pandemic, protecting jobs and production capacity. An increase in interest rates would raise the financing 
costs  of  debt  in  both  the  public  and  private  sectors,  increasing  risks  where  financing  needs  are  high. 
Inflation  has  picked  up  markedly  in  the  euro  area  and  many  other  advanced  economies  since  the 
beginning  of  2021.  While  the  determinants  of  this  pick-up  in  inflation,  including  the  surge  in  energy 
prices,  appear  mostly  transitory,  there  is  a  risk  that  the  duration  may  not  be  so  short-lived.  As  long  as 
financing conditions are not tightened, higher inflation can ease the debt burden. But a protracted increase 
in inflation could result in tighter financing conditions and higher borrowing costs.  

Developments  in  housing  markets  warrant  close  monitoring.  High  house  prices  represent  a  risk, 
particularly when combined with high household indebtedness, compounded by uncertain labour market 
adjustments.  This  poses  a  risk  for  households’  ability  to  meet  their  mortgage  obligations.  Increased 
interest rates could put additional pressure on mortgage repayment ability, with knock-on effects on the 
banking sector. Continued price increases as the recovery continues could feed into wage pressures and 
drive higher mortgage borrowing. Housing affordability has deteriorated in recent years, with potentially 
adverse  macroeconomic  consequences,  linked  to  lower  private  consumption  and  labour  mobility,  and  a 
diversion of credit away from productivity-enhancing investment.  

Reducing  the  high  levels  of  both  government  and  private  debt  crucially  depends  on  the  recovery 
developing into a sustained expansion, which requires productive investment. A sustained recovery 
hinges on a supportive policy stance and well-timed withdrawal of the extraordinary policy support taken 
over the crisis. A sustained economic expansion depends on strengthening economic and social resilience, 
which  requires  the  implementation  of  adequate  reforms  and  investment.  Productivity-enhancing 
investment is needed to drive growth in the medium term and to support structural transformations that 
are  needed  to  deliver  the  green  and  digital  transitions  amid  demographic  change.  That  is  all  the  more 

5 

 
important  as  a  number  of  countries  are  marked  by  high  public  and  private  debt  and  relatively  low 
potential  growth,  which  makes  reducing  high  levels  of  debt  more  difficult.  In  a  situation  of  high 
government  debt  improving  the  composition  of  expenditure  and  revenue  is  needed  to  create  the  space 
from which public investment is delivered, as deleveraging, on the basis of a credible fiscal adjustment 
strategy,  is  also  necessary  to  ensure  space  to  address  any  future  crises.  At  the  same  time,  private 
investment may be hampered by corporate deleveraging needs. The effective implementation of the RRPs 
has an important role to play in supporting public and private  investment,  thereby helping to overcome 
the  long-term  impact  of  the  pandemic  and  opening  a  path  to  stronger  growth  and  resilience.  The  new 
RRF,  in  combination  with  European  Structural  and  Investment  funds,  will  promote  an  investment-rich 
recovery  and  their  effective  implementation  will  make  the  EU  economy  more  sustainable,  inclusive, 
resilient and better prepared for the green and digital transition, consistent  with the Union objectives in 
that regard. 

The  pandemic  has  highlighted  the  positive  role  of  counter-cyclical  discretionary  fiscal  policy, 
supportive monetary policies and European coordination in responding to the economic crisis. The 
COVID-19 crisis has shown that sizeable discretionary fiscal reactions can be effective in mitigating the 
immediate impact of a large shock, and successful in paving the way for a swift rebound. The immediate 
national  fiscal  effort  was  buttressed  by  the  use  of  flexibility  existing  within  the  EU  regulatory 
frameworks.  The  collective  reaction  fostered  confidence.  Monetary  policy  measures  contributed  to 
preserving  favourable  financing  conditions  for  all  sectors  of  the  economy  throughout  the  pandemic, 
underpinning economic activity and safeguarding medium-term price stability. The mutually reinforcing 
effects  of  fiscal  and  monetary  policies  have  been  crucial  for  cushioning  the  impact  of  the  crisis  and 
supporting  the  recovery.  While  monetary  policy  is  expected  to  remain  accommodative  in  the  coming 
years,  the  low  interest  rate  environment  and  the  recent  edging  up  of  inflation  limit  the  possibility  for 
further monetary easing. Fiscal policy may thereby need to maintain a stabilisation role if downside risks 
emerge  while  prudent  budgetary  policy  in  normal  times  creates  confidence  in  the  effectiveness  of 
budgetary policy in times of crisis.  

Preventing  and  correcting  macroeconomic  imbalances  remains  essential.  First,  a  weak  economic 
recovery could cause a spike in corporate bankruptcies leading to job losses as well as increased calls on 
crisis-related guarantees for corporate loans and a retrenchment of investment. Second, adverse economic 
developments  could  accentuate  the  sovereign-bank  loops.  Third,  booming  asset  and  house  prices  could 
increase the vulnerability of the household sector due to unsustainable asset price booms. These risks can 
adversely affect government debt sustainability, and limit the room for fiscal policy to respond to future 
challenges.  Unwinding  the  build-up  of  vulnerabilities  will  also  help  consolidate  the  recovery  and 
strengthen  long-term  growth.  More  similar  economic  structures  and  more  synchronised  business  cycles 
will contribute to increasing the effectiveness of the common monetary policy.  

By  promoting  an  investment-rich  recovery,  the  RRF  will  contribute  to  macroeconomic  stability. 
The  effective  implementation  of  the  recovery  and  resilience  plans  will  make  the  EU  economy  more 
sustainable, inclusive, resilient and better prepared for the green and digital transitions. It will also help 
mitigate the risk of divergences within the EU as the RRF grants are targeted towards Member States with 
lower GDP per capita, higher unemployment and hit the hardest by the COVID-19 crisis. Moreover, in 
contrast to the years following the global financial crisis, higher public investment will support the post-
pandemic  recovery.  RRF  grants  will  fund  high-quality  investment  projects  and  enable  productivity-
enhancing reforms, without giving rise to higher national deficit and debt ratios. These grants and other 
sources  of  EU  financing  are  estimated  to  boost  public  investment  in  Member  States  by  an  average  of 
about 0.5% of GDP per year in 2021 and 2022.  

Preventing and correcting macroeconomic imbalances enhances Member States’ ability to respond 
to  shocks  and  supports  economic  convergence.  Unwinding  or  preventing  the  build-up  of  imbalances 
will help consolidate the recovery and strengthen long-term growth. Countries with existing imbalances 
need  to  resume  their  pre-pandemic  trajectory  of  correction,  supported  by  policies  to  bolster  potential 
growth. The reduction of imbalances can also yield positive spillovers across countries. Deeper economic 
and  financial  integration  and  more  synchronised  business  cycles  will  contribute  to  increasing  the 
effectiveness of the common monetary policy especially in the case of euro area members, enabling it to 
better respond to future challenges. 

6 

 
This  AMR  concludes  that  IDRs  are  warranted  for  12  Member  States:  Croatia,  Cyprus,  France, 
Germany,  Greece,  Ireland,  Italy,  the  Netherlands,  Portugal,  Romania,  Spain,  and  Sweden.  These 
Member  States  were  subject  to  an  IDR  in  the  previous  annual  cycle  of  MIP  surveillance,  and  were 
considered to be experiencing imbalances (Croatia, France, Germany, Ireland, the Netherlands, Portugal, 
Romania, Spain, and Sweden) or excessive imbalances (Cyprus, Greece, and Italy). The new IDRs will 
assess how those imbalances have developed, analysing their gravity, evolution and the policy response 
delivered  by  Member  States,  with  the  view  to  update  existing  assessments  and  assessing  possible 
remaining policy needs. Section 3 provides a summary of how those imbalances have evolved and section 
4 elaborates on country-specific information. 

In  addition,  a  number  of  Member  States  that  were  not  subject  to  an  IDR  in  the  previous  round 
display  developments  that  merit  particular  attention.  Slovakia  is  marked  by  strong  house  price 
growth  alongside  a  sustained  albeit  slowing  increase  in  household  borrowing.  Exports  are  markedly 
concentrated in a few specific sectors and there have been cost competitiveness losses, but export market 
shares have so far not been adversely affected. In the case of Hungary, the interplay between government 
borrowing  and  external  financing  in  a  context  of  significant  debt  exposure  in  foreign  currency  merits 
attention. House price growth has been strong. Cost competitiveness pressures are mounting, but export 
market shares have so far not been adversely affected.  

There  is  also  the  need  to  monitor  the  development  of  risks  in  other  Member  States,  in  many 
instances  linked  to  housing  markets.  In  the  case  of  Denmark  and  Luxembourg,  developments  in  the 
housing  market point to a build-up of risks. While changed preferences, supportive financial  conditions 
and supply constraints may sustain house price growth, the risk of a downward correction, with potential 
implications  for  the  wider  economy,  cannot  be  dismissed.  Czechia  is  marked  by  strong  house  price 
growth  and  persistent  cost  competiveness  losses  that  have  been  significant  for  some  years.  In  Malta, 
growing  private  debt  combined  with  weaknesses  of  the  insolvency  framework  create  particular 
vulnerabilities.  Monitoring  and  surveillance  should  follow  developments  closely  in  these  six  Member 
States  and  ascertain  whether  they  are  consistent  with  and  conducive  to  macroeconomic  stability.  The 
balance of risks does not at present point to a need for an IDR. Section 4 provides more information on 
country-specific developments. 

7 

 
 
1.  THE MACROECONOMIC CONTEXT AND EVOLUTION OF 

IMBALANCES IN THE EURO AREA 

The economic backdrop 

This  AMR  is  prepared  against  the  economic  backdrop  of  the  COVID-19  pandemic.  The  initial 
impact of the pandemic was a sharp recession, as restrictive measures to contain the spread of the virus 
had a marked impact on economic activity in 2020. The result was a GDP retraction of 5.9% in the EU 
and 6.4% in the euro area in 2020, with considerable variation across countries. Some countries recorded 
falls  at  around  or  over  the  double-digit  mark  and  others  experienced  mild  recessions.  The  improving 
health situation enabled an easing of containment from the second quarter of 2020, starting the recovery. 
Different waves of the pandemic drove an uneven recovery until early 2021. The roll-out of vaccinations, 
accompanied  by  an  effective  and  targeted  containment  strategy,  as  well  as  extensive  public  support 
measures enabled higher mobility and a stronger-than-expected revival of economic activity from spring 
2021. Overall, the Commission autumn 2021 economic forecast expects GDP to grow by 5% in both the 
EU and the euro area in 2021 and by 4.3% in 2022. Most Member States are forecast to close the distance 
to their pre-crisis output levels by the end of 2021, with only a few countries closing it next year (Graph 
1.1 a). (1)  

While  the  impact  has  been  mitigated  by  the  decisive  policy  action,  the  pandemic  exacerbated 
divergences among euro area countries. This reflects the uneven toll of the pandemic and differences in 
economic  structures.  Contact-intensive  services  have  been  more  adversely  affected  by  the  restrictions 
than manufacturing. This has resulted in a wide divergence in the economic performance, both within and 
across countries. Countries that have substantial cross-border tourism sectors, and have been particularly 
affected  by  the  mobility  restrictions,  experienced  sharper-than-average  GDP  contractions  alongside 
substantial deteriorations of their external accounts. This is the case for Greece, Portugal and Spain. The 
recession has also hit hard countries with high domestic debt such as France and Italy (see Graph  1.1 b). 
Those are also countries with some of the  highest private, government or external debts in the EU. The 
recovery is forecast to be slower in some of these countries.  

An exceptional policy response has been crucial for cushioning the impact of the COVID-19 crisis 
and  for  supporting  the  recovery,  while  having  a  positive  impact  on  macroeconomic  stability. 
Governments  have  delivered  unprecedented  fiscal  support  in  order  to  protect  jobs  and  incomes  and 
support  businesses,  reducing  the  risk  of  corporate  bankruptcies.  Moratoria  were  provided  for  tax 
payments  and  debt  repayments  by  households  and  corporations,  and  government  guarantees  were 
provided for bank loans. As a result, in 2020, household gross disposable income was essentially constant 
in  the  EU  as  a  whole  despite  the  marked  recession.  The  EU's  unemployment  rate  rose  by  just  0.4 
percentage points and corporate bankruptcies were very contained, as much of the impact was  absorbed 
by governments. 

An unprecedented coordination of policy responses took place at EU level. The general escape clause 
of  the  Stability  and  Growth  Pact  was  activated  right  after  the  pandemic  outbreak,  supporting  fiscal 
measures.  Agreement  on  the  State  Aid  Temporary  Framework  enabled  Member  States  to  use  the  full 
flexibility  foreseen  under  state  aid  rules.  The  European  instrument  for  temporary  support  to  mitigate 
unemployment  risks  in  an  emergency  (SURE)  protected  labour  markets.  The  Coronavirus  Response 
Investment  Initiatives  (CRII  and  CRII  plus)  and  REACT-EU  mobilised  and  topped  up  cohesion  policy 
funds  to  support  the  public  health  sector,  enterprises  and  the  most  vulnerable  population.  Financial 
instruments  were  made  available  by  the  European  Stability  Mechanism  and  the  European  Investment 
Bank. The effective implementation of reforms and investment Recovery and Resilience Facility (RRF) 

(1)  European  Commission,  European  Economic  Forecast  Autumn  2021,  Institutional  paper  160,  November  2021.  See  also 
Croitorov O. et al. (2021), “The macroeconomic impact of the COVID-19 pandemic in the euro area” Quarterly Report on the 
Euro Area, DG ECFIN, European Commission, Vol. 20, No 2, Part I. 

8 

 
                                                           
will help  make  the EU economy  more  sustainable, inclusive, resilient and better prepared for the green 
and digital transition, consistent with the Union objectives in that regard.  

A  concerted  global  monetary  policy  response  led  to  accommodative  financial  conditions.  The 
European Central Bank (ECB) implemented a broad range of measures to preserve financial stability and 
ensure  the  smooth  functioning  of  financial  markets.  It  provided  additional  liquidity  for  banks,  eased 
collateral requirements, and undertook substantial additional purchases of public and private sector assets. 
The  accommodative  monetary policy stance  underpinned  benign  financial  market sentiment and helped 
avoid  a  credit  crunch,  and  valuations  in  many  bond  and  stock  markets  surpassed  pre-pandemic  levels. 
Together  with  longer-term  factors,  including  the  excess  of  savings  over  investment  in  the  euro  area 
amongst others, high market liquidity ensured low sovereign borrowing costs, in some cases even lower 
than  before  the  onset  of  the  crisis  and  spreads  within  the  euro  area  narrowed.  Expectations  of  a  strong 
recovery  added  to  the  positive  sentiment  in  the  markets,  reinforced  by  the  breakthrough  in  vaccine 
developments in autumn 2020. 

Financial  conditions  remain  at  historical  low  levels  but  signs  of  tightening  should  be  monitored. 
Although sovereign bond yields have risen slightly in 2021, they typically remain well below historical 
averages.  Governments  with  the  strongest  ratings  enjoy  negative  or  close-to-zero  interest  rates  on  their 
debts, while some increases have occurred in a number of Member States especially outside the euro area. 
Easy,  albeit  slightly  tightening,  financing  conditions  have  been  evident  in  corporate  bond  markets  and 
bank lending rates have been at or close to record lows in the EU. The euro appreciated in the second half 
of  2020  before  receding  somewhat,  and  this  was  mirrored  by  the  currencies  of  a  few  non-euro  area 
members.  

Inflation picked up in 2021 but the increase is expected to be mostly transitory. Headline inflation in 
the  euro  area  rose  to  a  ten-year  high  in  recent  months,  following  below-target  inflation  over  almost  a 
decade.  Inflation  has  been  above  targets  in  a  number  of  non-euro  area  Member  States.  Energy  price 
increases have been a major contributor to the increase, with core inflation increasing less. The pick-up in 
inflation is expected to be mostly transitory, although not necessarily short-lived. Some frictions tied to 
the transition away from fossil fuels may take a while to resolve. The economic reopening has brought a 
marked increase in demand but activity is constrained by supply bottlenecks. Some pass-through of rising 
costs to some consumer prices is likely, although its extent is uncertain, and reduced profit margins may 
absorb  some  of  the  increase.  The  risks  of  sustained  inflation  dynamics  currently  seem  contained,  as 
inflation expectations in the euro area remain well anchored and broadly reflect a return to pre-pandemic 
trends. However, structural adjustments, including the reaction of consumption patterns to the pandemic 
and industry-specific skills shortages, may affect relative prices and wages, which may increase inflation 
volatility.  A protracted increase in inflation could lead to changes  in the timing of the normalisation of 
monetary policy and result in tighter financial conditions and higher borrowing costs. 

The EU economy is recovering faster than anticipated but the economic outlook remains uncertain. 
Across the EU, successful vaccination campaigns have reduced the need for strong containment measures 
to  address  future  infection  waves.  Globally,  pandemic-related  risks  remain  relevant  due  to  lower 
vaccination  roll-out.  Trade  is  still  recovering  from  the  pandemic-induced  restrictions  and  it  has  been 
dampened  by  supply-side  bottlenecks,  which  affect  activities  highly  integrated  in  global  value  chains. 
Lasting re-orientations of value chains generate costs and may bring risks as well as opportunities for EU 
countries.  The  erosion  of  firms’  profitability  and  the  rise  in  leverage  have  reduced  private  investment. 
This can detract from the recovery, and hamper corporate deleveraging. The withdrawal of policy support 
may  trigger  a  repricing  of  risk.  Uncertainty  could  heighten  volatility  in  financial  markets  with  adverse 
effects  on  financial  and  real  estate  asset  prices  given  a  general  decoupling  of  securities  prices  from 
economic  fundamentals. (2) (3) (4) On the upside, faster progress in controlling the  pandemic  worldwide 

(2)  European 

Securities 

and  Markets  Authority 

(2021), 

ESMA 

Risk  Dashboard, 

3 

June 

2021. 

https://www.esma.europa.eu/sites/default/files/esma50-165-1761_risk_dashboard_no_1_2021.pdf  

(3)  Tightening of monetary policy by the Fed could also affect financing conditions of the euro area corporate sector, especially as 
globalisation has altered the transmission mechanism of monetary policy and its spillovers abroad, and Fed’s monetary policy 
has a sizeable impact on foreign financial variables such as corporate bond spreads. Ca’Zorzi M. et all (2021), Making waves – 
Fed  spillovers  are  stronger  and  more  encompassing  than  the  ECB’s,  ECB’s  Research  Bulletin  No 83,  15 April  2021, 
https://www.ecb.europa.eu/pub/economic-research/resbull/2021/html/ecb.rb210415~8639b73bb6.en.html 

(4)  See also IMF (2021), Global Financial Stability Report, October 2021. 

9 

 
                                                           
and the implementation of ambitious and coordinated reforms and investment across the EU could pave 
the way for a sustained recovery.  

The  strong  recovery  is  supportive  of  macroeconomic  stability  but  second  round  effects  from  the 
recession  may  come  with  a lag  and  still  pose  risks.  Amid  strong  GDP  growth,  high  government  and 
private  sector  debt  ratios  have  stabilised  or  are  slightly  declining  in  most  EU  countries  after  increasing 
markedly  last  year.  The  removal  of  policy  support  will  inevitably  expose  potential  underlying 
vulnerabilities  in  industries  and  areas  most  affected  by  COVID-19.  The  lifting  of  moratoria  on  debt 
repayments  could  lead  to  debt  servicing  difficulties  for  firms  and  households,  and  result  in  corporate 
insolvencies and unemployment. The interlinkages between sovereign and private debts and the financial 
sector  are  a  mechanism  for  the  transmission  of  risks.  A  deterioration  in  government  and  private  asset 
quality  may affect the balance sheets of financial institutions,  whose low profitability  has fallen  further 
under  the  pandemic.  Difficulties  in  servicing  debt  may  reduce  investment,  household  incomes  and 
consumption,  dampening  economic  growth  and  undermining  deleveraging.  The  pandemic  has  led  to  a 
deterioration  of  cost  competiveness  in  a  number  of  countries  with  strong  labour  cost  increases  already 
before the crisis, which are in some cases forecast to continue. House prices are growing at their fastest 
pace  in  over  a  decade,  uninterrupted  or  even  reinforced  during  the  pandemic.  Unlike  the  increases  in 
indebtedness, the economic recovery is unlikely to lead to a correction in housing prices, although some 
short-term  supply  difficulties  may  ease.  Accelerating  house  prices  are  a  concern  for  macroeconomic 
stability  especially  when  accompanied  by  high  household  debt  and  strong  credit  growth.  Worsening 
housing  affordability  can  have  economic  costs  by  reducing  consumption  and  undermining  labour 
mobility.  At the same time, real estate and other asset price  corrections could lead to a deterioration of 
balance sheets of financial institutions. 

Graph 1.1:  GDP in relation to pre-pandemic levels and pre-crisis debt levels and the COVID-19 recession 

Source: AMECO, Eurostat and European Commission 2021 autumn economic forecasts 

Spill-overs and euro area adjustment issues (5) 

The COVID-19 crisis has exacerbated imbalances within the euro area. The majority of the countries 
that  were  most  affected  by  the  COVID-19  crisis  were  those  that  entered  the  pandemic  with  higher 
government,  private  sector  or  external  debt,  in  some  cases  compounded  by  low  potential  GDP  growth. 
The  COVID-19  crisis  has  markedly  affected  the  external  positions  of  net-debtor  countries  with  large 
tourism sectors with more limited effects on other countries' external accounts. Some of the countries hit 

(5)  More  attention  to  the  euro  area  dimension  of  imbalances  was  proposed  in  the  22  June  2015  Report  ʽCompleting  Europeʼs 
Economic and Monetary Unionʼ by Jean-Claude Juncker, Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz. 
The role of interdependencies and systemic implications of imbalances is recognised in Regulation (EU) No 1176/2011, which 
defines  imbalances  with  reference  to  "macroeconomic  developments  which  are  adversely  affecting,  or  have  the  potential 
adversely to affect, the proper functioning of the economy of a Member State or of the economic and monetary union, or of the 
Union  as  a  whole."  The  analysis  contained  in this  report accompanies the  assessment provided  in the  European Commission 
Staff  Working  Document  "Analysis  of  the  Euro  Area  economy",  accompanying  the  Commission  Recommendation  for  a 
Council Recommendation on the economic policy of the euro area. 

10 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE-12-9-6-303650100150200250300350400% change GDP, 2020Sum of government and private debt (% of GDP, 2019)b: Pre-crisis debt levels and the 2020 recession8090100110120130ESPTITFRATMTELDEBEFINLCYSKLVSILULTEEIECZBGSEDKHRPLHUROEuro areaNon euro areaIndex 2019= 100a: GDP20202021f2022f 
   
                                                           
hardest by the  recession are recovering fast but the  recovery in others is progressing  more slowly. This 
suggests that economic growth may contribute less to addressing stock-related imbalances, at least in the 
near  future,  and  highlights  the  importance  of  effective  reforms  and  investment  to  address  structural 
weaknesses and boost potential GDP going forward. (6)  

The  euro  area  trade  balance  increased  slightly  in  2020  as  output  declined  in  tandem  with  falling 
demand. Both exports and imports of goods and services declined in 2020. The surplus of trade in goods 
strengthened, largely supported by lower energy prices, while the services surplus fell, mainly due to the 
fall in international travel. Overall, this paused the reduction in the euro area trade surplus that started in 
2017.  The  trade  balance  is  forecast  to  expand  slightly  in  2021  and  remain  broadly  constant  in  2022 
(Graph  1.2).  In  2021,  despite  the  still  sizeable  output  gap,  euro  area  core  inflation  (headline  inflation 
excluding  energy  and  unprocessed  food)  is  expected  to  pick  up  while  remaining  below  the  headline 
inflation target. 

Graph 1.2: 

Euro area output, domestic demand, trade balance and core inflation 

Note: while the difference between GDP and domestic demand should equal the trade balance by definition, data are not 
fully aligned due to intra-euro area reporting discrepancies. 
Source: AMECO and European Commission autumn 2021 economic forecast. 

The euro area current account surplus continued its gradual decline in 2020 to the level consistent 
with that suggested by euro area fundamentals but is increasing again in 2021. In 2020, the euro area 
current account recorded a surplus of 2% of GDP (Graph 1.3 a). (7) Despite the slight increase of the trade 
balance, slightly lower income balances brought about the small decline of the current account. Both the 
headline  and  cyclically-adjusted  current  accounts  that  equalled  1.6%  of  GDP  came  close  to  the  current 
account  norm  that  reflects  the  euro  area's  economic  fundamentals,  estimated  at  1.7%  of  GDP. (8)  That 
reflected domestic demand holding up better than in most trade partners. However, data for the first half 
of 2021 show an increase in the euro area current account surplus, driven mainly by a higher balance of 
trade in services. Overall, the euro area current account is currently forecast to return to its 2019 level in 
2021.  This  reflects  a  return  of  the  difference  between  GDP  and  aggregate  demand  to  its  pre-pandemic 
level, and thus the persistency of subdued domestic demand (Graph 1.2). 

(6)  See also E. Meyermans, V. Rutkauskas and W. Simons (2021), “The uneven impact of the COVID-19 pandemic across the euro 

area”, Quarterly Report on the Euro Area, DG ECFIN, European Commission, Vol. 20, No 2, Part II. 

(7)  The euro area current account surplus mentioned and used here is taken from euro area balance of payments statistics, which is 
consistent  with  the  current  accounts  Member  States  report  vis-à-vis  partners  outside  of  the  euro  area  (under  the  so-called 
"community  concept").  This  figure  may  differ  from  the  sum  of  Member  State  headline  current  account  balances,  due  to 
asymmetries in the intra-euro area balances reported by the different national statistical institutes. 

(8)  The IMF model estimate of the euro area current account norm comes at 1% of GDP in 2020 (see IMF (2021) External Sector 
Report, August 2021), which would imply a gap of 0.8% of GDP to the cyclically-adjusted current account (which equals 1.8% 
of GDP in their report). However, after making adjustments for the transitory impact of the COVID-19 crisis the estimated gap 
is reduced to 0.6%.  

11 

0.511.522.590009500100001050011000115001200006070809101112131415161718192021f22fCore inflation (%)Billion euro(2015 prices)EA trade balanceof which: DE trade surplusEA Output (GDP)EA aggregate demandEA core inflation (%, rhs) 
  
 
                                                           
Graph 1.3: 

Euro area current account by countries; and net lending and borrowing by sectors 

Notes: panel (b) For years before 2021, the euro area Total economy figures correspond to net lending/borrowing in the 
Eurostat BoP data. The euro area Total Economy figures for 2021 and 2022 correspond to the sum of European Commission 
autumn 2021 forecast of current account (adjusted) and capital account figures. Households and Corporations sector data 
for 2021 and 2022 are computed as the sum of the euro area countries except Malta, for which no data are available. 
Source: Eurostat Balance of Payments, AMECO, and European Commission autumn 2021 economic forecast. 

In  2020,  the  main  changes  to  the  external  balances  were  sectoral  rather  than  geographical.  The 
current  account  surpluses  of  the  largest  contributors  to  the  euro  area  surplus,  Germany  and  the 
Netherlands  (Graph  1.3  a),  declined  further  in  2020.  The  positive  contribution  by  Italy,  as  well  as  the 
negative contribution from France increased somewhat. The increase in the euro area surplus in the first 
half  of  2021  was  largely  driven  by  a  surge  in  the  current  account  of  Ireland.  The  contributions  from 
Germany and the Netherlands to the  euro area surplus also grew and returned to their 2019 levels. The 
share  of  Italy’s  surplus  further  increased  and  reached  that  of  the  Netherlands.  The  geographical 
composition  of  the  euro  area  surplus  is  currently  forecast  to  remain  broadly  stable  going  forward.  By 
contrast, the sectoral contributions to the external balance  changed substantially in 2020 (Graph  1.3 b). 
Increased savings by households and, to a lesser extent, corporations, were offset by strong expansionary 
fiscal  policies.  Private  sector  net  lending  is  forecast  to  further  expand  in  2021,  driven  primarily  by  the 
corporate  sector  and  despite  a  fall  in  precautionary  savings  and  an  increase  in  consumption  by 
households. Government net borrowing is forecast to remain almost unchanged, with the large increase in 
the  German  deficit  strongly  contributing  to  the  large  euro  area  net  government  borrowing  (Graph  1.4). 
Government  positions  are  expected  to  narrow  substantially  in  2022  (see  also  Section  2.4  on  the 
government sector). As a decline of similar magnitude is forecast for the private  sector net lending, the 
external position is projected to remain stable. 

Graph 1.4:  Geographical distribution of the euro area government sector net borrowing 

Note: For years before 2021, the EA19 Total economy figures correspond to net lending/borrowing in the Eurostat BoP data. 
The EA19 Total Economy figures for 2021 and 2022 correspond to the sum of European Commission autumn 2021 forecast of 
current account (adjusted) and capital account figures. 
Source: Eurostat Balance of Payments and AMECO. 

12 

-4-3-2-10123406070809101112131415161718192021% of EA GDPa: Euro area current accountDEFRITNLESOtherEA19EA19 norm-9-6-303691206070809101112131415161718192021f22f% of EA GDPb: Euro area net lending / borrowing by sectorHouseholdsGovernmentsCorporationsTotal economy-8-6-4-202406070809101112131415161718192021f22f% of EA GDPDEFRITNLESOtherEA19EA19 Total economy 
  
  
Policy response  

The  pandemic  has  highlighted  the  positive  role  of  counter-cyclical  discretionary  fiscal  policy, 
supportive monetary policies and European coordination in responding to the economic crisis. The 
COVID-19 crisis has shown that sizeable discretionary fiscal reactions can be effective in mitigating the 
immediate impact of a large shock, and successful in paving the way for a swift rebound. The immediate 
national  fiscal  effort  was  buttressed  by  the  easing  of  the  EU  regulatory  frameworks.  The  collective 
reaction  fostered  general  economic  confidence.  Monetary  policy  measures  contributed  to  preserving 
favourable  financing  conditions  for  all  sectors  of  the  economy  throughout  the  pandemic,  underpinning 
economic  activity  and  safeguarding  medium-term  price  stability.  The  mutually  reinforcing  effects  of 
fiscal and monetary policies have been crucial for cushioning the impact of the crisis and supporting the 
recovery. While financing conditions are set to remain supportive, the low interest rate environment and 
the  recent  edging  up  of  inflation  limit  the  possibility  for  further  monetary  easing.  Fiscal  policy  may 
thereby need to maintain a stabilisation role if downside risks emerge while prudent budgetary policy in 
normal times creates confidence in the effectiveness of budgetary policy in times of crisis.  

Preventing  and  correcting  macroeconomic  imbalances  remains  essential.  First,  a  weak  economic 
recovery could cause a spike in corporate bankruptcies leading to job losses as well as increased calls on 
crisis-related guarantees for corporate loans and a retrenchment of investment. Second, adverse economic 
developments  could  accentuate  the  sovereign-bank  loops.  Third,  booming  asset  and  house  prices  could 
increase the vulnerability of the household sector due to unsustainable asset price booms. (9) These risks 
can  adversely  affect  government  debt  sustainability,  and  limit  the  room  for  fiscal  policy  to  respond  to 
future challenges. Unwinding the build-up of vulnerabilities will also help consolidate the recovery and 
strengthen  long-term  growth.  More  similar  economic  structures  and  more  synchronised  business  cycles 
will contribute to increasing the effectiveness of the common monetary policy.   

Reducing  the  high  levels  of  both  government  and  private  debt  crucially  depends  on  the  recovery 
developing into a sustained expansion, which requires productive investment. The former hinges on 
a supportive policy  stance during the  recovery and a  well-timed  withdrawal of the extraordinary policy 
support  taken  over  the  crisis.  The  strength  of  the  expansion  depends  on  boosting  the  economic 
fundamentals,  which  requires  the  implementation  of  adequate  reforms  and  investment.  That  is  all  the 
more important as a number of countries are  marked by high public and private debt and relatively low 
potential  GDP  growth.  That  makes  reducing  their  debt  burdens  more  difficult  and  calls  for  a  credible 
return to prudent medium-term positions when economic conditions allow.  

In  light  of  the  interconnections  among  euro  area  economies,  an  appropriate  combination  of 
macroeconomic  policies  across  Member  States  is  needed  in  order  to  sustain  the  recovery,  while 
correcting  imbalances  and  addressing  emerging  risks.  An  economic  expansion  in  euro  area  net-
creditor  countries,  including  through  supportive  demand  conditions,  would  not  only  be  beneficial  for 
those countries themselves, but also for net-debtor countries, as higher growth in the euro area supports 
growth and deleveraging as well as the improvement in external positions in the latter group of countries. 
A  withdrawal  of  the  extraordinary  policy  support  taken  over  the  crisis  timed  to  the  adjustment  needs 
would help in that respect. Marked and lasting improvements in productivity and competitiveness in net-
debtor  countries  would  also  contribute  to  external  rebalancing  and  help  easing  the  debt  burdens.  An 
effective use of instruments put in place at euro area and EU level, with effective implementation of the 
necessary reforms and investment, would help fostering a durable recovery and strengthening resilience, 
including  by  addressing  imbalances  and  emerging  risks.  It  will  be  crucial  that  Next  Generation  EU 
financing is  fully absorbed and channelled to the  most productive  uses. This  would both strengthen the 
economic impact of the funds and prevent the risk of an excessive growth of non-tradable activities and 
external imbalances in countries where EU funds inflows account for a large share of GDP.  

investment-rich  recovery  and  strengthening  resilience, 

the  effective 
By  promoting  an 
implementation  of  reforms  and  investment  under  the  RRF  will  contribute  to  macroeconomic 
stability. The effective implementation of the  recovery and resilience plans will make the EU economy 
more sustainable, inclusive, resilient and better prepared for the twin transitions. It will also help mitigate 

(9)  European  Commission  (2020),  “Impact  of  macroeconomic  developments  on  fiscal  outcomes.”  Report  on  Public  Finances  in 

EMU, Institutional Paper, 133, Part III.  

13 

 
                                                           
the risk of divergences within the EU as the RRF grants are targeted towards Member States with lower 
GDP  per  capita  and  hit  the  hardest  by  the  COVID-19  crisis.  By  supporting  potential  growth,  the 
implementation  of  the  RRPs  could  improve  debt  sustainability,  especially  in  Member  States  facing  the 
highest  fiscal  risks  and  too  high  private  debts.  Moreover,  in  contrast  to  the  years  following  the  global 
financial crisis, higher public investment will support the post-pandemic recovery. RRF grants will fund 
high-quality investment projects and enable productivity-enhancing reforms, without giving rise to higher 
national  deficit  and  debt  ratios.  These  grants  and  other  sources  of  EU  financing  are  estimated  to  boost 
public investment in Member States by an average of about 0.5% of GDP per year in 2021 and 2022.  

14 

 
2.  IMBALANCES, RISKS AND ADJUSTMENT: MAIN 

DEVELOPMENTS ACROSS COUNTRIES 

2.1.  A SNAPSHOT OF THE SCOREBOARD OUTCOMES 

The  AMR  builds  on  an  economic  reading  of  the  MIP  scoreboard  of  indicators,  which  provides  a 
filtering  device  for  detecting  prima  facie  evidence  of  possible  risks  and  vulnerabilities.  The 
scoreboard  includes  14  indicators  with  indicative  thresholds  in  the  following  areas:  external  positions, 
competitiveness, private and government debt, housing markets, the banking sector, and employment. It 
relies  on  data  of  good  statistical  quality  to  ensure  data  stability  and  cross-country  consistency.  In 
accordance with the MIP regulation (Regulation (EU) No 1176/2011), the role of the Commission is to 
undertake  an  economic  reading  of  the  scoreboard  values  that  enables  a  deeper  understanding  of  the 
overall  economic  context  and  taking  into  account  country-specific  considerations;  the  scoreboard 
indicators are not be read mechanically. (10) A set of 28 auxiliary indicators complements the reading of 
the scoreboard.  

In  addition,  this  report  uses  forecasts,  nowcasts  and  high-frequency  data  to  better  gauge  the 
possible evolution of risks for macroeconomic stability. The official AMR scoreboard contains data up 
to  2020.  Given  the  significant  uncertainty  around  the  full  impact  of  the  COVID-19  crisis,  this  report 
includes  a  forward-looking  assessment  of  the  potential  implications  of  the  crisis  for  macroeconomic 
stability  and  the  evolution  of  existing  macroeconomic  imbalances.  That  is  in  line  with  the  approach 
pursued  in  the  AMR  published  in  November  2020.  Values  of  scoreboard  variables  for  2021  and 
subsequent years have been estimated using Commission forecast data and nowcasts are based on in-year 
data  (see  Annex  1  for  details).  There  is  substantial  uncertainty  underlying  those  forecasts  and  it  is 
necessary to bear this in mind in order to uphold the principles of transparency about analysis and data 
used,  and  prudence  on  the  conclusions.  In  addition,  as  in  previous  years,  insights  from  assessment 
frameworks, as well as findings in existing IDRs and relevant analyses, are also taken into consideration 
in the AMR assessment. 

The  scoreboard  data  suggest  that  the  recent  correction  of  stock  imbalances  has  been  interrupted 
with the COVID-19 crisis, while risks of overheating mainly related to housing markets may have 
become  more  widespread.  Counting  the  instances  of  values  outside  the  thresholds  in  the  AMR 
scoreboard over the years reveals the following (Graph 2.1.1) 

  The economic expansion between 2013 and 2019 helped reduce private and government debt-to-GDP 
ratios,  which  was  reflected  in  a  falling  number  of  Member  States  exhibiting  debt  ratios  beyond  the 
thresholds  until  2019.  The  COVID-19  crisis  interrupted  this  reduction  and  more  countries  have 
recorded, or are expected to record, readings of private and government debt above the thresholds. 

  Higher  house  prices  have  led  to  a  growing  number  of  country  readings  being  above  the  relevant 
thresholds  in  recent  years.  That  pattern  became  clearly  more  visible  in  2020  with  more  countries 
exceeding the threshold.  

  Unit  labour  cost  (ULC)  growth  (based  on  cumulative  changes  over  3  years)  had  been  above  the 
thresholds in a number of cases before the COVID-19 crisis and ULC further grew sharply in 2020. 
This was mostly driven by a mechanical effect of a much lower productivity due to reduced activity in 
a context of significant labour hoarding. ULC growth is expected to slow down as the recovery should 
allow  headline  productivity  to  revive.  Readings  beyond  the  real  effective  exchange  rate  and  export 

(10)  On the rationale underlying the construction of the AMR scoreboard and its reading see European Commission (2016), "The 
Macroeconomic  Imbalance  Procedure.  Rationale,  Process,  Application:  A  Compendium",  European  Economy,  Institutional 
Paper 039, November 2016. 

15 

 
                                                           
market  share  thresholds  became  more  numerous  in  2020  but  are  expected  to  unwind  relatively 
quickly. 

  A significant number of Member States has current accounts readings (based on 3-year averages) that 
continue  to  surpass  either  the  upper  or  the  lower  thresholds.  In  recent  years,  there  have  been  more 
countries with current account surpluses in excess of the upper threshold  than countries with deficits 
beyond  the  lower  threshold.  The  COVID-19  crisis  has  not  fundamentally  changed  current  account 
patterns, although a few  more countries have  marginally crossed the thresholds. (11) The recovery is 
expected to help reduce the number of cases of very negative net international investment positions in 
terms  of  GDP,  which  would  mean  a  resumption  of  pre-pandemic  trend  of  improving  external 
positions. 

  The  crisis  is  showing  an  impact  on  the  labour  market.  While  unemployment  rates  have  remained 
overall contained, activity rates have declined and crossed the respective threshold in a few Member 
States  amid  more  people  leaving  the  labour  markets,  which  is  also  behind  the  more  contained 
increases  in  headline  unemployment  rates.  Long-term  and  especially  youth  unemployment  are 
exhibiting their usual high sensitivity to changes in the labour market situation. 

The rest of the AMR looks closely into these and other related issues. 

Graph 2.1.1:  Number of Member States recording scoreboard variables beyond threshold 

Note: The number of countries recording scoreboard variables beyond relevant thresholds is based on the vintage of the 
scoreboard published with the respective annual AMR. Possible ex-post data revisions may imply a difference in the number 
of values beyond thresholds computed using the latest figures for the scoreboard variables compared with the number 
reported in the graph above. For the approaches followed for the forecasts of the scoreboard indicators in 2021 and 2022, 
see Annex 1. Forecasts for the following indicators are performed for 2021 only: House prices, Private credit flow, Private debt, 
Financial sector liabilities, Long-term unemployment, Youth unemployment. 
Source: Eurostat and Commission services calculations (see Annex 1) 

(11)  The increase in the number of Member States with current account readings outside the thresholds between 2019 and 2020 data 

vintages observed in Graph 2.1.1 is mostly due to data revisions. 

16 

5133146011147231051221870111351200511108801011311007104318101121324606711021211012152033197900915230246810121416182020172018201920202021  2022   
  
                                                           
2.2.  EXTERNAL SECTOR AND COMPETITIVENESS 

2.2.1.  EXTERNAL SECTOR 

The current accounts of several Member States that have been marked by large stocks of external 
liabilities  were  adversely  affected  by  the  COVID-19  crisis,  while  the  current  account  surpluses  of 
several countries remained large. Across the EU, current account balances moved in different directions 
during  2020,  with  countries  that  rely  heavily  on  exports  of  travel  services  experiencing  strong 
deteriorations  in  their  current  accounts.  This  included  Croatia,  Cyprus,  Greece,  and  Malta,  and  to  a 
smaller extent, Portugal and Spain (Graph 2.2.1). With the exception of Malta, all of them were marked 
by large stocks of external liabilities before the COVID-19 crisis. Conversely, considerable improvements 
in current accounts have been recorded in Czechia, Latvia, Lithuania and Poland, mainly on account of 
higher  trade  balances,  but  also  supported  by  rising  investment  income  balances,  amid  reduced  foreign 
investors’  income  in  the  crisis.  Large  current  account  surpluses  have  declined  during  the  pandemic  in 
Germany, Denmark and in particular in the Netherlands, but they remain sizeable. In the case of Slovenia, 
the  current  account  surplus  increased  further.  Lower  energy  prices  during  2020  increased  the  current 
accounts of nearly all Member States.  

While changes in external balances remained mostly limited and temporary given the magnitude of 
the economic  shock, there has been a big shift in sectoral contributions to EU countries’ external 
flows. Households increased their savings for precautionary reasons and because of limited consumption 
possibilities, while corporates typically reduced their investment amid uncertainty, leading to increases in 
the net lending/borrowing positions of private sectors (Graph 2.2.3 a, b and c). Conversely, governments 
intervened to support the economy in the crisis, while simultaneously facing lower revenues, leading to 
large government net borrowing in all EU countries. The large sectoral swings broadly offset each other 
and  so  did  not  induce  substantial  changes  in  the  countries’  overall  net  lending/borrowing  positions  in 
most Member States. 

Graph 2.2.1:  Current account balances and benchmarks in 2019 and 2020 

Note: Countries are ranked by current account balance in 2020. Current account norms: see footnote 12. Cyclically-adjusted 
current account balances: see footnote 15. The NIIP-stabilising current account benchmark is defined as the current account 
required to stabilise the NIIP at the current level over the next 10 years or, if the current NIIP is below its country-specific 
prudential threshold, the current account required to reach the NIIP prudential threshold over the next 10 years. 
Source: Eurostat and Commission services calculations. 

The  current  accounts  of  three  Member  States  were  below  the  lower  MIP  scoreboard  threshold, 
which reflects the three-year average, in 2020. The large current account deficit of Cyprus continued 
deteriorating  in  2020  reaching  -10.1%  of  GDP  mainly  on  account  of  reduced  international  tourism  but 

17 

-20-15-10-5051015CYELMTIEFRPTEESKESFIBEATLVITLUDENLLTSIROHUBGHRPLCZSEDKEuro areaNon-euro area% of GDPCurrent account (CA) 2019, BoPCurrent account (CA) 2020, BoPCyclically-adjusted CA 2020CA norm 2020NIIP-stabilising CA 2020 
   
also due to deepening of the primary income balance deficit. Its three-year average moved further below 
the MIP threshold. The current account is below its norm as well as below the level required to bring the 
NIIP  at  the  prudential  benchmark  over  the  next  10  years. (12) (13)  The  current  account  of  Romania 
maintained  its  steady  downward  trend  by  recording  a  marginal  decline  to  -5%  of  GDP,  which  slightly 
increased the gap to the respective norm. While the current account of Ireland equalled -2.7% of GDP in 
2020, the 3-year average came out close to -6%, driven by an exceptionally large deficit in 2019. (14) 

In  2020,  four  Member  States  had  current  account  surpluses  exceeding  the  upper  MIP  threshold. 
That has been the case for Denmark, Germany, and the Netherlands for nearly a decade. The surpluses in 
Denmark and Germany equalled 8.1% and 6.9% of GDP respectively in 2020, down compared with 2019, 
and  the  surplus  of  the  Netherlands  fell  from  9.4%  to  7%  of  GDP,  driven  also  by  the  activities  of 
multinational  corporations.  While  the  Danish  surplus  declined  as  a  result  of  a  lower  trade  balance,  in 
Germany and the Netherlands falls were driven mainly by a lower investment income balance. The high 
surplus in Slovenia expanded from 6% to 7.4% of GDP during the crisis, amid higher trade and primary 
income  balances.  Surpluses  in  all  four  countries  remained  substantially  above  their  respective  current 
account norms and the NIIP-stabilising current account benchmarks. 

The  current  accounts  of  most  other  EU  countries  exceeded  their  country-specific  levels  suggested 
by fundamentals in 2020, with some notable exceptions. Both headline and cyclically-adjusted current 
accounts were above, or close to current accounts justified by fundamentals, as well as above the NIIP-
stabilising  current  accounts  in  most  Member  States  (Graph  2.2.1). (15)  Notable  exceptions  were  Greece 
and  Portugal,  with  current  account  outturns  below  both  the  norm  and  the  balance  needed  to  reach  the 
prudential NIIP over 10 years. For both countries, and especially for Greece, the COVID-19 crisis caused 
a considerable decline in their current accounts, which had strengthened significantly in previous years. 

The current account deficits of countries with substantial cross-border tourism sectors are forecast 

Graph 2.2.2:  Evolution of current account balances 

Note: Countries are presented in increasing order of the current account balance in 2020. 
Source: Eurostat, European Commission autumn 2021 economic forecast and Commission services calculations. 

(12)  Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions capturing the 
main  determinants  of  the  saving-investment balance,  including  fundamental  determinants, policy  factors  and  global  financial 
conditions.  See  L.  Coutinho  et  al.  (2018),  "Methodologies  for  the  assessment  of  current  account  benchmarks",  European 
Economy,  Discussion  Paper  86/2018,  for  the  description  of  the  methodology  for  the  computation  of  the  fundamentals-based 
current  account  used  in  this  AMR;  the  methodology  is  akin  to  S.  Phillips  et  al.  (2013),  "The  External  Balance  Assessment 
(EBA) Methodology", IMF Working Paper, 13/272. 

(13)  NIIP prudential thresholds are determined from the maximisation of the signal power in predicting a balance of payment crisis, 
taking into account country-specific information summarised by per-capita income. For the methodology for the computation of 
NIIP  prudential  thresholds,  see  A.  Turrini  and  S.  Zeugner  (2019),  "Benchmarks  for  Net  International  Investment  Positions", 
European Economy, Discussion Paper 097/2019. 

(14)  In 2019, the current account deficit amounted to -19.9% of GDP. Large volatility of external sector data for Ireland is strongly 

linked to activities of multinational enterprises. 

(15)  Cyclically-adjusted current account balances take into account the impact of the cycle by adjusting for the domestic output gap 
and that in trading partners, see M. Salto and A. Turrini (2010), "Comparing  alternative methodologies for real exchange rate 
assessment", European Economy, Discussion Paper 427/2010. 

18 

-20-15-10-5051015CYELROIEFRHUPTBGEEHRSKESFIBEATLVPLCZITLUSEDENLLTSIDK% of GDP201920202021f2022f 
                                                           
   
to  slowly  improve  over  2021  and  2022,  while  the  largest  surpluses  are  mostly  but  not  always 
expected  to  mildly  decline  (Graph  2.2.2).  Going  forward,  a  gradual  recovery  of  international  travel  is 
expected, which could, however, be uneven and remain incomplete by the forecast horizon (see Box 1 on 
tourism).  It  will  lend  support  to  improvements  in  the  current  accounts  of  countries  strongly  relying  on 
tourism exports, most notably Croatia, Cyprus and Greece. Yet the large current account deficit of Cyprus 
is  expected  to  improve  only  slowly.  The  current  account  of  Romania  is  forecast  to  further  worsen. 
Conversely, the volatile current account of Ireland is projected to record large surpluses over the forecast 
period. The large surpluses of Denmark, Germany and Slovenia are forecast to decline, even if only very 
mildly in the case of Germany, while the surplus of the Netherlands is forecast to rebound to nearly its 
2019 level by 2022.  

From  the  savings  and  investment  perspective,  the  contribution  of  different  sectors  to  external 
positions  is  not  expected  to  change  substantially  in  most  Member  States.  While  private  sectors  are 
expected to mostly remain net lenders, governments are projected to stay net borrowers in 2021 (Graph 
2.2.3 d). Within private sectors, the net lending positions of corporations are forecast to increase in most 
Member States, and that of households to decline somewhat. On average, governments' net borrowing is 
expected  to  decrease  mildly.  Within  public  sectors,  the  net  lending  positions  of  Member  States  with  a 
high current account surplus will have an impact on their external position.  

Graph 2.2.3:  Net lending/borrowing by sector in 2019-2021 

Source: AMECO and European Commission autumn 2021 economic forecast. 

During 2020, the net international investment positions (NIIPs)  worsened in most large net-debtor 
countries, while they mostly improved in those with large positive positions. After having increased 
in  all  but  four  EU  countries  in  2019,  there  were  considerable  cross-country  differences  in  NIIP 
developments during 2020, with the NIIPs of nearly half of the Member States declining. In 2020, there 
were ten EU countries with NIIPs below the scoreboard threshold of -35% of GDP, one less than in 2019. 
In  all  those  cases,  for  2021,  their  positions  are  expected  to  remain  lower  than  the  NIIPs  suggested  by 

19 

-25-20-15-10-5051015NLDKMTDESILTSEHREEBGITESATPLHUPTLVBEFICZFRELSKLUROCYIE% of GDPa: NLB by sector in 2019Households and NPISHCorporationsGovernmentPrivate sectorTotal economy-15-10-5051015202530IELULTCZLVPLSISKFIITBESEROATDEDKHUPTESFRNLBGEEHRCYELMTpp of GDPb: NLB by sector, difference 2020-2019Households and NPISHCorporationsGovernmentPrivate sectorTotal economy-20-15-10-505101520LTDKSINLDESELVPLITCZLUMTATEEHRESBGFIBEHUPTSKFRROELIECY% of GDPc: NLB by sector in 2020Households and NPISHCorporationsGovernmentPrivate sectorTotal economy-20-15-10-50510152025IENLDKDESESILUHRLTPLITLVBGESMTFIBEHUEEPTCZATSKFRELROCY% of GDPd: NLB by sector in 2021Households and NPISHCorporationsGovernmentPrivate sectorTotal economy 
  
fundamentals, and in six of them the NIIPs are projected at levels below the prudential thresholds (Graph 
2.2.4). (16)  Large  negative  NIIPs  are  mainly  forecast  to  improve.  In  the  medium  term,  three  Member 
States  with  NIIPs  below  the  -35%  mark  in  2020  are  expected  to  surpass  it.  Large  positive  NIIPs  are 
projected to further increase or remain broadly stable. 

Graph 2.2.4:  Net international investment positions (NIIP) 2019-2022, 2025, and benchmarks in 2021 

Note: Countries are presented in decreasing order of the NIIP-to-GDP ratio in 2020. NENDI is the NIIP excluding non-
defaultable instruments. For the concepts of NIIP prudential threshold and NIIP norm, see footnotes 13 and 16. NENDI for IE, LU 
and MT are out of scale.  
Source: Eurostat and Commission services calculations (see also Annex 1). 

The Member States with the largest negative NIIPs experienced the strongest declines during 2020 
but  the  recovery  is  expected  to  allow  improvements  in  most  cases.  Cyprus,  Greece,  Ireland,  and 
Portugal have NIIPs below -100% of GDP and below their fundamental and prudential benchmarks. They 
are  followed  by  Spain  with  an  NIIP  of  around  -85%  of  GDP.  With  the  exception  of  Ireland,  these 
Member  States  experienced  strong  deteriorations  in  their  positions,  which  in  the  case  of  Cyprus  and 
Greece  amounted  to  around  20  percentage  points  of  GDP.  The  main  drivers  were  the  nominal  GDP 
declines, in particular in Greece, and the large current account deficits, especially in Cyprus. In Ireland, as 
well as in Cyprus, NIIP levels largely reflect cross-border financial relations of multinational enterprises 
and of special purpose entities. All those five countries are characterised by comparatively large negative 
NIIP  excluding  non-defaultable  instruments  (NENDI),  i.e.  large  shares  of  net  debt  liabilities  in  their 
external position. (17) Most of the external liabilities of Greece is composed of public debt at concessional 
terms.  External  sustainability  of  some  Member  States  with  large  negative  NIIPs  will  be  supported  by, 
sometimes sizeable, inflows  of grants  under the Recovery and Resilience  Facility (RRF), in addition to 
EU  transfers  under  the  Multiannual  Financial  Framework  (MFF).  Still,  current  projections  suggest 
stagnation of Cyprus’ NIIP, even in the medium term. Conversely, the NIIPs of other countries with large 
negative NIIPs should gradually improve towards 2022 and over the medium term, on the back of strong 
GDP growth and improved current accounts, with the expected progress being exceptionally swift in the 
case of Ireland, amid large forecast current account surpluses. 

Most of the EU countries with moderately negative NIIPs did not experience large changes in their 
positions in 2020 and forecasts suggest  improvements in  most of them going forward. All of these 

(16)  NIIP  in  line  with  fundamentals  (NIIP  norms)  are  obtained  as  the  cumulation  over  time  of  the  values  of  the  current  account 
norms (see also footnote 12). For the methodology for the computation of NIIP stocks in line with fundamentals, see A. Turrini 
and  S.  Zeugner  (2019),  "Benchmarks  for  Net  International  Investment  Positions",  European  Economy,  Discussion  Paper 
097/2019. 

(17)  NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment (FDI) equity 
and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding instruments that cannot be 
subject to default. See also European Commission, "Envisaged revision of selected auxiliary indicators of the MIP scoreboard", 
Technical 
https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-
governance-monitoring-prevention-correction/macroeconomic-imbalance-procedure/scoreboard_en.  

note; 

20 

-200-150-100-50050100150NLDKDEMTBELUSEATITFICZSILTEEBGFRLVPLHRHUROSKESPTCYIEEL% of GDPNIIP 2019NIIP 2020NIIP 2021fNIIP 2022fNIIP 2025fNENDI 2020NIIP norm 2021Prudential NIIP 2021 
   
                                                           
countries,  Croatia,  Hungary,  Poland,  Romania,  and  Slovakia,  are  expected  to  have  NIIPs  below  their 
fundamental  benchmarks  in  2021,  but  only  the  NIIPs  of  the  latter  two  Member  States  are  forecast  at 
levels below prudential thresholds. The NIIPs of all these Member States, as well as of other central and 
eastern  European  and  Baltic  countries,  are  characterised  by  large  stocks  of  inward  foreign  direct 
investment, and NENDIs that are much more favourable than their NIIPs. In addition, these countries are 
comparatively large recipients of EU transfers under the MFF, which lends non-negligible support to their 
external positions. The RRF grants that come on top of the MFF transfers further underpin increases in 
the  NIIPs  of  most  of  these  countries.  Overall,  forecasts  suggest  improvements  in  the  NIIPs  of  these 
countries going forward, with the exception of Romania whose position is expected to mildly deteriorate 
(Graph 2.2.4).  

Diverging developments in 2020 have been recorded also within the group of Member States with 
large positive NIIPs. The NIIPs of the Netherlands, Germany, Malta, and Belgium expanded further, on 
the  back  of  the  continued  sizeable  current  account  surpluses  for  the  first  two  countries,  and  in  all  four 
cases helped by the decline in nominal GDP. In particular, the Netherlands, but also Malta, recorded also 
strong  positive  valuation  effects.  Conversely,  negative  valuation  changes  limited  the  increase  in  the 
German  NIIP.  Large  positive  NIIPs  of  Denmark  and  Luxembourg  declined  amid  negative  valuation 
changes, despite strong current account surpluses in the latter two countries. 

External financing conditions may tighten going forward, which could have consequences for some 
non-euro area countries. At the onset of the COVID-19 crisis, global financial market tensions were felt 
in several non-euro area countries. At the time, currencies  of some  non-euro area Member States,  most 
notably Hungary's forint, were under pressure and depreciated in March and April 2020 but recovered and 
stabilised already in May (Graph 2.2.5) as the global risk sentiment improved and capital flows stabilised. 
Some renewed capital flows volatility or tightening of external financing conditions cannot be excluded 
going forward, partly in anticipation of monetary tightening in the USA and other advanced economies. 
In  this  context,  non-euro  area  countries  with  forecast  large  net  lending  positions  are  less  exposed  to 
external (re-)financing risks if these would re-emerge, as are the Member States with substantial foreign 
exchange reserve stocks. External  financing needs, both of the private and the  government sectors, also 
play a role in this context (see section 2.4 on the government sector).  

Graph 2.2.5:  Nominal effective exchange rates (NEER) 

Source: European Commission 

21 

859095100105110Mar-18Jun-18Sep-18Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20Mar-21Jun-21Sep-21Index; 2018=100BGNCZKHRKHUFPLNRONDKKSEKEUR 
   
2.2.2.  COMPETITIVENESS  

Unit labour costs rose across the EU as a result of marked temporary reductions in headline labour 
productivity  over  the  COVID-19  crisis.  The  scoreboard  shows  ULC  growth,  based  on  cumulative 
growth  over  the  three  years  to  2020,  above  the  threshold  in  18  Member  States,  compared  to  eight 
countries one year ago. Prior to 2020, signs of potential overheating pressures existed in some countries, 
including  Bulgaria,  Czechia,  Estonia,  Hungary,  Latvia,  Lithuania,  Luxembourg,  Malta,  Romania  and 
Slovakia. In 2020 alone, ULC growth accelerated in 22 Member States. However, this exceptional ULC 
growth is projected to be partially reversed in many countries in 2021 and 2022, amid generally increased 
ULC volatility.  

The  impact  of  the  COVID-19  pandemic  and  structural  frictions  emerging  in  the  recovery  makes 
changes in cost competitiveness difficult to assess. The sharp acceleration in ULC growth in 2020 and 
its expected partial reversal in most countries in 2021 and 2022 is dominated by a statistical effect due to 
extensive labour hoarding and the subsequent fall in headline per capita productivity (Graph  2.2.6). This 
was  induced  by  the  government  support  to  job  retention  schemes,  mainly  in  the  form  of  temporarily 
expanded  short-time  work  schemes,  which  favoured  a  reduction  in  hours  worked  rather  than  impacting 
employment  levels.  The  combination  of  labour  market  slack  and  skill  shortages  point  to  volatility  and 
uncertainty about ULC developments going forward. These are linked to supply chain issues and frictions 
from  the  uneven  economic  recovery,  as  well  as  the  accelerated  digital  transformation  and  longer  term 
structural changes. Given that recent years have been marked by high ULC growth for many countries, 
cost competitiveness losses remain a risk to be watched, notably to grasp the extent to which the losses 
recorded  in  2020  can  be  recouped  over  the  recovery.  Policies  to  promote  competitiveness  and 
productivity remain highly important for a sustainable recovery from the COVID-19 crisis.  

Labour productivity fell in almost all EU countries in 2020, but it is expected to recover this year 
and  next  (Graph  2.2.6  c).  Labour  inputs  decreased  during  the  COVID-19  crisis,  mainly  on  account  of 
reduced hours, while headcount employment moved little, supported by government measures including 
expanded short-time work schemes, the use of which has declined significantly over the recovery. As a 
result,  labour  productivity  based  on  the  number  of  employees  declined  stronger  as  compared  to  labour 
productivity  based  on  hours  worked  in  most  countries.  In  2021  and  2022,  as  the  recovery  sets  in  and 
labour  hoarding  effects  are  reversed,  an  upward  jump  in  productivity  figures  is  expected.  In  2022, 
productivity per person is forecast to be above its 2019 level in all Member States, except in Luxembourg, 
Malta, Portugal and Spain. 

Wage increases were moderate in 2020, but are expected  to pick up, sometimes markedly, in 2021 
and 2022. Wage growth was subdued in most EU countries during the COVID-19 crisis (Graph 2.2.6 d). 
Compensation  per  employee  is  forecast  to  increase  at  an  annual  rate  of  over  5%  in  Bulgaria,  Czechia, 
Hungary, Italy, Latvia, Lithuania, Poland, Romania and Slovakia in 2021 and 2022. For Belgium, Estonia 
and Ireland, the increases should average between 4% and 5%. In Bulgaria, Czechia, Estonia, Hungary, 
Latvia,  Lithuania,  and  Romania  and  Slovakia,  persistently  high  wage  and  ULC  growth  was  already  a 
concern before the pandemic, raising questions about cost competitiveness.  

Across  the  euro  area,  ULC  developments  should  return  to  supporting  external  rebalancing  when 
the productivity effects have cleared. ULC growth in 2020 was stronger in some net-debtor countries, 
such as Greece, Portugal and Spain as they recorded sharper recessions and substantial labour hoarding. 
By  2022,  the  change  in  ULC  growth  will  once  again  have  become  more  supportive  of  external 
rebalancing, as it is forecast to be slightly lower in net-debtor than net-creditor ones (Graph  2.2.7). The 
more  limited  impact  on  rebalancing  compared  to  the  pre-pandemic  time  was  affected  by  the  lingering 
impact on productivity, which would need to be addressed to overcome existing divergences. Conversely, 
employee compensation is forecast to be higher in net-creditor than in net-debtor countries. 

22 

 
 
Graph 2.2.6:  Unit labour cost, compensation and productivity growth 

Note: Growth rates over multiple years are annualised. 
Source: AMECO and European Commission autumn 2021 economic forecast.  

Graph 2.2.7:  Unit labour cost growth across the euro area 

Note: Countries with NIIP > +35% of GDP are DE, LU, NL, BE, MT. Countries with NIIP between 35% and -35% of GDP are FI, EE, IT, 
LT, FR, SI, AT. Remaining countries are in the NIIP < -35% of GDP group. The country split is based on NIIP average values in the 
2017-2019 period. Net-creditor countries recorded an average current account surplus over the same period. Figures 
concern GDP-weighted averages for the three groups of countries. 
Source: AMECO and European Commission autumn 2021 economic forecast 

23 

-8-404812IECYFIITLUFRDEBEEEESLTSKLVATELSINLPTMTDKSEHUPLCZHRROBGEuro areaNon euro areaAverage annual % changea: ULC decomposition, 2020CompensationProductivityULC-6-3036912IEFICYITLUDEBEFREELTESSKLVATSIELNLPTMTDKSEHUPLCZROBGHREuro areaNon euro areaAverage annual % changeb: ULC 2017-1920202021f-22f-12-8-4048MTELITESFRPTBEATCYDESILUNLSKLVFIEELTIEHRCZHUPLROBGSEDKEuro areaNon euro areaAverage annual % changec: Labour productivity, per person20202021f-22f2020-22f-6-4-20246810ITCYFRBEESELMTDELUFIATPTIESISKNLEELVLTHUHRDKSECZPLROBGEuro areaNon euro areaAverage annual % changed: Compensation, per person20202021f-22f-3-2-101234560506070809101112131415161718192021f22f% change  NIIP < -35% of GDPNIIP > +35% of GDP-35% < NIIP < 35% 
  
 
  
 
Nominal effective exchange rates appreciated in most countries in 2020. The strongest appreciations 
were recorded for Bulgaria, Greece, Latvia, Lithuania and Sweden. Only Hungary, and to a lesser extent, 
Czechia and Poland recorded nominal depreciations. The appreciation in nominal effective exchange rates 
reflects also the appreciation of the euro at the onset of the COVID-19 pandemic and the associated flight 
to safe  haven. In 2021 so far, nominal effective exchange  rates have appreciated in most EU countries, 
although in most cases more moderately than in 2020.  

HICP-based real effective exchange rates (REERs) appreciated moderately in most Member States 
in 2020 which partly reflects nominal appreciations. The only countries that witnessed a depreciation 
of  the  HICP-based  REER  were  Croatia  and  Hungary.  The  strongest  appreciations  were  recorded  in 
Bulgaria,  Lithuania  and  Sweden.  This  moderate  appreciation  follows  a  depreciation  witnessed  in  most 
Member States in 2019. Going forward, the GDP-deflator-based REER, for which forecasts are available 
for  2021,  suggests  that  real  exchange  rates  can  be  expected  to  increase  moderately,  with  notable 
appreciations only in Bulgaria, Czechia, Lithuania and Sweden (Graph 2.2.8 b).  

REER developments are supportive of external rebalancing, but only to a limited extent. Some net-
creditor  countries,  including  Denmark,  Germany,  the  Netherlands  and  Malta  exhibited  a  REER 
appreciation  slightly  above  the  EU  average  in  2020.  Some  large  net-debtor  countries  or  countries  that 
have been more affected by the COVID-19 recession, such as Cyprus, Croatia, Greece, Italy, Portugal or 
Spain,  recorded  some  competitiveness  gains  vis-à-vis  those  net-creditor  countries  thanks  to  lower 
inflation, as suggested by more moderate REER developments (Graph 2.2.8). This tendency seems to also 
persist  in  2021,  suggesting  that  REER  developments  remain  moderately  supportive  of  external 
rebalancing in the near-term.  

Graph 2.2.8:  Nominal and real effective exchange rates (NEER and REER) dynamics 

Note: The REERs and the Nominal Effective Exchange Rate (NEER) are computed vis-à-vis 42 trading partners.  
Source: AMECO and European Commission autumn 2021 economic forecast. 

Export market shares fluctuated strongly in 2020 and three Member States recorded losses beyond 
the  scoreboard  threshold.  Based  on  the  cumulated  change  over  five  years,  France,  Greece  and  Spain 
recorded substantial export market share losses in excess of the threshold. In contrast, many countries also 
recorded substantial gains, in the case of Ireland, Lithuania and Poland beyond 30 percent. Export market 
shares fluctuated strongly in 2020. EU countries, on average, gained some export market shares in 2020 
alone, but with strong differences across countries.  

Some countries with important export market share losses in 2020 are expected to recover only part 
of the losses in the near future. Apart from in Austria and Estonia, the sharp drop in the services balance 
in  the  context  of  the  COVID-19  crisis  stopped  in  recent  quarters  in  Bulgaria,  Croatia,  Cyprus,  Greece, 
Hungary,  Italy,  Malta,  Portugal  and  Spain.  The  services  trade  balance  of  Germany  remains  slightly  in 
surplus, after a sharp improvement since the beginning of 2020. Trade balances in goods developed more 
favourably  in  several  countries  since  2019  and  partly  offset  the  decline  in  the  service  trade  balance. 
Export  market  shares  are  expected  to  increase  particularly  strongly  in  Croatia  and  Greece  and  Spain  in 

24 

-6-4-202468IEPTCYELITESLUSIMTFIDEBEFRATNLEESKLVLTHUSEHRDKPLROCZBGEuro areaNon euro areaAnnual average, % changea: NEER and REER, 2018-20REER-HICPNEERREER-GDP-3-2-1012345IEELCYEEBEESMTSIITLVPTDESKNLFIATFRLTLUHUHRPLCZRODKSEBGEuro areaNon euro area% changeb: REER, GDP based201920202021f 
  
2021 and 2022, as cross-border travel recovers, but not in all cases enough to recover all losses witnessed 
in 2020. Overall, for the period 2020-2022, export market shares are expected to increase most in Estonia, 
Ireland, Lithuania, Luxembourg and Poland, and to decrease in Greece, Spain, France, and Portugal. 

Export  market  share  developments  may  contribute  to  some  external  rebalancing  going  forward. 
Countries  with  large  current  account  surpluses,  including  Denmark,  Germany  and  the  Netherlands,  are 
expected  to  lose,  export  market  shares  over  the  period  2020-2022.  Data  for  the  second quarter  of  2021 
continue  to  show  service  balance  surpluses,  in  percentage  of  GDP,  amidst  strengthening  goods  trade 
balances in Germany and the Netherlands. Nonetheless, these countries will likely lose part of the export 
market share gains in services from the COVID-19 period as tourism flows recover. 

25 

 
 
 
 
 
Box 1: 

Tourism during the COVID-19 crisis 

Tourism  was  one  of  the  most  heavily  affected  economic  activities  in  the  COVID-19  crisis,  as  the 
measures to contain the pandemic included restrictions in the hospitality sector and on international travel. 
The  magnitude of the adverse impact is reflected in the large fall of nights spent by tourists (Graph  1): in 
April 2020, the number of nights spent in tourist accommodations dropped by 95% as compared to the same 
month in 2019. A substantial recovery was recorded in the summer months, as domestic tourism came close 
to 2019  levels  in  August  2020. Conversely,  at  the  August  peak, cross-border  tourist  nights  remained 60% 
below their level in August 2019. With the second wave of the pandemic, travel activity declined again.  

A  recent,  stronger  recovery,  including  in  cross-border  tourism,  started  in  May  2021.  It  followed 
substantial  progress  in  vaccination  and  in  the  coordination  on  cross-border  travel  rules  within  the  EU, 
through  the  introduction  of  the  EU  Digital  COVID  Certificate.  Both  domestic  and  cross-border  tourism 
increased in July, as compared to 2020 level, with the latter improving more strongly. Taking also nowcasts 
for August and September into account suggests that overall tourism activity in summer 2021 increased by 
around 30%  as  compared  to  2020, but  still  remains  16% below  the  2019 levels,  with  some  compositional 
changes. (1) While domestic tourism seems to have exceeded the levels attained in summer of 2019 during 
the summer months of 2021, especially in September, cross-border travel still lags behind the pre-pandemic 
levels by more than 40%. Comparing the first nine months of 2021 with the same period in 2020, shows that 
tourism performance in 2021 grew only by some 12%, partly reflecting the fact that the first quarter of 2020 
was largely unaffected by the pandemic. 

Graph 1:  Tourist nights spent in the EU in 2020 and 2021 

40

20

0

-20

-40

-60

-80

-100

9
1
0
2

n

i

h
t
n
o
m
e
m
a
s

e
h
t

m
o
r
f

e
g
n
a
h
c
%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

2020

2021

Total nights spent

Of which: cross-border

Of which: domestic residents

Note: Number of nights spent in tourist accommodation reported via Eurostat and augmented by nowcasts based 
on AirBnB-reviews for August and September 2021. Estimates for Cyprus, France and Ireland rely on the data from 
national statistical institutions. See also footnote 1. 
Source: Eurostat and European Commission estimates. 

Member States that rely strongly on exports of travel services were hit especially hard as cross-border 
travel plunged with the pandemic. The large fall in international tourism had a particularly strong impact 
on some net-debtor countries, such as Croatia, Cyprus, Greece, Portugal or Spain, that have been recording 
large surpluses in trade of travel services, as well as for Malta (Graph 2 a). (2) For most of these countries, 
the impact of the decline of international tourism on trade balances broadly accounts for the deterioration in 
their overall trade balances during 2020. (3) (4) The negative effects on large exporters of tourism services 
are gradually reversing in 2021, as the recovery of cross-border tourism gained momentum. At the other end 
of  the  spectrum  are  countries  which  normally  import  more  travel  services  than they  export.  For them,  the 
reduction  in  international  travel  had  a  partial  positive  effect  on  their  trade  balances,  as  tourists  turned  to 
domestic destinations.  

26 

 
  
 
 
 
 
 
 
 
 
 
Graph 2: 

Impact of tourism decline on trade balances, and nights spent projections for 2021 

Notes: (a) The estimated effects refer only to trade in services recorded under the travel item in the Balance of 
Payments statistics. They are based on partial-equilibrium analysis, which uses trade in value-added data, and 
accounts for direct and indirect effects. See footnotes 3 and 4. (b) Projections for 2021 are based on the number of 
nights spent in tourist accommodation by non-residents, reported via Eurostat and augmented by nowcasts based 
on AirBnB-reviews in case of missing data, up to September. Estimates for Cyprus, France and Ireland rely on the data 
from national statistical institutions. For the last quarter of 2021, the projection assumes the same level of tourism 
activity as in the data (and nowcast) of the third quarter of 2021, in percentage of 2019 nights spent.  
Source: Eurostat and European Commissions estimates. 

Preliminary  data  on  2021  indicate  a  partial  and  gradual  recovery  in  international  tourism,  which 
nonetheless  varies  across  countries.  The  number  of  nights  spent  in  tourism  accommodations  by  foreign 
tourists in 2021 is projected to increase substantially in Croatia, Cyprus and Greece, and somewhat less in 
Spain (Graph 2 b). (5) At the same time, a rebound of international tourism activity in Portugal seems more 
muted,  but  the  level  remains  slightly  above  the  level  projected  for  Spain.  Significant  increases  in  cross-
border tourism are projected also for Bulgaria, Italy, Romania and Slovenia and while for e.g. Austria and 
the  Netherlands,  along  with  a  few  other  Member  States,  declines  are  expected,  likely  reflecting  different 
seasonal distributions of foreign tourists’ visits, as well as the travel diversion effects during 2020 and 2021.  

(1)  For  details  about  the  AirBnB  data,  and  for  methodological  explanations  of  nowcasts  see  European  Commission, 
European Economic Forecast Autumn 2020, ‘Tourism in pandemic times: an analysis using real-time big data’, Special 
Topic  3.3.  Institutional  Paper  136,  November  2020.  The  nowcasts  use  the  language  of  each  review  as  a  proxy  to 
differentiate between nights spent by domestic tourists and by foreign residents. 

(2)  The term ‘international tourism’ is used to denote international trade in travel services recorded under the travel item in 

the Balance of Payments statistics. 

(3)  Estimates  of  the  impact  from  the  decline  in international  travel  on  trade  balances  are  based  on a  partial-equilibrium 
analysis, which focuses on trade in value-added terms by accounting for imports of inputs used in production of goods 
and services consumed by foreign tourists. The analysis accounts for both the direct and indirect effects of the change 
in foreign tourist demand, i.e. also the backward linkages to sectors of the economy not directly affected by the tourist 
demand. The analysis assumes that the money not spent for travel abroad is saved. For more details see: L. Coutinho, 
G. Vukšić and S. Zeugner (2021), “International tourism decline and its impact on external balances in the euro area”, 
Quarterly Report on the Euro Area, DG ECFIN, European Commission, Vol. 20, No 2, Part III. 

(4)  A  partial  example  is  Cyprus  where  high  net  imports  of  services  of  international  transport  of  passengers  reduced 
strongly  in  2020,  cushioning  the  overall  impact  on  trade  balance.  International  transport  of  passengers  is  a  separate 
category  in  the  Balance  of  Payments,  but  is  related  to  international  tourism.  As  2020  data  on  these  services  are  not 
available for many EU countries, it is not included in the analysis. Among other countries for which data is available, 
accounting  for  this  category  does  not  significantly  alter  the  results.  In  Malta,  the  trade  balance  was  comparatively 
strongly impacted also by changes in items other than travel.  

(5)  When comparing 2021 (projections) with the whole 2020, it should be reminded that nearly the whole first quarter of 

2020 was not affected by the pandemic and that tourism activity was then on the rise as compared to 2019. 

27 

-10-8-6-4-2024HRELCYMTPTESBGSIHUITSKCZFRPLATLVLTEEDKRONLIELUBEFISEDEin pp of GDPa: Tourism decline and trade balances, 2020Impact of decline in 'tourism exports'Impact of decline in 'tourism imports'Overall change in trade balanceNet impact of decline in tourism0102030405060708090HRLUBGITATDKCYSIELFRSEPLMTRODENLBEPTESHUEESKLVFILTCZIEin % of nights spent in 2019b: Nights spent by foreign tourists20202021 
 
  
 
 
2.3.  PRIVATE DEBT AND HOUSING MARKETS 

2.3.1.  PRIVATE DEBT 

Private sector debt ratios increased markedly with the COVID-19 crisis but are forecast to return 
to  their  declining  trend  in  2021  in  most  countries.  In  2020,  the  private  sector  debt-to-GDP  ratio 
increased  in  all  EU  countries,  except  Denmark,  Ireland  and  Lithuania  (Graph  2.3.1),  interrupting  the 
deleveraging  that  was  underway  in  many  countries.  The  increase  in  2020  was  principally  due  to  the 
decrease  in  GDP  but  borrowing  also  increased  in  most  countries,  particularly  for  corporates.  Credit 
guarantees and debt repayment moratoria were important policy measures to overcome liquidity shortages 
at  the  beginning  of  the  COVID-19  crisis,  but  have  also  contributed  to  the  debt  increase.  Private  sector 
debt-to-GDP ratios exceeded the scoreboard threshold of 133% of GDP in 12 Member States (Belgium, 
Cyprus,  Denmark,  Finland,  France,  Ireland,  Luxembourg,  Malta,  the  Netherlands,  Portugal,  Spain  and 
Sweden), compared to 10 countries one year ago, when Spain and Malta were below (Graph 2.3.1). There 
were  marked  increases  for  other  Member  States  which  stayed  below  the  threshold.  Total  private  debts 
stocks  appear  high  when  compared  with  benchmarks  that  account  for  country-specific  economic 
fundamentals and with thresholds that account for prudential concerns. (18) This is the case for Belgium, 
Cyprus,  Denmark,  France,  Greece,  Ireland,  Luxembourg,  Malta,  the  Netherlands,  Portugal,  Spain  and 
Sweden. 

Overall,  the  COVID-19  crisis  has  increased  risks  associated  with  private  debt  levels.  With  the 
economic  recovery,  private  debt-to-GDP  ratios  are  forecast  to  start  declining  in  2021  across  the  EU 
(Graph 2.3.1). Nonetheless, they are expected to remain above their 2019 levels in most EU countries. As 
government  support  measures  are  phased  out,  firms’  and  households’  ability  to  meet  their  repayment 
obligations  may  be  compromised,  especially  sectors  among  those  more  severely  hit  by  the  COVID-19 
crisis and where balance sheets were already weaker before the crisis, leading to a deterioration in debt 
quality. In addition, the rising debt levels by firms, households, governments and banks also led to higher 
interconnectedness  between  sectors,  potentially  accelerating  the  transmission  of  shocks  across  sectors. 
Disruptions  to  global  value  chains  and  frictions  from  the  uneven  economic  recovery,  in  a  context  of 
accelerated digital transformation, pose risks and induce structural changes and a churning of firms and 
jobs.  

(18)  Country-specific  debt  benchmarks  have  been  developed  by  the  European  Commission  in  cooperation  with  the  EPC  LIME 
Working  Group  (European  Commission,  "Benchmarks  for  the  assessment  of  private  debt",  Note  for  the  Economic  Policy 
Committee, ARES (2017) 4970814) and J.-C. Bricongne, L. Coutinho, A. Turrini and S. Zeugner, “Is Private Debt Excessive?”, 
Open Economies Review, 3, 471-512, 2020. Fundamentals-based benchmarks allow assessing private debt against values that 
can be explained on the basis of economic fundamentals, and are derived from regressions capturing the main determinants of 
credit growth and taking into account a given initial stock of debt. Prudential thresholds represent the debt level beyond which 
the probability of a banking crisis is relatively high; those levels are based on the maximisation of the signal power in predicting 
banking crises by minimising the probability of missed crisis and of false alerts and incorporating country-specific information 
on bank capitalisation, government debt, and level of economic development.   

28 

 
 
 
 
 
 
 
 
                                                           
Graph 2.3.1:  Private debt 

Source: Eurostat, AMECO, European Commission autumn 2021 economic forecast, and Commission services estimates for 
private debt in 2021 (see Annex 1). Debt comprises loans (F4) and debt securities (F3). 

2.3.1.1.  Debt of non-financial corporations 

Corporate  indebtedness  increased  in  most  EU  countries  in  2020,  sometimes  sharply.  In  2020,  the 
corporate debt-to-GDP ratio increased in 19 countries, largely due  to the sharp drop in GDP. However, 
net corporate credit flows also contributed to the increase, in light of marked revenue losses and perceived 
liquidity  shortages  in  2020,  which  also  contributed  to  a  strong  increase  in  corporate  deposit  holdings. 
Non-financial  corporations’  (NFC)  debt-to-GDP  ratios  increased  particularly  strongly  in  a  number  of 
countries  with  already  high  corporate  debt  levels  or  large  tourism  sectors  that  were  hard  hit  by  the 
recession  (Graph  2.3.3  a).  These  countries  include  Cyprus,  France,  Greece,  Italy,  Malta,  Portugal  and 
Spain. Very high levels of corporate debt also continue to exist in Belgium, Ireland, Luxembourg and the 
Netherlands, although vulnerabilities are partly mitigated by a sizeable share of foreign direct investment 
loans and cross-border intracompany borrowing.  

NFCs debt-to-GDP ratios remain high in  many Member States and debt  ratios were above levels 
suggested by both economic fundamentals and prudential thresholds in 14 countries in 2020. These 
are Belgium, Cyprus, Denmark, France, Greece, Ireland, Luxembourg, Malta, the Netherlands, Portugal, 
Spain,  Sweden,  and  more  marginally  Austria  and  Italy  (Graph  2.3.2).  For  most  countries,  NFC  debt  is 
below its previous peak, given the  substantial deleveraging that has taken place in recent years, but the 
pandemic  has  undone  some  of  this  progress.  For  some  countries,  such  as  Austria,  Belgium,  Denmark, 
France, Finland, Germany, Greece, Italy, Luxembourg, Poland, Slovakia, and Sweden, corporate debt is 
at or very close to its highest level since the mid-1990s. 

Going  forward,  the  high  nominal  GDP  growth  will  mechanically  lower  the  debt-to-GDP  ratio  in 
2021 and beyond, but starting from higher debt levels. The strong recovery of GDP makes corporate 
debt-to-GDP ratios likely to decrease – in some cases significantly – in 2021 in all EU countries, except 
Greece,  Hungary  and  Sweden  (Graph  2.3.3 b).  Credit  flows  are  expected  to  exceed  their  pre-pandemic 
levels in more than half of the Member States. The high nominal GDP growth will mechanically lower 
the  debt-to-GDP  ratio  in  2021  and  beyond.  The  exceptional  measures  put  in  place  in  2020  will  be 
gradually phased out and lead to increased debt repayments. In addition, NFCs may run down the sizeable 
liquidity  buffers  they  built  up  in  2020,  as  uncertainty  recedes  and  as  an  alternative  to  new  borrowing, 
which may also help with deleveraging.  

29 

050100150200250300350LUCYNLSEDKBEIEFRPTFIESMTATELDEITEESKBGHRCZHUPLSILVLTRO% of GDP2014201920202021fFundamentals-based benchmark 2021, % GDPPrudential benchmark 2021, % GDP 
   
 
Graph 2.3.2:  Non-financial corporations debt 

Notes: Numbers below the country abbreviations indicate the year when that debt ratio peaked, based on data between 
1997 and 2020. Countries are presented in decreasing order of the NFCs debt-to-GDP ratio in 2020.  
Source: Eurostat, AMECO, European Commission autumn 2021 economic forecast, and Commission services estimates for 
NFC debt in 2021 (see Annex 1). Debt comprises loans (F4) and debt securities (F3). 

Graph 2.3.3:  Decomposition of the change in NFC debt-to-GDP in 2020 and 2021 

Notes: Net credit flows (debt transactions) correspond to transaction of loans (F4) and debt securities (F3) from the Eurostat 
sectoral financial transactions accounts. In 2020, the contribution of net credit flows for Luxembourg amount to 40.1 pps. 
Source: AMECO, Eurostat and Commission services estimates and calculations based on ECB monthly data on MFI loans and 
debt securities transactions (flows) with the private sector from the BSI database, European Commission autumn 2021 
economic forecast. 

Overall,  credit  flows  to  NFCs  since  the  beginning  of  the  COVID-19  crisis  have  had  distinctive 
patterns  reflecting  different  phases  of  the  pandemic  (Graph  2.3.3  b). (19)  Bank  loans  to  NFCs 
increased in over two thirds of Member States in 2020, including in a number of Member States with high 
NFC debt, such as Denmark, France, Greece, Italy, Malta, the Netherlands, Portugal, Spain and Sweden. 
That  happened  against  a  setting  where  government  credit  guarantees  helped  maintain  credit  flows  and 
moratoria on debt repayments kept the nominal debts higher than what they would have been. However, 

(19)  In the case of bank loans to NFCs, the onset of the pandemic in March 2020 came with a rapid acceleration of credit growth in 
its first months, which was particularly marked in the cases of France  and Spain, among the large euro area members (Graph 
2.3.4 b). This rapid rise was more muted in Germany and more gradual in Italy and less visible in non-euro area EU countries. 
At  the  same  time,  cross-border  intra-euro  area  loans  got  more  significant  at  the  onset  of  the  crisis.  Credit  growth  then  fell 
sharply, attaining rates of increase below the pre-pandemic level in most cases by early 2021.  This represents a very marked 
departure from the gradually increasing, but broadly stable loans to corporates of recent years. 

30 

050100150200250LUCYIENLBESEDKFRPTFIMTESATITBGELEEDEHRHUSKCZLVSIPLROLT160997190209151209201012971009150909140916121109981509% of GDP201920202021fPeak valueFundamentals-based benchmark 2021, % GDPPrudential benchmark 2021, % GDP-32-22-12-2818IENLLTDKSKLVSIBECZROPLEEBGFIDECYHRATSEHUPTITELMTESLUFRa: 2020 Net credit flowsReal GDP growthInflationOther changesD/GDP, changepps of GDP-32-22-12-2818LUCYIENLBEHRLVFIFRITBGEEPTSKESPLATSICZDKROLTDEMTHUSEELb: 2021fNet credit flowsReal GDP growthInflationOther changesD/GDP, changepps of GDP 
   
 
   
                                                           
credit growth to NFCs clearly lost momentum in some large Member States more recently, attaining rates 
of increase below the pre-pandemic level in most cases by early 2021, in contrast to the increasing picture 
in  the  smaller  Member  States  (Graph  2.3.4  b).  To  the  extent  that  the  demand  for  credit  by  NFCs  is 
reduced due to corporations using accumulated liquidity buffers, credit flows may pick up in due course. 
However,  the  overall  reduction  in  credit  could  also  be  a  sign  of  muted  demand  for  or  supply  of  credit, 
which could indicate low investment activity ahead. 

Credit guarantees and debt repayment moratoria helped NFCs ride out the pandemic but increased 
debt  repayment  difficulties  may  still  emerge  going  forward.  Credit  guarantees  and  debt  repayment 
moratoria  were  important  policy  measures  to  overcome  liquidity  shortages  at  the  beginning  of  the 
COVID-19  crisis,  but  have  also  contributed  to  the  debt  increase.  In  some  cases,  non-viable  and 
technically insolvent companies will have been able to stay in the market, defer their payment obligations, 
and  delay  liquidations  that  would  otherwise  have  taken  place.  The  delay  in  debt  repayment  by  NFCs 
allowed  by  the  moratoria  across  the  EU,  either  as  a  government  measure  or  as  voluntary  initiative  by 
lenders, implied a mechanical increase in the debt stock. The phasing out of repayment moratoria over the 
course of 2021, may uncover debt repayment difficulties in parts of the corporate sector. The COVID-19 
crisis has not resulted in an increase in corporate insolvencies so far, but these may emerge as normality 
returns, potentially exposing risks for the financial sector. 

High  corporate  debt  levels  and  low  profitability  in  some  sectors  could  dent  investment  and  debt 
repayment prospects going forward. Profitability of corporates deteriorated in most Member States in 
2020 (Graph  2.3.4 a). Although profitability of corporates rose  in the first  months of 2021 in nearly all 
Member  States,  vulnerabilities  in  service  sectors  more  exposed  to  the  pandemic  remain.  Sustained 
inflation dynamics could also lead to compressed profit margins and debt repayment difficulties of some 
firms if costs increase more than revenues, with recent developments in energy prices being a risk factor. 
Investment  in  equipment  declined  since  the  end  of  2019  in  all  Member  States  but  Cyprus.  The  decline 
was  strong  in  a  number  of  countries  with  large  corporate  debts,  including  Ireland,  Luxembourg,  the 
Netherlands  and  Belgium,  as  well  as  some  countries  with  large  tourism  sectors,  such  as  Italy,  Malta, 
Portugal  and  Spain.  High  corporate  debt  levels  are  a  risk  factor  for  private  investment  going  forward, 
particularly given the additional needs to support the green and digital transformations. As the recovery 
progresses, there are emergent signs that structural changes may be underway, in a context of increased 
supply  chain  disruptions.  These  are  evidenced  by  the  combination  of  tightness  and  slack  in  the  labour 
market and persistent skill mismatches.  

Graph 2.3.4:  Gross operating surplus of corporates and bank loan flows to non-financial corporates 

(1) Gross operation surplus to financial and non-financial corporates, national currency. Gross operating surplus not available 
for Bulgaria, Croatia and Malta. EU bank loan flows refer to 12-month moving sum, billions of EUR.  
Source: AMECO and ECB, BSI database. 

31 

ATBECYCZDEDKEEELESFIFRHUIEITLTLULVNLPLPTROSESISK0510152025-20-1001020% change, 2021f% change, 2020a: Corporates gross operating surplus -200-10001002003004001213141516171819202112-month moving sum, EUR bnb: EU bank loan flows to NFCsEA cross-borderRest of EAGermanyFranceItalySpainNon-EA MSEU total 
  
2.3.1.2.  Household debt 

Household  debt  increased  with  the  pandemic  in  nearly  all  EU  countries.  Households  in  most  EU 
countries were deleveraging in the run-up to the pandemic, but still displayed high levels of indebtedness 
(Graph  2.3.5).  The  pandemic  interrupted  household  deleveraging  or  pushed  household  indebtedness 
further up in countries that were already on an increasing debt trajectory (Graph 2.3.6). The increase in 
household debt-to-GDP ratios in 2020 was, in most cases, due to the large decline in GDP (Graph 2.3.7). 
This  impact  will  be  at  least  partly  reversed  in  2021  as  the  economies  start  to  recover.  In  a  number  of 
countries,  dynamic  credit  growth,  particularly  mortgage  debt,  is  likely  to  contribute  to  a  more  lasting 
increase  in  debt  ratios  in  face  of  high  real  estate  market  activity  and  accelerating  house  prices  (Graph 
2.3.7 b). Overall, a number of countries, particularly those with household debt-to-GDP ratios that were 
above country-specific benchmarks prior to the pandemic, will continue to display high household debt.  

In  2020,  household  debt  levels  in  eight  countries  were  above  both  what  fundamentals  and 
prudential  thresholds  would  suggest.  As  in  2019,  these  are  Denmark,  Finland,  France,  Greece,  the 
Netherlands, Portugal, Spain and  Sweden (Graph 2.3.5). Household debt continues to exceed prudential 
levels  in  Belgium  and  Cyprus,  despite  being  close  to  what  can  be  explained  by  fundamentals,  while 
household  debt  is  significantly  above  fundamentals-based  benchmarks  in  Croatia  and  Slovakia,  despite 
being  still  below  prudential  levels.  In  some  countries,  debt  ratios  appear  considerably  higher  when 
computed as a share of household gross disposable income. This is the case in Ireland, Luxembourg and 
Malta, where household debt is estimated to exceed 100% of household gross disposable income. (20) 

Graph 2.3.5:  Household debt 

Note: Numbers below the country abbreviations indicate the year when that debt ratio peaked, based on data between 
1997 and 2020. Countries are presented in decreasing order of the household debt-to-GDP ratio in 2020. 
Source: Eurostat, AMECO, European Commission autumn 2021 economic forecast, and Commission services estimates for 
household debt in 2021 (see Annex 1). Debt comprises loans (F4) and debt securities (F3). 

(20)  For  Malta  this  is  an  approximation as  household  GDI  data is not  available  from  the  Eurostat  sectoral national  accounts.  The 
estimate  was  obtained  using  the  ratio  of  household  GDI  to  GDP  calculated  from  data  for  real  GDI  per  capita,  available  in 
Eurostat (B6G_R_HAB). 

32 

020406080100120140DKNLSECYLUFIPTFRBEESDEMTELATSKITEEHRCZPLIESIBGLTHULVRO091019141919091919090611131019120910181609120809100910% of GDP201920202021fPeak valueFundamentals-based benchmark 2021, % GDPPrudential benchmark 2021, % GDP 
   
 
                                                           
Graph 2.3.6:  Evolution of household debt-to-GDP ratios across the EU 

Only countries with developments that deviate significantly from those of the EU as a whole have been singled out 
Source: Eurostat and Commission services estimates 

Household  net  credit  flows  were  less  affected  by  the  pandemic  than  those  of  corporates.  In  2020, 
debt moratoria and reduced repayments helped sustain net credit flows to households, with some variation 
across  Member  States.  In  Luxembourg  and  Sweden,  countries  with  relatively  high  household  debt  (in 
Luxembourg,  relative  to  household  gross  disposable  income),  net  credit  flows  to  households  in  2020 
reached  around  4  to  5%  of  GDP.  In  other  countries  with  relatively  high  household  debt,  including 
Belgium, Finland and France, net flows  were more contained and ranged between 2% and 3% of GDP. 
This  was  also the case  in  Slovakia,  where  household debt remains below the prudential  benchmark but 
has  been  increasing  for  a  number  of  years  above  the  level  suggested  by  fundamentals,  and  in  Malta, 
where household debt has also been increasing and is close to the prudential benchmark.  

On  aggregate,  bank  lending  to  households  resumed  its  previous  trend  after  the  intense  pandemic 
months. The pandemic marked a temporary decline in the net flow of bank loans (Graph  2.3.8 a). This 
was most marked in France and Spain (among the large euro area countries) and overall corresponded to a 
decline in the net flow of loans for consumption (Graph 2.3.8 b). Those patterns may have been linked to 
restrictions on mobility that hampered consumption opportunities. Conversely mortgage lending remained 
relatively stable before accelerating towards the end of 2020.  

Household borrowing has become more dynamic in 2021. Net credit flows to households are expected 
to be more sizeable in a number of countries this year. Forecasts for changes in debt and net credit flows 
based  on  ECB  monthly  bank  lending  data  (see  Annex  1),  indicate  transactions  picking  up  in  most 
countries. The most marked increases are in Luxembourg, Malta and Sweden, with increases of over 4% 
of  GDP,  followed  by  Belgium,  France,  and  Slovakia  (Graph  2.3.7  b).  In  Finland,  among  the  countries 
with  higher  household  debt,  credit  flows  to  households  are  expected  to  remain  close  to  2%  of  GDP  in 
2021. 

Although households have increased their savings, risks to their debt servicing capacity could still 
materialise.  The  household  savings  rate  increased  in  2020,  due  to  forced  savings  in  the  lockdown  or 
precautionary motives. In 2021, the aggregate household savings rate is also forecast to be above its 2019 
level.  Household  savings  rates  remain  relatively  low  in  Cyprus  and  Greece.  Denmark  has  also  a 
significantly  lower  savings  rate  than  other  countries  with  high  debt  in  terms  of  households  gross 
disposable income (Graph 2.3.9 a). Over 2020 and early 2021, households accumulated financial assets, 
particularly  deposits,  leading  to  strengthened  financial  positions.  Debt  repayment  risks  related  to  an 
increase in unemployment that would negatively affect household income remain limited (Graph 2.3.9 b). 
However,  although  households  currently  face  very  low  interest  burdens,  a  change  in  the  stance  of 

33 

BECZFIFRHUIELULVSESKEU020406080100120140160180200201020112012201320142015201620172018201920202021f2010 = 100 
  
 
monetary  policy  may  affect  their  debt  servicing  capacity,  particularly  where  variable  rate  contracts 
predominate. (21)  

Graph 2.3.7:  Decomposition of the change in household debt-to-GDP in 2020 and 2021 

Source: Eurostat. Net credit flows (debt transactions) correspond to transaction of loans (F4) and debt securities (F3) from the 
Eurostat sectoral financial transactions accounts. Other sources are AMECO and Commission services estimates and 
calculations based on ECB monthly data on MFI loans and debt securities transactions (flows) with the private sector from the 
BSI database. 

Graph 2.3.8:  Euro area bank loan flow to households 

Note: Graph a: 12-month moving sum and Graph b: 4-quarter moving sum  
Source: ECB 

(21)  The  share  of  variable  rate  contracts  for  new  housing  loans has been  above  or  close  to  90%,  since 2013 at  least, in  Bulgaria, 

Cyprus, Finland and Latvia.  

34 

-8-4048IEPLLVROSILTBGDKLUCZHUEENLSKATELFIHRITDECYBEESPTSEMTFRpps. of GDPa: 2020Net credit flowsReal GDP growthInflationOther changesD/GDP, change-8-4048ELDKIECYESEENLHRBEPLITPTFIATFRSILVROLULTSEDECZHUBGMTSKpps. of GDPb: 2021fNet credit flowsReal GDP growthInflationOther changesD/GDP, change-10001002003004005000607080910111213141516171819202112-month moving sum, EUR bna: By countryIntra-EA cross-borderRest of euro areaGermanyFranceItalySpainEA total (changing comp.)-1000100200300400500060708091011121314151617181920214q moving sum, EUR bnb: By useEntrepreneur lendingNon-bank domestic (ex SPVs)Foreign lending and bondsStatistical discrepancyFor consumption & otherLoans for house purchase, adj.Consolidated credit flow, incl NPISH 
  
 
   
 
                                                           
Graph 2.3.9:  Household debt, household savings and unemployment risks 

Source: Eurostat and AMECO. For Malta GDI is obtained using the ratio of household GDI to GDP calculated from data for 
real GDI per capita, available in Eurostat (B6G_R_HAB). For Bulgaria and Croatia household GDI was also calculated using 
2020 GDP and the last available ratio household-GDI-to-GDP, as GDI data for 2020 is not available also for these countries. 

2.3.2.  HOUSING 

In 2020, ten Member States experienced real house price increases above the scoreboard threshold 
of 6%. These are Austria, Croatia, Estonia, Germany, Lithuania, Luxembourg, the Netherlands, Poland, 
Portugal and Slovakia (Graph 2.3.10 b), two countries  more than one  year ago.  In the  cases of Croatia, 
Luxembourg, Poland and Slovakia, this is the second consecutive year with house price increases above 
this threshold, while Portugal has had increases above 6% in every year since 2016. 

In  2021,  house  prices  have  continued  growing  strongly  in  most  Member  States.  Real  house  prices 
have  further accelerated in the first half of this  year,  with 14 EU countries displaying  year-on-year real 
house  price  increases  beyond  6%  (Graph  2.3.10  b).  In  Czechia,  Denmark,  Estonia,  Latvia  and 
Luxembourg  year-on-year  real  growth  exceeded  10%.  Over  the  first  two  quarters  of  2021,  real  house 
prices decreased in Cyprus, and to a lesser extent, Romania, and were essentially constant in the cases of 
Ireland and Italy. 

The  growth  of  house  prices  has  been  driven  by  a  variety  of  factors  fuelling  demand  and 
constraining  supply.  Supply  constraints  were  present  before  the  pandemic  and  while  lockdowns 
exacerbated  them  temporarily,  they  can  be  expected  to  persist  over  coming  years.  The  pandemic  may 
have  led  to  some  structural  changes  in  housing  demand  as  a  shift  to  remote  working  may  change 
geographical  preferences.  In  some  locations  this  could  mean  demand  outpacing  supply.  Financial 
conditions  have  been  accommodative  and  overall  are  likely  to  continue  supporting  elevated  housing 
demand. With household incomes growing with the recovery, further house price growth appears likely. 

The recent house price increases reinforce the steady upward trend in house prices that has taken 
place  since  2013  across  the  EU.  Real  house  prices  have  increased  in  all  Member  States  with  the 
exception  of  Italy.  The  largest  increases,  by  decreasing  order,  have  been  observed  in  Hungary, 
Luxembourg, Ireland, Portugal, Czechia, Estonia and Lithuania (Graph  2.3.10 a). In 2020, the only EU 
country  that  did  not  see  a  continuation  of  this  increasing  trend  was  Ireland,  which  displayed  broadly 
stable prices in 2019 and 2020. 

35 

DKNLCYSEFILUPTFRBEESELDEATSKITEEIEPLCZSILTLVHU0510152025050100150200250Savings rate 2021f, % of GDIHousehold debt 2020, % of household GDIa: Household debt and savingsDKNLCYSEFILUPTFRBEESELDEMTATSKITEEIEHRPLCZSIBGLTLVHURO-0.50.00.51.01.52.02.53.03.54.0050100150200250Unemployment rate, seasonally adjusted, change 2019Q4-2021Q1 pp.Household debt 2020, % of household GDIb: Household debt and unemployment 
   
Graph 2.3.10: Real house price changes 

Note: Data for Greece refers to 2021Q1 instead of 2021Q2 
Source: Eurostat and Commission services calculations 

House  prices  appear to be  overvalued in  most  EU countries.  A comparison of  house prices indexes 
with  benchmarks  that  consider  the  impact  of  fundamental  drivers  of  prices  such  as  income  and 
demographics shows widespread evidence of overvaluation. (22) This is particularly the case for Austria, 
Belgium,  Czechia,  Denmark,  France,  Germany,  Hungary,  Luxembourg,  the  Netherlands,  Portugal, 
Slovakia and Sweden, which all feature sizeable gaps (Graph 2.3.11 a). Measures of affordability – based 
on  the  number  of  years  of  average  income  needed  to  buy  a  100  square  metre  home (23)  –  show  strong 
overvaluation  in  Malta,  Ireland  and  Croatia,  while  more  than  ten  years  of  income  are  needed  to  buy  a 
100sqm  home  in  eleven  other  Member  States.  These  are  Austria,  Cyprus,  Estonia,  France,  Greece, 
Hungary, the Netherlands, Poland, Portugal, Spain and Sweden (Graph 2.3.11 b).  

In  a  number  of  cases,  indications  of  potential  house  price  overvaluation  combine  with  high 
household  debt  or  accelerating  mortgage  credit.  Luxembourg  combines  high  and  strongly  growing 
house prices with very high levels of household debt. Austria, Belgium, Denmark, France, Germany, the 
Netherlands, Portugal and Sweden, display signs of potentially overvalued house prices with substantial – 
in  the  case  of  Denmark  very  high  –  household  debt.  In  the  case  of  Slovakia,  indications  of  potentially 
overvalued house prices occur alongside the largest increase in household debt in recent years, although 
starting from a low level.   

Risks of substantial downward adjustments of house prices are mitigated by the presence of supply-
side constraints, but economic concerns remain. Macroprudential measures have been put in place in 
many Member States and have contributed to reduce the risks for the overall financial stability related to 
the  housing  market. (24)  Less  dynamic  housing  supply  contributed  to  the  prices  rises;  however,  lower 
construction also reduces the direct economic impact of a correction in house prices.  

(22)  House price valuation gaps are computed with respect to benchmarks to capture country-specific effects. Synthetic valuations 
gaps  are  based  on  the  gap  obtained  from  different  benchmarks:  (i)  price-to-income  deviation  with  respect  to  its  long-term 
average; (ii) price-to-rent deviation from its long-term average; (iii) deviation from regressions-based benchmarks taking into 
account  demand  and  supply  economic  fundamentals  (see  N.  Philiponnet  and  A.  Turrini  (2017),  "Assessing  House  Price 
Developments in the EU", European Commission Discussion Paper 048, May 2017). In the computation of the regression-based 
benchmarks, cyclical explanatory variables are HP filtered to contain their volatility. 

(23)  Price level estimates are obtained on the basis of national account and census data or, when not available, information published 
on real estate agents websites. See J. C. Bricongne et al. (2019),” Assessing House Prices: Insights from "Houselev", a Dataset 
of Price Level Estimates”, European Economy, Discussion Paper No. 101, July 2019. 

(24)  Macroprudential measures are monitored by the European Systemic Risk Board (ESRB). In September 2019, the ESRB issued 
country-specific  warnings  and  recommendations  on  medium-term  vulnerabilities  in  the  residential  real  estate  sector  to  nine 
Member States: recommendations to Belgium, Denmark, Finland, Luxembourg, the Netherlands, and Sweden, and warnings to 
Czechia, France, and Germany. Of the former group of countries, all had already received warnings by the ESRB in November 
2016, and the same held for Austria. The MIP Regulation (Regulation (EU) No 1176/2011) calls on the Commission to take 

36 

-20020406080100ITFICYELFRBEROESHRPLMTBGSILVATSKDKNLSEDELTEECZPTIELUHU% changea: Cumulative change 2013-2021Q2-8-404812IECYFIHUMTITESROLVSEBEFRDKSIBGCZELNLATLTEEPLDESKHRPTLU% changeb: Recent house price changes2019202021Q2 y-o-y 
   
                                                           
 
Graph 2.3.11: House prices, valuation metrics, household debt and housing cost overburden 

Notes: The size of the bubbles in the left panel chart corresponds to household debt in % of GDP in 2020. See footnote 22 for 
information on the valuation gaps. The housing cost overburden rate is the percentage of the population living in households 
where the total housing costs ('net' of housing allowances) represent more than 40 % of disposable income ('net' of housing 
allowances). 
Source: Eurostat and Commission services calculations 

Housing  affordability  has  deteriorated.  As  house  prices  have  been  growing  faster  than  household 
incomes,  housing  affordability  has  deteriorated.  The  increases  in  house  prices  are  not  reflected  in  an 
acceleration  of  household  indebtedness,  overall,  but  this  could  materialise  in  the  future  as  house 
purchases become more expensive. House price growth has outpaced income growth in all EU countries 
except Latvia, Cyprus and Ireland in 2020. In Luxembourg, Germany, Denmark and Bulgaria, more than 
10% of population spend at least 40% of their disposable income on housing costs; in Greece this is the 
case for more than 36% of the population (Graph 2.3.11 b). Apart from the obvious social effects, this can 
also have significant macroeconomic implications, principally through a misallocation of resources. High 
house prices may lead to a reduction in aggregate private consumption and increase the net external trade 
balance  if  house  buyers  have  a  higher-than-average  propensity  to  consume.  When  accompanied  with 
borrowing, it can lead to a diversion of credit from productivity-enhancing investments. Last but not least, 
a lack of affordable housing can negatively impact labour mobility and, by extension, competitiveness.  

The commercial real estate (CRE) market was significantly affected by the COVID-19 shock amid 
a  large  drop  in  transactions  and  price  corrections.  CRE  has  decoupled  from  residential  real  estate 
developments  since  the  COVID-19  outbreak.  CRE  transactions  fell  significantly,  and  its  retail  segment 
suffered  a  major  price  correction.  While  incompleteness  of  data  on  CRE  does  not  allow  a  robust 
assessment  of  risks  and  vulnerabilities,  investor  surveys  suggest  that  market  sentiment  is  still 
deteriorating. (25) This  may represent a risk for some  banks  as CRE is commonly  used as collateral for 
NFC loans but especially for real estate funds that are the main direct CRE holders. 

into account any warnings or recommendations addressed by the ESRB to Member States subject to an IDR. An updated of the 
2019 report is expected in the beginning of 2022. 

(25)  ECB (2021): Financial Stability Review, May 2021 on the basis of RICS Global Commercial Property Monitor. 

37 

010203040010203040CYMTFISIIEHUEEHRLTLVFRSKPTPLCZATBEESROITSENLLUDEDKBGELnumber of years of income%b: Housing cost overburden and number of years of income needed to buy 100sqmHousing cost overburden rate, 2020 (lhs)Number of years of income needed to buy 100sqm, 2020 (rhs)BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE-202468101214-2002040Deflated HP growth, 2020 (%)Estimated valuation gap, 2020 (%)a: Deflated house prices changes, valuation gaps and household debt 
   
 
 
 
 
 
                                                                                                                                                                          
2.4.  GOVERNMENT SECTOR 

The COVID-19 crisis and the measures governments took to cushion it have had a major impact on 
government debt, which increased in all Member States in 2020. In 2020, government debt exceeded 
the scoreboard threshold (of 60% of GDP) in the case of 13 Member States (Austria, Belgium, Croatia, 
Cyprus, Finland, France, Germany, Greece,  Hungary, Italy, Portugal, Slovenia and Spain), which is two 
more than in 2019 when Finland and Germany were below the threshold. While the – mostly temporary – 
measures  introduced  in  2020  had  an  immediate  upward  impact  on  the  debt,  by  adding  to  its  nominal 
value, they reduced the impact of the pandemic-induced recession on other sectors of the economy. 

The increases in government debt in 2020 have been most pronounced in countries hit hard by the 
COVID-19  shock.  The  increase  in  2020  was  over  20  percentage  points  of  GDP  in  case  of  Cyprus, 
Greece, Italy and Spain. By 2022, the largest increases in GDP relative to their 2019 levels are forecast to 
have  occurred in Belgium, Greece, Spain, France, Italy, and Malta. Of these, Belgium,  France, Greece, 
Italy and Spain entered the pandemic with high debt levels, which are forecast to stabilise by 2022.  

The increase  in  debt-to-GDP ratio between 2019 and 2020 was a result of an increase in nominal 
debt and an abrupt fall of GDP. In most countries, the largest contribution came from the increase in 
nominal debt, which includes the impact of the policy measures introduced to support the other sectors of 
the economy. In the case of Greece and Italy, however, over half of the increase in the debt ratio came 
from  the  denominator  effect,  which  is  more  considerable  for  higher  starting  debt  levels  and  where  the 
recession was stronger (Graph 2.4.1).  

Graph 2.4.1:  Decomposition of changes in government debt-to-GDP ratios 

Source: AMECO, European Commission autumn 2021 economic forecast 

The  outlook  for  2021  and  2022  foresees  a  general  stabilisation  of  government  debt,  although  in 
some cases it is set to rise further. By end 2022, around half of the Member States are expected to have 
government debt-to-GDP above their 2020 levels (Graph 2.4.1 b). In several countries, government debt 
is forecast to further increase in 2021, on the back of still considerable government deficits (Graphs 2.4.2 
and 2.4.3 b), with Malta and Slovakia expected to go over 60% of GDP. In 2022, the debt-to-GDP should 
be on a downward path in most countries, although it is projected under a no-policy change scenario be 
increasing in Belgium, Czechia, Estonia, Latvia, Malta and Romania. 

Government financing conditions have been benign. Government bond yields remained stable or even 
presented a slightly decreasing trend in 2020 right after a moderate spike at the outbreak of the pandemic. 
They  increased  slightly  in  2021  while  showing  a  convergence  path,  especially  among  the  euro  area 
countries. Government bond  yields in Poland, Czechia and Hungary have increased somewhat  while in 
the case of Romania increases have been more pronounced. The reduced volatility resulted from policy 
actions  that  supported  government  financing.  The  monetary  policy  carried  out  by  the  ECB  and  other 

38 

-339152127ELESCYITPTFRHRBEHUSIMTATROPLSKLTEEFIDEDKCZLVNLSEBGLUIEpps. of GDPa: 2020 vs 2019Impact of GDPImpact of nominal debtDebt to GDP, difference-27-18-90918MTLVCZRONLBGFIEELUDEBESKFRESLTHUDKSIATITSEIEPLHRELPTCYpps. of GDPb: 2022 vs 2020Impact of GDPImpact of nominal debtDebt to GDP, difference 
   
central banks in the EU was critical in that respect and the supportive fiscal stance and monetary policy 
measures have been mutually reinforcing in maintaining confidence and stability. 

Gross  financing  needs  increased  significantly  in  2020  but  are  expected  to  decrease  steadily  in  the 
coming  years.  The  pandemic  outbreak  resulted  in  a  noticeable  rise  of  gross  financing  needs  in  all 
Member States, in many cases by more than 10 percent of GDP (Austria, Cyprus, Finland, France, Italy, 
Malta, Poland, Slovakia, Slovenia and Spain). The highest gross financing needs in 2020, around 30% of 
GDP,  were  reported  in  Italy  and  Spain  (Graph  2.4.3  a).  Financing  needs  are  forecast  to  start  falling  in 
2021 or 2022 in the case of most Member States, which is aligned with the deficit decreases over the next 
years (Graph 2.4.3 b). Nevertheless, in 2022, gross financing needs are forecast to be above 20% of GDP 
in France, Italy and Spain.  

The  structure  of  government  debt  might  compound  risks  in  some  cases,  including  Bulgaria (26), 
Croatia,  Hungary  and  Romania  for  which  the  share  of  debt  denominated  in  foreign  currencies  is  the 
highest. (27)  Notably  the  relevance  of  debt  in  foreign  currency  for  countries  outside  the  euro  area  and 
higher re-financing needs associated to structures tilted to low average maturity stand out in this respect. 
Less developed and liquid markets at home might also raise financing risks in some cases. 

There are also some mitigating factors to the higher fiscal sustainability risks relative to before the 
pandemic. Over the next decade, debt is forecast to remain above pre-pandemic levels in about one third 
of Member States. (28) However, the favourable differentials between interest rate and GDP growth in the 
coming  years are expected to help stabilising or reducing the debt ratios. The fiscal risks  might also be 
mitigated  thanks  to  longer  debt  maturities,  relatively  stable  financing  sources  and  historically  low 
borrowing  costs.  Simultaneously,  the  effective  implementation  of  reforms  and  investment  under  the 
Recovery and Resilience Facility should support potential growth and improve debt sustainability. 

The  potential  risks  stem  from  an  increase  in  interest  rates  or  a  materialisation  of  the  COVID-19 
related guarantees. Increases in  interest rates could lead to increases in interest payments, particularly 
for countries with high financing needs in the future. The stock of guarantees could also yield additional 
fiscal  costs:  it  increased  in  the  euro  area  by  14  percentage  points  of  GDP  between  2019  and  2020. 
Governments with less fiscal space (including Belgium, France, Italy, Portugal and Spain) implemented 
more generous guarantee schemes. While these enabled support to be granted without directly affecting 
fiscal balances, they will add to government debt if they are called. (29)  

Going forward, managing the appropriate path to restore fiscal sustainability will be important for 
the  recovery. The  general  escape  clause  of  the  Stability  and  Growth  Pact,  which  allowed  the  Member 
States to support their economies in the midst of the COVID-19 crisis is expected to be deactivated as of 
2023.  When  economic  conditions  allow,  achieving  prudent  medium-term  fiscal  positions  and  ensuring 
fiscal sustainability in the medium term will be essential. The risks related to large public debt should be 
balanced  with  the  risks  stemming  from  premature  withdrawal  of  COVID-19  fiscal  measures  as  it  may 
slow  the  recovery (30)  and  have  a  negative  impact  on  growth  over  time.  For  countries  like  Belgium, 
Cyprus, France, Portugal and Spain that have high levels of both public and private debt, the implications 
for the growth developments may be even more pronounced.  

(26)  In Bulgaria the risk coming from the currency composition of external debt is mitigated due to the currency board regime. In 
addition, in the case of Bulgaria and Croatia, the accession to ERM II may also smoothen the debt sustainability risks thanks to 
lower risk premia. 

(27)  In  July  2021,  the  share  of  government  debt  denominated  in  foreign  currency  was:  Bulgaria  82%,  Croatia  72.1%,  Romania 

51.1%, Poland 22.9%, Hungary 21.7%, Sweden 20%, Denmark 10.1%, Czechia 8%.  

(28)  European Commission (2021), The 2021 Stability and Convergence Programmes: an Overview, with an Assessment of the Euro 

Area Fiscal Stance. 

(29)  ECB (2021), Financial Stability Review  
(30)  IMF (2021), Fiscal Monitor April 2021 

39 

 
 
 
 
                                                           
Graph 2.4.2:  Government debt 

Source: AMECO and European Commission autumn 2021 economic forecast 

Graph 2.4.3:  Government gross financing needs and deficit 

Source: AMECO, European Commission autumn 2021 economic forecast and Commission services calculations 

40 

050100150200  EL  IT  PT  ES  CY  FR  BE  HR  AT  HU  SI  FI  DE  SK  IE  PL  NL  MT  RO  LT  LV  DK  SE  CZ  LU  BG  EE% of GDP201920202021f2022f-12-10-8-6-4-2024  EL  ES  MT  IT  RO  FR  BE  AT  HU  SI  HR  LT  PL  PT  CZ  CY  SK  FI  EE  IE  LV  DE  NL  LU  BG  SE  DK% of GDPb: Deficit201920202021f2022f05101520253035ITESFRHUCYBEHRPTSIDEELFIATMTROPLLTDKNLSKIESECZEELVLUBG% of GDPa: Government gross financing needs201920202021f2022f 
   
 
  
2.5.  FINANCIAL SECTOR 

The EU banking sector has shown resilience in the face of the pandemic so far, although it remains 
marked  by  pre-existing  challenges,  such  as  low  profitability.  The  EU  banking  sector  entered  the 
pandemic well capitalised after several years of strengthening following the heavy fallouts of the global 
financial  crisis  and  the  sovereign  debt  crisis.  However,  the  robustness  of  the  sector  has  varied  across 
countries,  with  some  still  marked  by  sizeable  non-performing  loans,  and  with  low  profitability  being  a 
widespread concern. 

  The EU banking sector has remained resilient, both due to its strong starting position and the 
policy measures introduced during the pandemic. Overall, strong capital buffers were built in pre-
pandemic years, and the common equity tier 1 (CET1) and solvency ratio further increased in 2020, 
assisted by regulatory limits on dividends. Non-performing loans (NPLs) continued decreasing amid 
the disposal of legacy assets, and new NPLs were muted by moratoria on loan repayments introduced 
after  the  pandemic  breakout.  The  new  credit  was,  in  turn,  supported  by  government  guarantees  for 
corporate loans and temporary macro-prudential easing and financial conditions have remained loose 
in 2021. The growth in financial sector liabilities remained limited in 2020, with only Estonia, Greece, 
Hungary  and  Lithuania  going  beyond  the  scoreboard  threshold.  Recent  stress  tests  by  the  European 
Banking  Authority  (EBA)  show  that,  overall,  the  EU  banking  sector  is  resilient  but  there  are  large 
differences  across  banks  and  those  focused  on  domestic  lending  or  with  lower  net  interest  income 
would face higher capital depletion. (31) 

  A main challenge of EU banking sector remains its low profitability (Graph 2.5.1 a). The return on 
equity,  which has been persistently low in  most Member States, dropped further in 2020 in view of 
higher  loan  loss  provisions  and  lower  revenues.  Profitability  turned  negative  in  Cyprus,  Greece, 
Ireland, Portugal and Spain. In 2021, there are signs of recovering profitability. (32) These cautiously 
positive  developments  are  also  reflected  in  the  market  valuation  of  the  EU  banks.  These  have 
gradually recovered to pre-pandemic levels since last autumn, but remain somewhat below the overall 
stock markets.  

  The  banking  sector  in  some  EU  countries  remains  challenged  by  combinations  of  very  low 
profitability, below average capital ratios or elevated NPLs (Graph 2.5.1). (33) In Greece, the NPL 
ratio has declined significantly but it is still elevated, (34) while profitability turned negative in 2020 
and  capital  ratios  rank  among  the  lowest  in  the  EU.  Cypriot  banks  have  also  recorded considerable 
reductions in their  very high  NPL ratios,  while profitability also turned negative in 2020. In several 
other  countries,  NPL  ratios  have  declined  markedly  over  the  last  years,  but  they  close  to  5%  in 
Bulgaria,  Croatia  and  Poland.  The  capital  ratio  is  well  below  average  in  Spain  and  Portugal,  and 
profitability also turned slightly negative there in 2020.  

(31)  In July 2021, the European Banking Authority (EBA) published results of the EU-wide stress test involving 50 banks from 15 
EU and EEA countries, which cover 70% of the EU banking sector assets. This exercise had a specific focus on loans under 
moratoria and with public guarantees. This year’s stress test considered a prolonged COVID-19 scenario in a “lower for longer” 
interest rate environment, which assumed an EU GDP decline of 3.6% over three years. The results suggest that the EU banking 
sector would stay above a CET1 ratio of 10%, with a capital depletion of EUR 265bn against a starting CET1 ratio of 15%. 
Credit  losses  would  explain  most  of  the  capital  depletion.  The  scenario  would  also  result  in  a  significant  decrease  in  the 
contribution of profits from continuing operations, especially from net interest income.  

(32)  The median return on equity of EU banks fell from 5.8% in 2019 to 2.7% in 2020. However, it increased to 7.1% in Q2 2021. 
(33)  NPLs in the set of scoreboard auxiliary indicators is defined as total gross NPLs and advances as percentage of total gross loans 
and  advances  (gross  carrying  amount),  for  the  reporting  sector  “domestic  banking  groups  and  stand-alone  banks,  foreign 
controlled  subsidiaries  and  foreign  controlled  branches,  all  institutions”.  Harmonised  data  on  NPL  ratios  are  available  only 
since 2014. Thus, for the data concerning the  “peak”, Graph 2.5.1 b displays data for the ratio of gross non-performing debt 
instruments (NPDs) over total gross  debt instruments, which is available in longer time series, and that refers, besides loans, 
also to other debt instruments held by the banking sector. The latter is typically slightly lower than NPL ratios, much because 
the  denominator  is  larger,  i.e., total gross  debt  instruments  are  larger  than  total  loans.  The  difference  between  the  two  ratios 
currently amounts to 5 percentage points for Greece and 2 p.p. for Cyprus, while for most countries it is below 1 p.p. 

(34)  Graph 2.5.1 b is based on Q1 2021 data when NPL ratio for Greece was 26%. The data for Q2 2021 released after the cut-off 
date of the AMR (22 October 2021) point to very substantial reduction of the NPL ratio towards 16% (provisional value).  

41 

 
                                                           
Risks  to  the  banking  sector  remain  and  the  full  impact  of  the  crisis  on  asset  quality,  profitability 
and capital buffers will only be visible once the support measures are fully withdrawn. The impact 
of  the  COVID-19  shock  on  the  banking  sector  has  been  limited  by  extensive  support  policy  measures, 
aimed  mostly  at  the  corporate  sector.  These  are  being  gradually  withdrawn  and  most  measures  are 
scheduled  to  expire  by  the  end  of  2021. Their  withdrawal  will  expose  underlying  solvency  or  liquidity 
issues.  This represents a risk for the banking sector as debtors  will  need to meet repayment obligations 
that they had been shielded from.  

  Corporate  and  household  solvency  difficulties  may  still  materialise  as  normality  is  restored. 
Private debt was already high in several Member States before the pandemic and increased further in 
2020. Corporate solvency issues represent a major risk, particularly in some sectors more affected by 
the crisis. So far, corporate insolvencies have remained low. Risks related to household mortgage debt 
have so far been contained by public income support schemes and increased household savings. Long-
standing supply issues in housing markets reduce the risk of material downward adjustments in house 
prices. Nevertheless, future solvency issues in the corporate sector could lead to a knock-on effect on 
employment, and affect household solvency as well. 

  NPLs are expected to rise, especially in some sectors and countries. Difficulties in debt repayment 
by  NFCs  whose  profitability  is  most  affected  could  lead  to  an  increase  of  NPLs.  Already  there  has 
been  a  marked  increase  in  Stage  2  loans,  which  represent  loans  with  significantly  increased  credit 
risk. (35) The share of Stage 2 loans in the euro area was 13% in 2020 and is expected to increase to 
17% in 2021. (36) The regional distribution of economic activities means that increases in NPLs may 
be  unevenly  distributed  across  regions,  and  therefore  disproportionately  affect  certain  countries 
banking sectors. (37) The increase of interest rates can represent another challenge for highly leveraged 
firms with low liquidity buffers.  

  Feedback  loops  between  banks,  sovereigns  and  NFCs  should  be  closely  monitored.  In  the  euro 
area,  the  ECB’s  pandemic  emergency  support  programme  underpinned  benign  financial  market 
sentiment and contributed to stability of the banking sector during the pandemic. However, banks in 
some  countries  absorbed  a  large  share  of  the  newly  issued  public  debt,  which  was  partly  driven  by 
support measures towards corporate sectors. This represents a risk  in view of the interconnectedness 
between bank balance sheets, the corporate sector and the level of public debt, not least in a situation 
of potential increases of long-term rates globally. 

Structural  challenges  for  the  banking  sector  that  were  present  before  the  pandemic  remain,  and 
may be more difficult to resolve. Excess capacity has been a long-term challenge of EU banking sector, 
resulting  in  low  cost  efficiency  and  low  profitability.  The  ongoing  process  of  digitalisation  and  green 
transition pose new challenges for the banking sector that will have to redirect funding across industries at 
times  when  its  persistently  low  profitability  constrains  its  own  investment,  and  which  could  be 
exacerbated if its asset quality was to deteriorate.  

The  non-banking  financial  sector,  which  has  been  affected  by  the  persistent  low  interest  rate 
environment, is facing new challenges. The persistent low-yield environment strained the  profitability 
and  balance  sheet  of  non-bank  financial  institutions  with  asset  portfolios  largely  invested  in  low-risk 
assets such as insurers and pushed them to increase their leverage and exposure to more risky assets. (38) 
An  abrupt  increase  of  the  interest  rates  outlook  could  trigger  a  global  repricing  of  risks  implying  asset 
valuation  losses  for  the  EU  non-banking  sector.  Life  insurers  seem  to  be  most  affected  so  far  by  the 

(35)  Stage 2 loans are loans whose credit risk has significant increased since its initial recognition but unlike in case of Stage 3 loans 

are not yet considered credit-impaired or in default. 
(36) ECB (2021), Financial Stability Review, May 2021. 
(37) The euro area data confirm that Stage 2 loans increase was more pronounced for sectors more affected by the pandemic and the 
restrictions  on  mobility,  e.g.  in  accommodation  services  from  7%  in  2019  to  25%  in  2020  and  in  the  area  of  arts  and 
entertainment from 6% to 23% respectively. ECB (2021): Financial Stability Review, May 2021. Similar trends are also visible 
in recent NPL data. EBA Risk Dashboard for Q2 2021 shows that diverge in asset quality across sectors increase. For example, 
for  accommodation  and  food  service  the  NPL  ratio  rose  further  from  9%  in  Q1  2021  to  9.6%  in  Q2  2021  and  for  arts, 
entertainment and recreation from 7.9% to 8.2%.  
(38)  ECB (2021), Financial Stability Review, May 2021. 

42 

 
                                                           
COVID-19 shock as their premiums declined in 2020, while they increased for the non-life business. (39) 
Furthermore, the pandemic led to some commercial real estate price corrections that had an effect on the 
performance of real estate funds (see section on housing above).    

Graph 2.5.1:  Banking sector profitability and capital and non-performing loans 

Notes: The average values for the EU and the euro area are unweighted by the economy size. Data concerning the "peak" 
refer to the ratio of gross non-performing debt instruments (NPDs) over total gross debt instruments; NPL ratios are reported for 
2020Q1 and 2021Q1; numbers below the country codes indicate the year when NPDs peaked. 
Source: ECB, Commission services calculations. 

(39)  EIOPA (2021), Financial Stability Report, July 2021. 

43 

ATBEBGCYCZDEDKEEELESFIFRHRHUIEITLTLULVMTNLPLPTROSESISK-10-505101512141618202224Return on equity (2020)Tier 1 ratio (2021 Q1)a: Profitability and capital ratiosEA (2020)EA (2019)EU (2020)EU(2019)051015202530354045ELCYBGHRPLPTLVITHUROIEMTESSISKDKFRATBENLCZEEFIDELTSELU171412141116101513141415141315141414141416101416111415% of total gross loansCountry | Peak yearb: Non-performing loansPeak (NPDs)2020Q1 (NPLs)2021Q1 (NPLs) 
   
 
                                                           
Box 2:  Employment and social developments 

Throughout  the  pandemic  the  labour  market  remained  resilient,  largely  thanks  to 
unprecedented support measures at national and EU level. The widespread use of job retention 
schemes, supported by the EU instrument for temporary Support to mitigate Unemployment Risks 
in an Emergency (SURE) and other types of interventions, including extensive fiscal and monetary 
support,  cushioned  the  impact  of  the  COVID-19  shock  on  jobs  and  incomes,  and  prevented  the 
health crisis from becoming a job crisis. The effect of the COVID-19 recession on labour markets 
was generally V-shaped: in most countries, labour markets were significantly affected at the very 
onset of the crisis, but a partial rebound rapidly followed, largely owing to the brisk recovery in 
economic activity. (1) 

Unemployment  increased  only  slightly  in  2020  compared  to  the  size  of  the  shock  and  is 
expected to fall back to around pre-pandemic levels in 2022. The EU unemployment rate (15-
74  years  old)  rose  to  7%  in  2020  (with  a  peak  of  7.7%  reached  following  the  first  wave  of  the 
pandemic), only 0.3 percentage point (pp) above the average 2019 level. Such increases were low 
compared to the GDP contraction of around 6% for the EU as a whole. (2) The highest increases 
were recorded in the Baltics (2.4 pp in Estonia, 2.2 pp in Lithuania and 1.8 pp in Latvia), Sweden 
(1.5 pp) and Spain (1.4 pp). In seventeen EU countries, the unemployment rate moved up by less 
than one percentage point. The unemployment rate even fell in Poland, France, Italy and Greece in 
2020.  In  the  first  half  of  2021,  unemployment  decreased  in  a  majority  of  Member  States.  The 
youth unemployment rate (15-24) in the EU showed initial signs of recovery by mid-2021 but still 
stood  at  17.4%  in  the  second  quarter  of  2021,  nearly  triple  the  unemployment  rate  of  the 
population aged 25-74 years old. According to the Commission’s autumn 2021 economic forecast, 
the EU unemployment rate is still expected to stabilise in 2021 but then to fall back to around pre-
pandemic levels in 2022. 

increase 

lower-than-expected 

However,  the 
in  unemployment  rates  partly  reflects 
withdrawals from the labour market and thereby lower activity rates. The activity rate (15-64 
years old) dropped by 1.7 pp – from 73.6% in the fourth quarter of 2019 to 71.9% in the second 
quarter of 2020 – but returned to its pre-pandemic level in the second quarter of 2021. The activity 
rates  fell  in  most  Member  States  in  2020,  with  the  highest  declines  (between  1  pp  and  2  pp) 
recorded by Italy, Spain, Ireland, Portugal, Bulgaria and Greece. In 2021, it has remained below 
pre-pandemic levels in a significant number of cases. 

Employment  rates,  while  falling  in  almost  all  Member  States  in  2020,  are  gradually 
rebounding in 2021, but not in all sectors. In the EU the employment rate (20-64 years old) fell 
to 72.4% in 2020 from 73.1% in 2019. The largest falls were observed in Spain (-2.3 pp), Ireland 
(-1.7 pp), and Bulgaria (-1.6 pp), while Poland (+0.6 pp), Malta (+0.5 pp) and Croatia (+0.2 pp) 
were  the  only  countries  in  which  the  employment  rate  increased.  In  the  first  quarter  of  2021 
employment  rates  still  fell  in  most  Member  States,  but  in  the  second  quarter  of  2021  they 
increased again, gradually returning to pre-pandemic levels except notably in sectors most hit by 
social distancing needs. 

Government  support  measures  have  mitigated  the  effect  of  the  fall  of  market  incomes  on 
disposable incomes. In addition to the use of job retention schemes, governments implemented a 
range  of  measures  to  raise  net  transfers,  including  extended  unemployment  benefits  or  the 
deferrals  of  certain  payments  such  as  tax  or  utility  bills  on  the  top  of  moratoria  on  debt 
repayments. The real gross disposable household income per capita fell by 2.7% (year-on-year) in 
the second quarter of 2020, but recovered by the end of the year and remained largely unchanged 
between 2019 and 2020. The increase in the at risk of poverty or social exclusion rate (AROPE) in 
2020 was contained or decreased compared to 2019 in at least half of the Member States. Increases 
were, nonetheless, estimated for some Member States. (3)  

Nevertheless, important challenges lie ahead. 

The pandemic has accelerated structural trends in the labour  market, raising concerns for 
the  people  affected. The  long-term  trend  of  falling  labour  demand  for  occupations  with  routine 
tasks has accelerated (Graph 1 a). Low tele-workable occupations can be increasingly affected by 

44 

 
 
 
 
 
 
 
automation.  In  addition,  the  phasing-out  of  support  measures  might  lead  to  significant  job 
shedding  in  the  most  supported  sectors  depending  on  the  extent  to  which  the  demand  for  the 
related  goods  and  services  will  recover.  The  speed  and  effectiveness  of  labour  reallocation  will 
depend on whether the skills of displaced workers are sector-specific or adaptable to other sectors, 
and effectiveness of re-skilling and up-skilling. While such reallocation could accompany the twin 
transitions and lead to productivity and competitiveness gains, the duration of unemployment may 
increase  in  the  absence  of  targeted  and  effective  policy  interventions.  In  their  national  recovery 
and  resilience  plans,  most  Member  States  plan  measures  to  support  job  recovery,  but  a 
strengthened coordination of the measures will be key for successful labour market transitions. (4) 

Labour  shortages  are  re-emerging,  raising  need  for  re-skilling  and  up-skilling  (Graph  1  b). 
Prior  to  the  pandemic,  labour  shortages  were  already  at  a  historical  peak  across  the  EU. 
Containment  measures  linked  to  the  pandemic  and  the  resulting  economic  disruptions  drove  the 
decline  in  labour  shortages  as  many  firms  withdrew  their  job  openings  during  the  lockdown. 
However, labour shortages are on the  rise again  in  most  countries  with  sizeable increases in job 
vacancies  in  Austria,  Belgium,  Croatia,  Germany,  Lithuania,  Portugal,  Slovakia  and  Slovenia. 
Shortages  currently  affect  in  particular  the  information  and  communication  sectors  and 
construction. The growing labour shortages may not only reflect the quick recovery from the deep 
recession  and  a  decrease  in  the  number  of  cross-border  workers,  but  also  signal  that  skills 
mismatches, which had already existed before the crisis, may grow further with the progress of the 
twin transitions. (5) 

The  pandemic  and  its  aftermath  risk  increasing  inequality  in  various  forms.  In  2021,  long-
term unemployment has increased in most Member States, as more people have been unemployed 
since  the  pandemic  started.  The  large  interruption  in  recruitment  limited  opportunities  for 
unemployed  and  labour  market  entrants,  including  many  young  people  or  migrants. (6)  Youth 
unemployment rose  significantly during the pandemic in  most Member States and in the second 
quarter  of  2021  it  stood  above  30%  in  Greece  (38.5%),  Spain  (38.2%)  and  Italy  (32.2%). 
Lockdowns also exacerbated inequalities in access to education to health and social services and 
that may have an impact on the labour market in the medium and long term, while  the impact on 
working  hours  was  stronger  for  workers  with  lower  education  levels.  In  addition,  with  the 
exception  of  the  Netherlands,  workers  on  temporary  contracts  were  particularly  affected  by  job 
losses in 2020. While income support measures have strongly mitigated the regressive impact of 
the  crisis  on  labour  market  incomes (7),  there  remain  major  concerns  for  the  labour  market 
prospects  of  these  workers,  also  given  the  decreasing  relative  demand  for  non-teleworkable  and 
routine occupations. 

Graph 1:  Employment and unemployment evolution 

Notes: (a) This Graph uses an index of technical teleworkability and physical proximity. It relies on the O*NET survey 
that measures the task content of specific occupations. This information is matched with the EU-LFS; (b) The European 
Business and Consumer Surveys (EU-BCS) collects quarterly data from employers on their difficulties to fill vacancies. 
Respondents can indicate for limiting factors “shortage of labour force”. 
Source: a) European Commission, 2021 Labour market and wage developments in Europe report (forthcoming) 
b) Eurostat, LFS and European Commission, EU-BCS  

45 

951001051101151201252015q12016q12017q12018q12019q12020q12021q12015Q1=100High contact and High tele-workableHigh contact and Low tele-workableLow contact and High tele-workableLow contact and Low tele-workablea: Employment in occupations with different degrees of contact intensity and tele-workability0246810121405101520252013q12014q12015q12016q12017q12018q12019q12020q12021q1Labour market shortages in manufacturing (left scale)Labour market shortages in services (left scale)Unemployment rate (%)b: Unemployment and labour shortages in the EU  
 
 
 
  
(1)  For a more in-depth discussion of recent labour market developments, see European Commission, 2021 Labour Market 

and Wage Developments in Europe report (forthcoming). 

(2)  Thanks to the extensive use of job retention schemes, the downturn  was reflected more in a drop in hours worked in 
2020 (-5.5%) than in an increase in unemployment. GDP contraction was deeper in 2020 than in 2009 (-4.3%), but the 
increase  in  unemployment  was  sizeably  lower  (monthly  unemployment  rates  increased  by  up  to  2.6  pp  in  the  EU 
between 2008 and 2009). 

(3)  In March 2021, the European Commission set a new EU-level target to reduce the number of people at risk of poverty 
or social exclusion by at least 15 million by 2030. It is one of the three headline targets in the areas of employment, 
skills, and social inclusion to be achieved by 2030 as part of the European Pillar of Social Rights Action Plan. 

(4)  In March 2021, the Commission adopted a Recommendation for Effective Active Support to Employment (EASE), to 
invite  Member  States  to  implement  coherent  packages  of  strengthened  active  labour  market  policies  to  support  job 
transitions  in  the  recovery.  In  line  with  the  EASE  recommendation,  active  labour  market  policies  and  public 
employment services are an integral part of the RRPs of 20 Member States, while all Member States included up- and 
re-skilling policies into their plans. 

(5)  For a more in-depth discussion of skills, see European Commission (2021), Proposal for a Joint Employment Report 

2022 from the Commission and the Council. 

(6)  See: Croitorov O. et al. (2021), “The macroeconomic impact of the COVID-19 pandemic in the euro area” Quarterly 
Report on the Euro Area, DG ECFIN, European Commission, Vol. 20, No 2, Part I. See also the 2021 report of the 
Employment  and  Social  Developments in  Europe  (ESDE) and  Fasani,  F., Mazza,  J.  (2020)  A  vulnerable  workforce: 
migrant workers in the Covid-19 pandemic. JRC Technical report 

(7)  Employment and Social Developments in Europe (ESDE) Annual Review 2021. 

46 

 
 
   
 
 
 
 
 
3.  SUMMARY OF MAIN CHALLENGES AND SURVEILLANCE 

IMPLICATIONS 

The  COVID-19  crisis  interrupted  the  correction  of  macroeconomic  imbalances  related  to  high 
government,  private  and  external  debts,  and  came  at  the  time  when  overheating  risks  were 
emerging  in  some  countries  after  several  years  of  strong  growth.  The  pandemic-induced  recession 
stopped a broad process of deleveraging from high government and private sector indebtedness that had 
taken place in a number of Member States over most of the past decade, especially its second half when 
economic growth became stronger and helped bring debt ratios down. Large current account deficits or 
buoyant  credit  growth  had  also  been  corrected,  resulting  in  external  liabilities  being  gradually  reduced 
and banking systems being strengthened. In  more  recent  years, there had been a build-up of challenges 
and risks associated with signs of overheating in some sectors in some countries, mainly at the level of 
house prices and cost competitiveness, especially where economic growth was more buoyant, and after a 
relatively  long  economic  expansion.  Trends  in  house  prices  that  were  starting  to  gain  pace  prior  to  the 
COVID-19  crisis  continued  and  in  some  cases  even  accelerated  during  the  pandemic.  Cost 
competitiveness was deteriorating in some of the faster growing countries prior to the pandemic and more 
recent developments are still hard to assess as the  available data are still distorted by the unusual fall in 
productivity in 2020 and the interplay with extensive labour market support measures.  

A number of imbalances have been exacerbated by the COVID-19 crisis and new challenges may be 
looming. In 2020, government and private sector debt-to-GDP ratios rose sharply due to the recession and 
to  higher  borrowing  to  mitigate  the  fallout  of  the  crisis.  However,  thanks  to  the  marked  economic 
recovery, debt ratios are now stabilising or have already started declining. Nonetheless, the crisis leaves a 
legacy of higher debt as governments are coming out of the crisis with clearly higher debt-to-GDP ratios. 
The  private  sector,  mostly  in  countries  where  private  debt  was  already  high  prior  to  the  crisis,  is  also 
burdened  with  higher  debt.  The  successful  implementation  of  the  recovery  and  resilience  plans  can 
support public and private deleveraging by helping to enhance long-term growth. However, in the short 
term,  a  deterioration  in  government  and  private  asset  quality  may  affect  the  balance  sheets  of  financial 
institutions,  whose low profitability  has  fallen further under the pandemic, and impair credit supply  for 
the recovery. External accounts have been less affected but deteriorated for countries where cross-border 
tourism is more significant, including some with large negative net international investment positions. At 
the same time, housing markets have gained further dynamism over this crisis and house price growth is 
at its  highest  since over a decade  in several Member States. The risks of  house price  overvaluation are 
rising,  which raises concerns particularly  where household  debt is high. Cost competitiveness pressures 
may be picking up strongly with the recovery, especially in countries less affected by the crisis.  

Overall, challenges are present in a number of Member States. The main challenges relate to: 

  A number of Member States are affected by multiple and interconnected stock vulnerabilities. This is 
typically  the  case  for  those  countries  that  were  hit  by  boom-bust  credit  cycles  coupled  with  current 
account  reversals  following  the  global  financial  crisis,  which  also  had  implications  for  the  banking 
sector and for government debt. Nearly all of those Member States have been hit hard by the COVID-
19 crisis, reflecting also the high relevance of cross-border tourism in their economies:  

  In  the  case  of  Cyprus  and  Greece,  elevated  debts  and  large  negative  net  international  investment 
positions  combine  with  lasting  challenges  for  the  financial  sectors.  The  current  accounts  of  these 
Member States worsened in 2020 on the back of falling travel and tourism revenues. Although further 
progress was observed in reducing non-performing loans in 2020, they remain high in both countries. 
In the case of Greece, potential output growth has been slow in a context of high unemployment.  

  In  Croatia,  Ireland,  Portugal,  and  Spain,  imbalances  related  to  high  debts  were  receding  until  the 
outbreak  of  the  COVID-19  crisis.  However,  in  Croatia,  Portugal  and  Spain  these  trends  were 
interrupted  by  the  pandemic-induced  recession  and  debt-to-GDP  ratios  edged  up  visibly.  In  2020, 

47 

 
 

 

Ireland stood out by avoiding a recession in GDP while the sector composition of its economy had a 
favourable impact on its external accounts. 

In Romania and Hungary, vulnerabilities mainly relate to the interplay between government debt and 
external financing against a backdrop of overheating risks  and large  fiscal deficits. In Romania, the 
current account deficit has been significant and persistent for a number of years and no improvement 
is expected in the near future. Government debt has been rising fast since before the COVID-19 crisis 
reflecting  large  fiscal  deficits,  and  is  set  to  further  increase  adding  to  external  financing  needs.  In 
Hungary, government financing needs have been large in recent years, and will remain so, in light of 
short debt  maturities and large fiscal deficits, and the  source of such  financing is partly external. In 
both countries, a non-negligible share of debt is denominated in foreign currency, which compounds 
the links between the external sector and the fiscal situation. In the case of Hungary, house prices are 
edging up sharply and inflationary and cost competitiveness pressures are visible against the backdrop 
of a strong recovery and lasting policy support. 

In  a  few  Member  States,  vulnerabilities  are  mainly  linked  to  large  government  debt-to-GDP  ratios 
that have further increased during the crisis coupled with lasting concerns relating to potential output 
growth and competitiveness. This is particularly the case for Italy, where vulnerabilities are also linked 
to the banking sector and the large, even if still declining in 2020, stock of non-performing loans, and 
in a context of lasting weak labour market performance. Belgium and France mainly face issues linked 
to  high  government  debt  that  increased  markedly  with  this  latest  crisis,  and  potential  growth  issues 
amidst  weak  competitiveness.  In  France,  private  debt  continued  to  rise  from  already  relatively  high 
levels,  in  particular  corporate  debt.  In  Belgium,  the  high  private  debt  also  grew  further  in  2020.  In 
both Belgium and France, house prices may be overvalued and became more dynamic recently. 

  Some Member States are characterised by  large current account surpluses that remain  above levels 
that  economic  fundamentals  would  justify.  This  is  the  case  for  Germany  and  the  Netherlands.  The 
euro area surplus is expected to edge up this year, following a temporary decline last year. The large 
surpluses  may  reflect  forgone  growth  and  domestic  investment  opportunities.  That  may  have 
consequences for the functioning of the euro area in a context of a recovery that needs to be sustained 
against a backdrop that is still marked by significant uncertainty. In both cases, house price dynamics 
point to risks of overvaluation, which in the case of the Netherlands have been there for a number of 
years and are accompanied by high household debt. 

 

 

In Czechia and Slovakia, cost competiveness losses have combined with strong house price growth for 
some  years.  Cost  competitiveness  losses  had  been  recorded  before  the  crisis  and  continued  marked 
growth in employee compensation point to overheating risks amid continued large fiscal deficits, with 
government debt being higher in Slovakia. The performance of the external sector of these countries 
does  not  seem  to  have  been  affected  but  the  significant  concentration  of  exports  in  a  few  specific 
sectors  constitutes  a  vulnerability.  These  are  compounded  by  strong  house  price  growth,  with 
increasing risks of house price overvaluation. In the case of Slovakia, these come alongside relatively 
high household debt following years of increases.   

In  some  Member  States,  developments  in  the  housing  markets  are  adding  to  risks  linked  to  house 
prices valuations often in a context of high household debt. That is the case of Sweden, and also of 
Denmark  and  Luxembourg.  Recent  house  price  data  suggest  that  after  some  short-lived  downward 
adjustment house prices in Sweden accelerated again in 2020, reinforcing overvaluation concerns. In 
Luxembourg, buoyant house price growth has become even more dynamic during the crisis, which has 
compounded  risks  of  overvaluation  and  occurs  alongside  high  household  debt  relative  to  household 
gross disposable income. In Denmark, the very recent acceleration in house prices occurred alongside 
high household debt.  

 

In  the  case  of  Malta,  an  elevated  and  growing  private  debt  stock  and  persisting  weaknesses  of  the 
insolvency framework create particular vulnerabilities.  

48 

 
This  AMR  concludes  that  IDRs  are  warranted  for  12  Member  States:  Croatia,  Cyprus,  France, 
Germany,  Greece,  Ireland,  Italy,  the  Netherlands,  Portugal,  Romania,  Spain,  and  Sweden.  These 
Member  States  were  subject  to  an  IDR  in  the  previous  annual  cycle  of  MIP  surveillance,  and  were 
considered to be experiencing imbalances (Croatia, France, Germany, Ireland, the Netherlands, Portugal, 
Romania, Spain, and Sweden) or excessive imbalances (Cyprus, Greece, and Italy). The new IDRs will 
assess  if  those  imbalances  are  aggravating,  under  correction,  or  corrected,  with  the  view  to  update 
existing assessments and assessing possible remaining policy needs.  

In  addition,  a  number  of  Member  States  that  were  not  subject  to  an  IDR  in  the  previous  round 
display  developments  that  merit  particular  attention.  Slovakia  is  marked  by  strong  house  price 
growth  alongside  a  sustained  albeit  slowing  increase  in  household  borrowing.  Exports  are  markedly 
concentrated in a few specific sectors and there have been cost competitiveness losses, but export market 
shares have so far not been adversely affected. In the case of Hungary, the interplay between government 
borrowing  and  external  financing  in  a  context  of  significant  debt  exposure  in  foreign  currency  merits 
attention. House price growth has been strong. Cost competitiveness pressures are mounting, but export 
market shares have so far not been adversely affected.  

There  is  also  the  need  to  monitor  the  development  of  risks  in  other  Member  States,  in  many 
instances  linked  to  housing  markets.  In  the  case  of  Denmark  and  Luxembourg,  developments  in  the 
housing  market point to a build-up of risks. While changed preferences, supportive financial conditions 
and supply constraints may sustain house price growth, the risk of a downward correction, with potential 
implications  for  the  wider  economy,  cannot  be  dismissed.  Czechia  is  marked  by  strong  house  price 
growth  and  persistent  cost  competiveness  losses  that  have  been  significant  for  some  years.  In  Malta, 
growing  private  debt  combined  with  weaknesses  of  the  insolvency  framework  create  particular 
vulnerabilities.  Monitoring  and  surveillance  should  follow  developments  closely  in  these  six  Member 
States  and  ascertain  whether  they  are  consistent  with  and  conducive  to  macroeconomic  stability.  The 
balance of risks does not at present point to a need for an IDR. Section 4 provides more information on 
country-specific developments. 

49 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.  MEMBER STATES SPECIFIC COMMENTARIES 

4.1.  BELGIUM 

In  June  2021,  no  macroeconomic  imbalances  were  identified  in  Belgium.  In  the  updated  scoreboard 
including figures until 2020, the  indicators for private  sector consolidated debt and general government 
gross debt indicators are above their indicative thresholds. 

After a 5.7% contraction in 2020, real GDP is forecast to increase by 6% in 2021 and 2.6% in 2022. The 
nominal GDP level in 2022 is forecast to be 8.4% above its 2019 level. 

Relevant developments since the previous report can be summarised as follows:  

  External vulnerabilities remain limited. In 2020, the 
current account recorded a small surplus. The NIIP is 
clearly  positive,  and  is  forecast  to  remain  at  broadly 
the same level in 2021 and 2022. The marked increase 
in the unit labour cost (ULC) in 2020 reflects the large 
drop  in  productivity  during  the  COVID-19  crisis, 
partly due to labour  hoarding. In 2021 and 2022, pay 
dynamics  are  expected 
the 
recuperation in productivity. 

largely  offset 

to 

  The  private  sector  debt-to-GDP  ratio  increased 
further above the threshold in 2020. It was negatively 
affected  by  the  sharp  decline  in  GDP  in  2020.  The 
debt of Belgian non-financial corporations is high and 
increased to almost 126% of GDP, but the high share 
of cross-border intra-group lending, which inflates this 
figure,  reduces  risks.  Household  indebtedness,  which  mainly  reflects  mortgage  debt,  continued  to 
increase in 2020, but the rise in the household debt-to-GDP ratio is mostly due to the drop in GDP, as 
net credit flows to households were contained. Measures to support household and firm income have 
contributed  to  the  stabilisation  in  the  share  of  non-performing  loans  in  2020.  House  price  growth 
accelerated in 2020 and house prices show signs of potential overvaluation.  

  The  government  debt-to-GDP  ratio  further  increased  in  2020,  to  112.8%  of  GDP,  reflecting  the 
sharp  drop  in  GDP  and  the  substantial  government  support  measures  to  mitigate  the  impact  of  the 
COVID-19 crisis. Risks associated to financial and public sector feedback loops remain limited. The 
financial sector remains sound. 

  The  increase  in  the  unemployment  rate  was  contained  in  2020,  increasing  only  slightly  to  5.6%, 
thanks  to  government  support  measures,  which  have  been  prolonged  until  the  end  of  2021.  It  is 
forecast to increase slightly in both in 2021 and 2022. Youth unemployment increased in 2020, and is 
forecast to increase to 20.5% in 2021.  

Belgium  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with  a 
high private sector and general government gross debt, involving limited risks. With the COVID-19 crisis, 
debt, both for the private and public sector, has further increased and warrant monitoring. Overall, the 
Commission  does  not  consider  it  necessary  at  this  stage  to  carry  out  further  in-depth  analysis  in  the 
context of the MIP.   

50 

Graph A1: Debt across sectors in the economySource: Eurostat andCommission services050100150200250101112131415161718192021f% of GDPBelgiumHouseholdNon financial corporationsGeneral government 
 
 
 
 
4.2.  BULGARIA 

In  June  2021,  no  macroeconomic  imbalances  were  identified  in  Bulgaria.  In  the  updated  scoreboard 
including  figures  until  2020,  the  unit  labour  cost  (ULC)  growth  indicator  is  above  their  indicative 
thresholds. 

After contracting by 4.4% in 2020, real GDP is expected to grow by 3.8% in 2021 and by 4.1% in 2022. 
With the return to economic expansion, nominal GDP in 2022 is forecast to be 17% above its 2019 level.  

A number of relevant developments can be summarised as follows:  

  The  current  account  balance  registered  a  small 
deficit of 0.3% of GDP in 2020, for the first time since 
2012. Its decline was mainly due to the contraction of 
exports  of  tourism  services  caused  by  the  COVID-19 
pandemic. A recovery of tourism revenues has started 
in  2021  and  is  expected  to  continue  in  2022.  The 
negative  NIIP,  largely  consisting  of  foreign  direct 
investment,  continued  to  improve  on  account  of 
further accumulation of reserve assets.  

  Nominal unit labour costs increased further in 2020 
driven  by  somewhat  lower  headline  productivity  in  a 
context of labour hoarding. Going forward, unit labour 
costs  are  expected  to  continue  increasing  markedly 
even 
in  2020,  despite  recovering 
productivity growth, as compensation per employee is set to increase strongly. 

than 

less 

if 

  Corporate  indebtedness  increased  in  2020,  but  deleveraging  is  expected  to  resume  with  the 
economic  recovery.  Although  credit  growth  moderated,  the  sharp  decline  of  GDP  in  2020 
temporarily reversed the process of debt deleveraging that  had been based on strong nominal GDP 
growth.  With  the  return  of  economic  growth,  the  corporate  debt-to-GDP  ratio  should  return  to  a 
downward path. The real growth rate in house prices increased to 5.2% in 2020. It is set to moderate 
somewhat in 2021, but is supported by buoyant mortgage credit growth. 

  Government debt was below 25% of GDP in 2020 and is set to remain below 30% of GDP in 2021 

despite the planned increase of government expenditure.  

  The  financial  sector  maintained  sufficient  liquidity  and  capital  adequacy  during  the  COVID-19 
crisis,  supported  by  the  measures  the  Bulgarian  National  Bank  introduced  in  March  2020  and  the 
entry of Bulgaria into the Banking Union in July 2020. The non-performing loans ratio remains high, 
although it declined further to 5.9% in 2020.  It will be  important going  forward to monitor closely 
the effect of the phasing out of public support measures, such as the loan moratoria and the guarantee 
schemes.  

  The labour market conditions were not particularly affected by the recession in 2020 largely thanks 
to  the  use  of  short-time  work  schemes.  The  unemployment  rate  increased  to  5.1%  in  2020  from  a 
historical low level in 2019, but is forecast to start declining as of 2022.  

Bulgaria  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  non-
performing loans and corporate indebtedness were relatively high, albeit declining. With the COVID-19 
crisis,  the  private  sector  debt-to-GDP  ratio  increased  temporarily  in  2020,  but  is  set  to  decline 
afterwards.  Wage  compensation  is  expected  to  continue  its  pre-pandemic  growth  path.  Overall,  the 
Commission  does  not  consider  it  necessary  at  this  stage  to  carry  out  further  in-depth  analysis  in  the 
context of the MIP. 

51 

Graph A2: Debt decomposition by sector02468101214161802040608010012014016018011Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q1% of sectoral loans and advances% of GDPBulgaria General governmentHouseholdNon financial corporationsNPL incl. foreign subs (rhs)Source: Eurostat and ECB 
 
4.3.  CZECHIA 

In  June  2021,  no  macroeconomic  imbalances  were  identified  in  Czechia.  In  the  updated  scoreboard 
including  figures  until  2020,  the  unit  labour  cost  (ULC)  growth  indicator  is  above  their  indicative 
thresholds. 

After a GDP decline of 5.8% in 2020, real GDP is forecast to increase by 3% in 2021 and 4.4% in 2022. 
With  the  return  to  economic  expansion,  nominal  GDP  in  2022  is  forecast  to  be  13.2%  above  its  2019 
level.  

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities 

remained  contained. 
While  a  current  account  surplus  of  3.6%  of  GDP 
was recorded in 2020, it is expected to move back to 
a  broadly  balanced  position  in  2021.  The  NIIP 
continued improving but remained  mildly  negative, 
at -12.5% of GDP in 2020. The NIIP excluding non-
defaultable 
(NENDI)  was  already 
instruments 
positive and has also been improving. 

labour  hoarding  associated  with 

  Unit  labour  cost  growth  was  already  high  before 
the  pandemic.  It  accelerated  further  in  2020  on  the 
back  of 
the 
COVID-19 crisis. With the recovery in productivity, 
ULC growth is expected to moderate despite strong 
growth  in  compensation  per  employee  in  2021  and 
2022.  

  Private indebtedness remained low. While it increased slightly in 2020, private  debt remains  well 
within the prudential and fundamental benchmarks. Credit flows have been positive but  limited for 
both households and companies. The banking sector is well capitalized and its profitability is high. 
The non-performing loans ratio remains low.  

  General government debt increased to 37.7% of GDP in 2020 and is forecast to rise to 42.4% of 
GDP in 2021 and 44.3% in 2022. While the level of government debt is still relatively low, it grows 
at a high pace amid large budget deficits.  

  House prices have been growing briskly over an extended period of time, with increasing indications 
of  potential  overvaluation.  Real  house  price  growth  remained  high  in  2020,  at  5.5%,  although  it 
dipped  below  the  scoreboard  threshold.  With  household  disposable  income  expected  to  continue 
growing strongly in 2021-22, a further acceleration of house prices seems likely, as also suggested by 
available  data  for  2021.  Upward  price  pressures  could  be  mitigated  by  an  expected  pick-up  of 
residential construction in 2021 and 2022 and rising mortgage interest rates amid ongoing monetary 
tightening. 

Czechia  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although 
competitiveness  and  pressures  in  the  housing  market  involved  some  risks.  With  the  COVID-19  crisis, 
some risks have increased. Overall, the Commission does not consider it necessary at this stage to carry 
out further in-depth analysis in the context of the MIP.  

52 

Graph A3: GDP, ULC and house prices-8-6-4-2024681012101112131415161718192021fRate of change y-o-y (%)CzechiaULC growthReal GDP growthDeflated house price indexSource: Eurostat and Commission services 
 
4.4.  DENMARK 

In  June  2021,  no  macroeconomic  imbalances  were  identified  in  Denmark.  In  the  updated  scoreboard 
including figures until 2020, the current account surplus and the private sector debt indicators are above 
their indicative thresholds. 

After a 2.1% decrease in 2020, real GDP is forecast to increase by 4.3% in 2021 and 2.7% in 2022. The 
nominal GDP level in 2021 is forecast to surpass its 2019 level by around 10.4%. 

A number of relevant developments can be summarised as follows:  

  Regarding  external  sustainability, 

the  current 
account  balance  continues  showing  a  large  surplus, 
which came in at 8.1% of GDP in 2020. Even though 
expected to steadily decline in the coming years, it is 
forecast  to  remain  clearly  above  the  upper  MIP 
threshold.  The  high  surplus  mainly  reflects  high 
corporate  and  pension  savings.  Accumulated  current 
account surpluses have led to a high net international 
investment  position  (NIIP)  that  reached  almost  69% 
of  GDP  in  2020,  which  is  down  from  about  77%  of 
GDP  in  2019  due  to  valuation  changes.  The  large 
NIIP generates positive net primary income, which in 
turn reinforces the positive current account balance.  

  Private  sector  indebtedness  remains  high  but  is 

decreasing.  Danish  households  have  been  deleveraging  over  recent  years,  although  the  household 
debt ratio increased marginally to 111.7% of GDP in 2020, affected by the decline in real GDP. The 
household debt-to-GDP ratio is the highest in the EU but is projected to continue decreasing in 2021 
as  a  share  of  GDP.  Despite  accelerating  house  prices,  the  increase  in  mortgage  lending  remained 
moderate.  The  interest  burden  reduced  further  while  the  share  of  loans  with  variable  rates  remains 
relatively high, although  much lower than a decade ago. The  high level of household gross debt is 
accompanied by significantly higher, albeit less liquid, financial assets, notably houses and pension 
savings. 

  Real house price growth was 4.6% in 2020, below the threshold in the scoreboard. Real house price 
growth  increased  in  the  first  half  of  2021,  reaching  the  peak  of  13.5%  year  on  year  in  the  second 
quarter  of  2021  but  it  is  forecast  to  decelerate  in  the  near  future.  Valuation  gap  estimates  indicate 
potential overvaluation. The average house price gap continues to increase, and the price to income 
gap is comparatively high.  

  The  banking  sector  has  remained  stable  and  banks  remain  profitable,  liquid,  and  well  capitalised, 
while  the  non-performing  loans  ratio  is  low.  Despite  a  sharp  increase  in  2020  due  to  the 
implementation of COVID-19-related  measures,  government  debt is relatively low at  around 42% 
of GDP. The budget deficit was only 0.2% of GDP in 2020, partly due to one-off effects.  

  The labour market has remained strong. The unemployment rate increased slightly in 2020 to 5.6%.  
Due  to  the  strong  recovery  of  the  Danish  economy,  employment  exceeded  the  pre-pandemic  level, 
and the number of unemployed went below the pre-pandemic level by 2021 Q2.  

Denmark entered the COVID-19 crisis with no identified macroeconomic imbalances, although the high 
private sector indebtedness and current account surplus involve some risks. During the COVID-19 crisis, 
private sector indebtedness has increased moderately, while house prices have risen markedly, and the 
current  account  surplus  has  remained  high.  Overall,  the  Commission  does  not  consider it  necessary  at 
this stage to carry out further in-depth analysis in the context of the MIP.  

53 

Graph A4: Real house price-20-15-10-50510152025302040608010012014003Q404Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q4Rate of change y-o-y (%)2015 = 100DenmarkIndex 2015 = 100y-o-y % change (rhs)Source: Eurostat,ECB, European Commission services 
 
4.5.  GERMANY 

In  June  2021,  the  Commission  concluded  that  Germany  was  experiencing  macroeconomic  imbalances, 
reflecting  a  subdued  level  of  investment  relative  to  savings,  which  have  cross-border  relevance.  In  the 
updated  scoreboard,  which  includes  figures  until  2020,  the  current  account  balance,  unit  labour  cost 
(ULC) growth, house price growth, and government debt indicators are above their indicative thresholds. 

After a 4.6% decrease in 2020, real GDP is forecast to increase by 2.7% in 2021 and 4.6% in 2022. The 
nominal GDP level in 2022 is forecast to be 9.4% higher than in 2019. 

A number of relevant developments can be summarised as follows:  

  The  current  account  surplus,  standing  at  6.9%  of 
GDP in 2020, remains  high.  It has gradually  narrowed 
since 2015, but is forecast to persist above 6%.  This is 
linked to subdued private and public investment, which 
are  constrained  among  others  by  bottlenecks 
to 
investment,  such  as  in  infrastructure  and  housing. 
While  private  and  public  investment  have  gradually 
increased  in  recent  years,  they  remain  below  the  euro 
area average.  

  Unit labour costs increased sharply in 2020 due to the 
strong decline in output combined with relatively stable 
relationship 
employment  and  compensation.  The 
between labour cost and output is expected to normalise 
as GDP recovers.  

  Government debt exceeded the indicative scoreboard threshold of 60% of GDP, rising to 68.7% of 
GDP in 2020 and is expected to peak at 71.4% in 2021, reflecting policy support during the COVID-
19  pandemic.  The  banking  system  remains  adequately  capitalised  with  a  very  low  level  of  non-
performing loans, although its profitability is low after a further decline in 2020.  

  Real house prices grew by 7.1% in 2020 and continued to grow briskly in the first half of 2021 amid 
a  continued  shortfall  in  housing  supply.  House  price  developments  show  signs  of  potential 
overvaluation. 

Germany entered the COVID-19 crisis with a large domestic savings surplus, underpinned primarily by 
net  savings of households  and  the  government.  The  current  account  surplus persists  at  a  high  level,  as 
private investment remains muted despite policy support in the COVID-19 context, and public investment 
has  not  yet  filled  longstanding  investment  gaps.  House  prices  have  grown  strongly.  Overall,  the 
Commission  finds  it  opportune,  also  taking  into  account  the  identification  of  imbalances  in  June,  to 
examine further the persistence of imbalances or their unwinding. 

54 

Graph A5: Net lending/borrowing by sectorSource: Ameco-10-505101506070809101112131415161718192021f22f% of GDPGermanyHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
 
4.6.  ESTONIA 

In  June  2021,  no  macroeconomic  imbalances  were  identified  in  Estonia.  In  the  updated  scoreboard 
including  figures  until  2020,  real  effective  exchange  rate,  unit  labour  cost  (ULC)  growth,  house  price 
growth, financial sector liabilities and the youth unemployment rate indicators are above their indicative 
thresholds. 

After  a  3%  decrease  in  2020,  real  GDP  is  forecast  to  increase  by  9%  in  2021  and  3.7%  in  2022.  The 
nominal GDP level in 2022 is forecast to be 16% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  remain  contained,  with  the 
NIIP  forecast  to  stabilise  at  around  -22%  of  GDP  in 
2021,  after  a  decade  of  steady  improvements.  The 
accumulated  stock  of  FDI  represents  most  of  the 
liabilities.  The  current  account  recorded  a  small 
deficit in 2020, which is expected to slightly increase 
in 2021. 

  Unit labour cost growth accelerated further in 2020 
after  some  years  of  continued  strong  growth.  Unit 
labour costs are forecast to decrease in 2021 thanks to 
higher productivity in times of buoyant output growth 
and  a  lagged  employment  response,  and  to  start 
increasing  again  thereafter.  Export  market  shares 
expanded until 2020, driven by exports of goods, and 
are expected to continue rising, albeit at a slower pace going forward. The HICP-based real effective 
exchange rate appreciated marginally last year, although less than in some of the pre-pandemic years. 

  Growth in  house  prices accelerated to 6.9% in 2020 and is expected to accelerate  further in 2021, 
fuelled by the early withdrawal of pension assets in 2021, increasing construction material prices and 
supply-side bottlenecks, while households’ borrowing constraints could be a mitigating factor. House 
price metrics do not point to potential overvaluation risks. The banking sector remains resilient with 
a high capital ratio and a low non-performing loans ratio. 

  The government debt to GDP ratio remains low, but rose by 10 pps in 2020, due to a higher public 
deficit,  lower  nominal  GDP  and  precautionary  financing  by  the  government.  It  is  forecast  to  reach 
20.4% of GDP in 2022.   

  The  labour  market  conditions  deteriorated  in  the  wake  of  the  COVID-19  crisis.  After  a  steady 
decrease  over  the  past  decade,  the  unemployment  rate  rose  to  6.8%  in  2020.  It  is  forecast  to  start 
falling  in  2022.  The  youth  unemployment  rate  increased  markedly  in  2020,  and  it  is  expected  to 
continue increasing in 2021.  

Estonia  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with  a 
negative  net  international  investment  position  involving  limited  risks.  With  the  COVID-19  crisis,  house 
price growth has accelerated but house prices do not appear to be overvalued. Overall, the Commission 
does  not  consider  it  necessary  at  this  stage  to  carry  out  further  in-depth  analysis  in  the  context  of  the 
MIP.  

55 

Graph A6: Real house price index-50-40-30-20-10010203040502040608010012014016005Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q4Rate of change y-o-y (%)2015 = 100EstoniaIndex 2015 = 100y-o-y % change (rhs)Source: Eurostat, ECB,Commission services 
 
 
4.7. 

IRELAND 

In  June  2021,  the  Commission  concluded  that  Ireland  was  experiencing  macroeconomic  imbalances,  in 
particular  involving  vulnerabilities  linked  to  high  private,  public  and  external  debt.  In  the  updated 
scoreboard  including  figures  until  2020,  the  current  account  balance,  the  net  international  investment 
position, private sector debt and the activity rate indicators are above their indicative thresholds.(40) 

After  an  expansion  of  5.9%  in  2020,  Ireland’s  economic  growth  is  expected  to  accelerate  to  14.6%  in 
2021 followed by 5.1% in 2022. The nominal GDP level in 2022 is forecast to be 28.1% above its 2019 
level. 

A number of relevant developments can be summarised as follows:  

though  heavily 

  External  sustainability  remains  a  concern.  The  NIIP 
is  strongly  negative, 
inflated  by 
activities  of  multinational  companies.  It  improved 
to  -174%  GDP  in  2020  and  is  expected  to  further 
improve going forward. The current account rebounded 
in 2020 from a huge deficit in 2019, and is projected to 
record a large surplus in 2021 and 2022, contributing to 
the improvement of the external position. 

  Private  debt  is  very  high  but  continues  to  fall.  It 
reached almost 189% of GDP  in 2020. Corporate debt 
accounts for the majority of the private debt (153% of 
GDP  and  274%  of  modified  Gross  National  Income 
(GNI*)) and remains above fundamental and prudential 
thresholds.  The  high  share  of  cross-border  intra-group 
lending  in  corporate  debt  reduces  risks.  In  2020, 
household debt reached about 36% of GDP and 64% of GNI*. While below the prudential threshold 
and declining, it is still high relative to household disposable income (109%).  

  Government debt increased slightly, to 58.4% of GDP in 2020. It is expected to resume its declining 

trend in 2021. In contrast, the government debt relative to GNI* remains large.  

  The banking sector is in a healthier position than in the run up to the 2010 financial crisis. Banks are 
well-capitalised  but  face  longer-term  challenges  related  to  profitability,  which  turned  negative  in 
2020. Non-performing loans (NPLs) have reduced substantially over the past years and the NPL ratio 
remained low, at 2.6% in June 2021.  

  House prices were stagnant in 2020 in real terms, but are expected to pick up slightly in 2021 driven 
by  supply  shortfalls.  Valuation  gap  metrics  do  not  point  to  potential  overvaluation,  but  housing 
affordability  remains  an  issue,  with  the  average  number  of  years  of  income  required  to  buy  a 
dwelling being among the highest in the EU.  

  The unemployment rate increased to 5.7% in 2020 and is forecast to rise to 7.5% in 2021 as a result 
of  the  COVID-19  crisis,  but  is  likely  to  start  falling  again  thereafter.  The  three-year  change  in  the 
activity rate turned negative in 2020, but is forecast to be again positive in 2021 and 2022. 

Ireland  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  external,  private  sector  and 
government  debt.  As  Ireland’s  economy  grew  despite  the  crisis,  vulnerabilities  linked  to  external  and 
private  debt  eased  somewhat,  but  government  debt  has  increased.  Overall,  the  Commission  finds  it 
opportune,  also  taking  into  account  the  identification  of  imbalances  in  June,  to  examine  further  the 
persistence of imbalances or their unwinding. 

40  The  Post-Programme  Surveillance  (PPS)  report  from  autumn  2021  for  Ireland  also  discusses  some  of  the  vulnerabilities 

highlighted in the AMR.   

56 

Graph A7: Debt across sectors in the economy01002003004005006007001011121314151617181920% of GNIIrelandNon financial corporationsHouseholdGeneral governmentSource: Eurostatand CSONote: Modified Gross National Income (GNI*) captures more accurately the underlying economic activity by eliminating some of the impact of multinationals 
                                                           
4.8.  GREECE 

In  June  2021,  the  Commission  concluded  that  Greece  was  experiencing  excessive  macroeconomic 
imbalances, relating to high government debt, incomplete external rebalancing and high non-performing 
loans, in a context of high unemployment and low potential growth. In the updated scoreboard, including 
figures  until  2020,  a  number  of  indicators  are  above  their  indicative  thresholds,  namely  the  net 
international  investment  position  (NIIP),  the  government  debt,  the  export  market  share,  the  financial 
sector liabilities, the unemployment rate and the activity rate. (41) 

After a sharp contraction by -9% in 2020, real GDP is forecast to rebound, with growth expected to reach 
7.1% in 2021, 5.2% in 2022. The nominal GDP level in 2022 is forecast to be 2.4% higher than in 2019.  

A number of relevant developments can be summarised as follows:  

  External  sustainability  worsened  in  2020  as  the 
negative  NIIP  ratio  fell  further  on  account  of  the 
contraction  in  GDP  and  the  marked  deterioration  of 
the current account deficit to -6.6% of GDP. With the 
return  of  tourism,  the  current  account  deficit  is 
forecast to narrow in 2021 and 2022. A large share of 
the  NIIP  is  accounted  for  by  government  debt 
extended at concessional terms and long maturities.  

  The  government  debt-to-GDP  ratio  increased  by  26 
pp.  in  2020,  to  206.3%  of  GDP,  reflecting  the  depth 
of  the  recession  and  the  impact  of  the  measures  to 
limit the  economic and  social cost of the  COVID-19 
crisis.  Over  half  of  this  increase  was  due  to  the 
denominator  effect.  The  government  debt  ratio  is 
forecast to start decreasing in 2021. Long-term gross 
financing needs have not changed significantly since the beginning of the pandemic, mainly due to 
the decrease in the refinancing rates. 

  Banking  sector  profitability  turned  negative  in  2020  and  the  common  equity  tier  1  capital  ratio  is 
one of the lowest in the EU, partly due to the ongoing clean-up of banks’ balance sheets. While still 
high, at 26.1% in March 2021, the non-performing loans ratio (42) decreased markedly in 2020 and is 
expected to continue falling at slow pace  in 2021. Following the expiry of the  moratoria, an initial 
assessment shows a moderate adverse impact on asset quality, but downside risks remain.  

  The unemployment rate continued declining even during the pandemic, mainly due to government 
support  measures,  but  remained  high  at  16.3%  in  2020.  It  is  forecast  to  further  decline  over  the 
forecast horizon.  

Greece entered the COVID-19 crisis with vulnerabilities linked to government debt, incomplete external 
rebalancing, legacy non-performing loans, unemployment and low potential growth. With the COVID-19 
crisis,  government  debt,  and  external  imbalances  have  increased.  Overall,  the  Commission  finds  it 
opportune, also taking into account the identification of excessive imbalances in June, to examine further 
the  persistence  of  macroeconomic  risks  and  to  monitor  progress  in  the  unwinding  of  excessive 
imbalances. 

(41)  Some of the vulnerabilities highlighted in this AMR are discussed in the 12th enhanced surveillance report for Greece. 
(42)  According to the European Central Bank, non-performing loans as a share of total gross loans and advances on a consolidated 
basis (i.e. including cash balances at central banks and other demand deposits in the denominator). This figure is different than 
the one reported under enhanced surveillance, which follows non-performing loans as a share of total gross customer loans on a 
solo basis, as reported by the Bank of Greece. 

57 

Graph A8: NIIP by sector-250-200-150-100-5005010013Q114Q115Q116Q117Q118Q119Q120Q121Q1% of GDPGreeceGeneral governmentPrivate sectorMFI (excl central bank)Central Bank (incl reserves)Net int'l investment position (NIIP)Source: Eurostatand Commissionservices 
                                                           
4.9.  SPAIN 

In  June  2021,  the  Commission  concluded  that  Spain  was  experiencing  macroeconomic  imbalances, 
relating to high levels of external, private and government debt, which have cross-border relevance, in a 
context  of  high  unemployment.  In  the  updated  scoreboard  including  figures  until  2020,  a  number  of 
indicators are above their indicative thresholds, namely the net international investment position (NIIP); 
unit labour cost (ULC) growth, the export market share, the government debt and private sector debt, the 
unemployment rate as well as the activity rate. 

After a 10.8% decrease in 2020, real GDP is forecast to increase by 4.6% in 2021 and 5.5% in 2022. The 
nominal GDP level in 2023 is forecast to be 2.6% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  sustainability  worsened  in  2020  as  the 
negative  NIIP-to-GDP  ratio  widened,  mainly  due  to 
the  contraction  in  GDP  but  also  some  negative 
valuation  changes.  The  NIIP  ratio  reached  -85.5%  in 
2020, but is forecast to improve in 2021 and 2022. The 
NIIP  net  of  non-defaultable  instruments  (NENDI) 
remains sizeable. The current account surplus declined 
to  0.8%  of  GDP 
in  2020  accompanied  by  a 
deterioration in the export  market share, partly due to 
the weak international tourism. The current account is 
projected to be slightly in surplus in 2021 and 2022.  

  Corporate and household indebtedness had been on 
a declining path until 2019. With the COVID-19 crisis, 
the  private  debt-to-GDP  ratio  increased  to  slightly 
above146%  of  GDP  in  2020,  reflecting  both  the  net  credit  flows  to  the  corporate  sector  and,  to  a 
larger extent, the sizeable fall in GDP, thereby exceeding the MIP threshold of 133%. The increase in 
the private  debt-to-GDP ratio is likely to be partly reversed in 2021, due  to the expected economic 
recovery. 

  The  already  high  government  debt-to-GDP  ratio  increased  by  25  pp.  in  2020,  reaching  120%  of 
GDP,  reflecting  the  depth  of  the  recession  and  the  impact  of  the  government  support  measures 
undertaken in response to the COVID-19 crisis. It is forecast to decline moderately by 2022, reaching 
116%.  Risks  associated  to  negative  financial  and  public  sector  feedback  loops  remain  and  may  be 
amplified by increasing vulnerabilities in the corporate sector related to the pandemic  

  The  banking  sector  enhanced  its  resilience  during  the  past  decade. Through  the  COVID-19  crisis, 
banking sector capitalisation has marginally improved, although it is still low. The liquidity position 
of banks has remained reassuring. Profitability has been persistently low and turned negative in 2020. 
The non-performing loans ratio decreased to 2.8% in 2020. However, it may increase going forward, 
once  the  effect  of  the  phasing  out  of  public  support  measures,  such  as  the  loan  moratoria  and  the 
guarantee schemes, will be fully visible.  

  After declining  for several years, the  unemployment rate  increased again in 2020 to 15.5%,  in the 
context of the COVID-19 crisis and remains above the indicative threshold. The unemployment rate 
is forecast to decrease in 2021 and 2022. The activity rate decreased and remains below the indicative 
threshold. In addition, labour market segmentation remains of concern. 

Spain entered the COVID-19 crisis with vulnerabilities linked to external, private sector and government 
debt and high unemployment. With the COVID-19 crisis, debt ratios and unemployment have increased. 
Overall, the Commission finds it opportune, also taking into account the identification of imbalances in 
June, to examine further the persistence of imbalances or their unwinding. 

58 

Graph A9: Decomposition of debt by sectorSource: Eurostatand Commission services050100150200250300070809101112131415161718192021f% of GDPSpainNon financial corporationsHouseholdGeneral government 
 
4.10.  FRANCE 

In  June  2021,  the  Commission  concluded  that  France  was  experiencing  macroeconomic  imbalances, 
relating  to  high  government  debt  and  weak  competitiveness  in  a  context  of  low  productivity  growth, 
which have cross-border relevance. In the updated scoreboard including  figures until 2020, a number of 
indicators  are  above  their  indicative  thresholds,  namely,  government  and  private  sector  debt,  export 
market share as well as the activity rate. 

After a decrease of 7.9% in 2020, real GDP is forecast to increase by 6.5% in 2021 and 3.8% in 2022. 
The nominal GDP level in 2022 is forecast to be 6.7% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  The  external  position  worsened  in  2020,  with  the 
negative NIIP-to-GDP ratio decreasing to about -30% 
on  the  back  of  an  increased  current  account  deficit 
and  the  fall  in  GDP.  The  current  account  is  set  to 
improve  somewhat  in  the  coming  years,  with  the 
expected rebound of exports. The NIIP is projected to 
stabilize around current levels.  

in  2021.  However, 

  The private debt-to-GDP ratio continued to increase 
in  2020,  by  21  pp.,  to  almost  174%,  supported  by 
strong credit flows. This increase is set to be slightly 
rising  corporate 
reversed 
indebtedness  is  flanked  by  a  parallel  increase  in 
corporate  liquidity  buffers,  while  rising  household 
debt was also accompanied by an increase in deposits. 
Real  house  prices  grew  somewhat  faster  in  2020  than  in  2019  and  show  signs  of  potential 
overvaluation. 

  The  already  high  government  debt-to-GDP  ratio  increased  by  18  pps.  to  115%  of  GDP  in  2020, 
reflecting the government support measures in response to the COVID-19 crisis and the depth of the 
recession. It is forecast to start declining in 2021. 

  After  several  years  of  improvement,  competitiveness  metrics  were  adversely  affected  by  the 
COVID-19  crisis.  Unit  labour  cost  growth  temporarily  increased  in  2020,  despite  a  fall  in 
compensation per employee. This is expected to be only partially reversed in the coming years. The 
marked loss in export market shares in 2020 is set to be recovered over the coming years.  

  The  banking  sector  has  shown  healthy  and  rising  equity  levels,  while  the  already  low  non-
performing  loans  ratio  continued  declining  in  2020,  to  2.2%.  However,  this  figure  could  increase 
with the gradual phasing out of government support measures.  

  The labour market situation worsened in 2020 due to the COVID-19 crisis, with a decrease in total 
employment  and  the  activity  rate.  Both  the  employment  and  the  activity  rates  are  expected  to 
improve from 2021 onwards.  

France entered the COVID-19 crisis with vulnerabilities linked to government debt and competitiveness 
in a context of low productivity. With the COVID-19 crisis, government, external and private debt stocks 
have increased. Overall, the Commission finds it opportune, also taking into account the identification of 
imbalances in June, to examine further the persistence of imbalances or their unwinding. 

59 

Graph A10: Decomposition of debtSource: Eurostatand Commission services050100150200250300070809101112131415161718192021f% of GDPFranceNon financial corporationsHouseholdGeneral government 
 
4.11.  CROATIA 

In  June  2021,  the  Commission  concluded  that  Croatia  was  experiencing  macroeconomic  imbalances, 
relating to high levels of external, private and government debt in a context of low potential growth. In 
the updated scoreboard including figures until 2020, the net international investment position (NIIP), unit 
labour cost (ULC) growth,  house  price  growth and general government gross debt indicators are above 
their indicative thresholds. 

After an 8.1% decrease in 2020, real GDP is forecasted to increase by 8.1% in 2021 and 5.6% in 2022. 
The nominal GDP level in 2022 is forecasted to be 9.5% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  sustainability  worsened  in  2020.  The 
current account turned to a deficit of 0.1% of GDP in 
2020,  mainly  due  to  the  pandemic-induced  slump  in 
tourism-related  exports.  The  3-year  average  surplus 
fell to 1.6%. The NIIP worsened slightly to -47.8% of 
GDP in 2020, but is expected to improve again  from 
2021  onwards.  Conversely,  the  NIIP  excluding  non-
defaultable  instruments  (NENDI)  improved  further 
and reached a balanced position in 2020. 

  Nominal unit labour costs  accelerated in 2020 amid 
a  productivity  decline,  pushing  the  3-years  change  to 
13.7%.  ULC  growth  is  forecast  to  turn  negative  in 
2021. 

  The house price index exceeded the threshold in 2020 again, with a growth of 7.3% in real terms, 
increasing  the  housing  affordability  problem.  2021  should  bring  a  deceleration  of  house  prices. 
House prices warrant further monitoring, also considering the developments in construction prices.  

  The private debt-to-GDP ratio increased from about 88% of GDP to 98% in 2020, due to the GDP 
decline and positive albeit low credit flows. The increase in both the corporate and household debt 
ratios  is  likely  to  be  reversed  in  2021,  due  to  the  denominator  (GDP  growth)  effect.  While  the 
banking sector is well capitalized and its profitability is high, it is also characterized by a relatively 
high non-performing loans ratio, above 5%.It will be important going forward to monitor closely the 
effect  of  the  phasing  out  of  public  support  measures,  such  as  the  loan  moratoria  and  the  guarantee 
schemes. 

  After having declined for five consecutive years, the government debt-to-GDP ratio increased by 16 
pp.  in  2020,  to  87.3%  of  GDP,  reflecting  the  government  support  measures  in  response  to  the 
COVID-19 crisis and the depth of the recession. With expected economic recovery and withdrawal of 
fiscal support, the decline in government debt is forecast to resume in 2021. 

Croatia  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  government,  private  sector  and 
external debt in a context of low potential growth. With the COVID-19 crises, debt ratios have increased. 
Overall, the Commission finds it opportune, also taking into account the identification of imbalances in 
June, to examine further the persistence of imbalances or their unwinding. 

60 

Graph A11: NIIP, private debt and government debtSource:Commission services-12-10-8-6-4-20246-100-80-60-40-20005060708091011121314151617181920% of GDP% of GDPCroatiaNet international investment positionNENDI - Net international investment position excludingnon-defaultable instrumentsp.m. Current account balance (rhs) 
 
 
4.12.  ITALY 

In  June  2021,  the  Commission  concluded  that  Italy  was  experiencing  excessive  macroeconomic 
imbalances,  involving  high  government  debt  and  protracted  weak  productivity  dynamics,  which  have 
cross-border  relevance,  in  a  context  of  labour  market  and  banking  sector  fragilities.  In  the  updated 
scoreboard  including  figures  until  2020,  the  government  debt  and  the  activity  rate  indicators  are  above 
their indicative thresholds. 

After real output contracted sharply by 8.9% in 2020 as a result of the COVID19 crisis, real GDP growth 
is projected to rebound by 6.2% in 2021 and 4.3% in 2022. The nominal GDP level in 2022 is expected to 
exceed its 2019 level by 4.6%. 

A number of relevant developments can be summarised as follows:  

  The  external  position  is  stable  with  a  balanced  net 
investment  position  (NIIP).  The  current 
international 
account  surplus  of  3.8%  of  GDP  in  2020  is  expected  to 
marginally decline in 2021, largely due to an increasing oil 
bill and stronger import demand.   

  Private  debt  increased  in  2020,  with  both  household  and 
corporate  debt  being  close 
the  prudential  and 
fundamentals  based  benchmarks.  From  2021,  both 
components  of  private  debt  are  set  to  fall,  with  the 
resumption of growth. 

to 

  Labour  productivity  dropped  sharply  in  2020,  as  short-
time  work 
schemes  buttressed  employment,  while 
economic output plummeted. Productivity is set to improve 
over  the  medium  term,  as  GDP  growth  recovers.  Unit 
labour  cost  growth  increased  in  2020  but  is  expected  to  slow  down  amid  moderate  wage  growth 
going forward.  

  The government debt-to-GDP ratio increased by 21 pps. in 2020, reaching 155.6%. Over half of the 
increase in the debt ratio is due to the denominator effect. The government debt ratio is expected to 
start declining in 2021, despite the prolonged policy support, and to remain on a downward path in 
the following years. Risks to public finances associated with financial and corporate sector feedback 
loops  remain,  given  the  sizeable  share  of  publicly  guaranteed  loans  and  the  risk  of  increasing 
corporate insolvencies, albeit from current low levels. 

 

Improvements have continued in the banking sector, but vulnerabilities remain. The reduction of the 
non-performing loans (NPLs) ratio has further progressed, but, at 4.5% in the first quarter of 2021, 
remains  above  the  euro  area  average  of  2.4%.  The  liquidity  measures  in  response  to  the  pandemic 
supported bank lending volumes. However, bank profitability has further declined in 2020.It will be 
important going forward to monitor closely the effect of the phasing out of public support measures, 
such as the loan moratoria and the guarantee schemes. 

  The unemployment rate continued to decline in 2020, to 9.2%, unlike in most other EU countries, 
but is expected to increase in 2021. The  youth unemployment rate  increased further in 2020 and is 
very  high.  The  size  of  the  labour  force  is  still  smaller  than  before  the  COVID-19  crisis.  Persistent 
skill mismatches could prevent a faster reduction of the unemployment rate in the coming years. 

Italy  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  the  high  level  of  government  debt  and 
weak productivity growth, in a context of still relatively high unemployment. With the COVID-19 crisis, 
debt ratios have increased, while financial sector vulnerabilities and some  vulnerabilities in the labour 
market remain. Overall, the Commission finds it opportune, also taking into account the identification of 
excessive imbalances in June, to examine further the persistence of macroeconomic risks and to monitor 
progress in the unwinding of excessive imbalances.  

61 

Graph A12: Potential growth and private debtSource: Commissionservices020406080100120140160-1.5-1.0-0.50.00.51.01.5050709111315171921f% of GDPRate of change y-o-y (%)ItalyCapital accumulation contributionTFP contributionTotal labour (hours) contributionPotential growthGeneral government debt (rhs) 
4.13.  CYPRUS 

In  June  2021,  the  Commission  concluded  that  Cyprus  was  experiencing  excessive  macroeconomic 
imbalances. Vulnerabilities relate to high stocks of external, government, and private debt, and still high 
non-performing loans, alongside a substantial current account deficit. In the updated scoreboard including 
figures  until  2020,  a  number  of  indicators  are  above  their  indicative  thresholds,  namely  the  current 
account, net international investment position (NIIP), government debt and private sector debt. (43) 

After a 5.2% decline in 2020, real GDP is forecast to increase by 5.4% in 2021 and 4.2% in 2022. The 
nominal GDP level in 2022 is forecast to be 7% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  remain  a  concern,  as  the 
NIIP  remained  significantly  negative  in  2020,  even  if 
largely reflecting activities of special purpose  entities. 
The current account showed a large deficit of 10.1% of 
GDP  in  2020,  worsening  from  5.7%  in  2019,  with 
tourism  exports  being  very  negatively  affected  by  the 
pandemic.  Moderate  improvements  are  expected  in 
2021 and 2022.  

  The  government  debt-to-GDP  ratio  increased  by  24 
pps  in  2020,  to  115.3%,  as  the  government  built  a 
the  necessary 
significant  cash  buffer 
firepower to fight the pandemic, support the  economy 
and manage liquidity risks. The government debt ratio 
is forecast to resume its declining path in 2021. 

to  secure 

  After years of steady decline, the private debt ratio rose in 2020 due to the pandemic-induced fall in 
nominal GDP. The household debt ratio reached 91% of GDP, while the debt ratio of non-financial 
corporations  increased  to  almost  170%  of  GDP.  For  2021,  building  on  the  expected  economic 
recovery,  private  indebtedness  is  projected  to  return  to  a  declining  path  –  remaining  though  above 
prudential and fundamental thresholds. 

  Banking  sector  profitability  turned  negative  in  2020.  The  stock  of  non-performing  loans  (NPLs) 
remains high, but declined significantly in 2020. The NPL ratio has remained stable at around 10% in 
the  first  half  of  2021.  Furthermore,  additional  portfolio  sales  have  been  planned.  The  lifting  of  the 
loan moratorium in January 2021 has not yet shown a significant adverse impact on asset quality, but 
it will be important going forward to monitor closely the effect of the phasing  out of public support 
measures.  

Cyprus  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  external,  private  sector  and 
government  debt.  With  the  COVID-19  crisis,  the  current  account  deficit  has  deteriorated,  while  debt 
ratios  have  increased.  Overall,  the  Commission  finds  it  opportune,  also  taking  into  account  the 
identification of excessive imbalances in June, to examine further the persistence of macroeconomic risks 
and to monitor progress in the unwinding of excessive imbalances. 

(43)  The  Post-Programme  Surveillance  (PPS)  report  from  autumn  2021  for  Cyprus  also  discusses  some  of  the  vulnerabilities 

highlighted in the AMR.   

62 

Graph A13: Debt and non performing loansSource: Eurostat and Commissionservices050100150200250300350400450500070809101112131415161718192021f% of GDPCyprusNon financial corporationsHouseholdGeneral government 
 
 
                                                           
4.14.  LATVIA 

In the previous round of the MIP, no macroeconomic imbalances were identified in Latvia. In the updated 
scoreboard, a number of indicators are above their indicative thresholds, namely real effective exchange 
rate changes, and unit labour cost (ULC) growth.  

After a  3.6% decrease in 2020, real GDP is forecast to increase by 4.7% in 2021 and 5% in 2022. The 
nominal GDP level in 2022 is forecast to be 12.9% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  The  current account swung  to a  surplus of 2.9% of 
GDP  in  2020,  considerably  improving  the  NIIP, 
which now  stands at  -34.7% of GDP, just below  the 
MIP 
threshold.  Latvia’s  negative  NIIP  consists 
mainly  of  government  debt  and  foreign  direct 
investment  posing  a  low  risk  to  sudden  flight  or 
appreciation  in  servicing  cost.  The  current  account 
balance  is  forecast  to  turn  slightly  negative  again  in 
2022, but the NIIP is expected to continue improving. 

  Cost  competitiveness 

indicators  point 

to  a 
continued  weakening  in  2020.  Unit  labour  cost 
growth  was  already  high  before  the  pandemic,  but 
increased  further  in  2020,  due  to  the  combination  of 
declining  productivity  and  continued  wage  growth. 
Wage  growth  remained  high  due  to  persistent  skills  shortages  and  because  COVID-19  related  job 
losses  accrued  predominantly  in  the  low-wage  sectors.  COVID-19  related  productivity  effects  are 
expected to be transitory but the wage pressures coming from falling labour supply are expected to 
remain a factor going forward as demographic decline is expected to persist. Latvia’s export market 
share  increased  considerably  in  2020.  The  HICP-based  real  effective  exchange  rate  appreciated, 
considerably influenced by depreciation of the Russian rouble, which fell some 20% in 2020.  

  Real  house  price  growth  slowed  considerably  in  2020,  following  several  years  of  dynamic  price 
growth.  Private  sector  debt  levels  stayed  stable,  with  subdued  credit  in  the  corporate  sector.  The 
financial sector is sound and well capitalised, but profitability deteriorated significantly in 2020. 

  The unemployment rate increased to 8.1% in 2020, in light of the COVID-19 crisis. It is forecast to 
start  declining  in  2021.  Also  youth  unemployment  increased  in  2020  and  is  forecast  to  increase 
further in 2021. The worsening in the labour market conditions due the COVID-19 crisis is expected 
to be temporary with the unemployment rate approaching its pre-crisis level by 2023.  

Latvia  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with  a 
negative net international investment position and high unit labour cost growth. Issues relating to labour 
supply pressures and cost competitiveness are expected to persist even beyond the COVID-19 crisis, but 
risks appear contained. Overall, the Commission does not consider it necessary at this stage to carry out 
further in-depth analysis in the context of the MIP. 

63 

Graph A14: Decomposition of unit labour costSource: Commissionservices-15-10-50510152025303506070809101112131415161718192021f22fRate of change y-o-y (%)LatviaInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU27 
 
 
 
4.15.  LITHUANIA 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in  Lithuania.  In  the 
updated  scoreboard,  which  includes  figures  until  2020,  five  indicators  are  above  their  indicative 
thresholds, namely the real effective exchange rate, unit labour cost (ULC) growth, house price growth, 
financial sector liabilities and the youth unemployment rate. 

After a  0.1% decrease in 2020, real GDP is forecast to increase by 5% in 2021 and 3.6% in 2022. The 
nominal GDP level in 2022 is forecast to be 18% above its 2019 level.  

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  remain  contained,  as  the 
current account recorded a surplus of 7.3% of GDP in 
2020.  The  visibly  higher  surplus  is  supported  by 
favourable  developments  of  export  of  goods  and 
services,  and  is  forecast  to  remain  sizeable,  even  if 
somewhat  lower,  going  forward.  The  NIIP,  albeit 
negative,  is  improving  quickly.  It  mostly  consists  of 
the  accumulated  stock  of  foreign  direct  investment, 
and  a  sizeable  part  of  the  FDI  inflows  comes  from 
reinvested earnings, reducing associated risks. 

  Unit labour costs continue to grow rapidly. Pressures 
in  the  labour  market  and  increases  in  wages  in  the 
public sector, in part reflecting pandemic management 
needs,  affect  labour  compensation  dynamics.  In  2020 
and  in  the  first  half  of  2021,  growth  of  wages  stayed 
elevated, exceeding 10%. The labour share is already relatively high compared to the past, and labour 
compensation  in  the  public  sector  is  set  to  slow  down  following  the  surge  during  the  pandemic, 
therefore  the  current  pace  of  wage  growth  is  not  expected  to  be  sustained.  Unit  labour  costs  are 
forecast to grow visibly, but at a slightly lower rate than in recent years.  

  The real estate market is witnessing an acceleration in house prices. However, valuation gap metrics 
do  not  show  signs  of  potential  overvaluation.  House  price  growth  reached  6.4%  in  2020  and 
accelerated in the first half of 2021. This is partially due to built-up supply side constraints that have 
started easing slowly. House prices are expected to lose momentum in the coming years, partly due to 
the  projected  slowdown  in  labour  income  growth.  While  mortgage  credit  has  been  growing 
dynamically, the household indebtedness is still rather low. The banking sector is well capitalised, 
profitable and NLPs are very low. 

  Pressures in the labour market are starting to re-emerge. The unemployment rate increased to 8.5% 
in  2020,  but  is  expected  to  gradually  decrease  going  forward.  Youth  unemployment  increased  in 
2020, but is forecast to start declining in 2021. In many economic sectors, labour shortages,  which 
were mounting before the pandemic crisis, are exerting upward pressure on labour costs. 

Lithuania  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with 
accumulating  pressures  in  the  labour  market.  Recently  shortages  in  the  labour  market  started  to  re-
emerge, thus exerting upward pressure on labour costs, although unit labour cost growth is forecast to 
diminish  somewhat.  Overall,  the  Commission  does  not  consider  it  necessary  at  this  stage  to  carry  out 
further in-depth analysis in the context of the MIP. 

64 

Graph A15: Decomposition of unit labour costSource: Commissionservices-15-10-5051015202506070809101112131415161718192021f22fRate of change y-o-y (%)LithuaniaInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU27 
 
 
 
4.16.  LUXEMBOURG 

In the previous round of the MIP, no macroeconomic imbalances were identified for Luxembourg. In the 
updated  scoreboard  including  figures  until  2020,  unit  labour  cost  (ULC)  growth,  house  price  growth, 
private  sector  debt  level  and  credit  growth,  as  well  as  youth  unemployment  indicators  are  above  their 
indicative thresholds.  

Real GDP contracted relatively mildly in 2020, by 1.8%, as a result of the COVID-19 crisis, and reached 
its pre-crisis level again in the first quarter of 2021. Real growth is forecast at 5.8% in 2021 and 3.7% in 
2022, leaving the nominal GDP level in 2022 17.6% higher than in 2019. 

A number of relevant developments can be summarised as follows:  

  External  sustainability  risks  remain  limited.  The 
current  account  and  the  net  international  investment 
position are markedly positive. 

  Unit labour costs increased markedly in 2020, partly 
reflecting  temporary  labour  hoarding  during  the 
COVID-19  crisis.  Unemployment  and  the  youth 
unemployment  rate  increased  in  2020  due  to  the 
crisis. 

  The private sector debt-to-GDP ratio is very high at 
around  317%  in  2020,  despite  some  recent  decline 
starting from the second half of 2020, and is mainly 
driven  by  corporate  debt.  Cross-border  lending 
activities  by  intra-group  corporates  operating  in 
Luxembourg’s global financial centre account for 80% of corporate debt, which reduces risks. 

  Household  debt  increased  further  in  2020  to  about  69%  of  GDP,  which  is  below  the  reference 
benchmarks,  although  substantially  higher  if  compared  to  disposable  income  (170%).  Mortgage 
credit  accelerated  further,  in  a  context  of  very  fast  house  price  growth.  This  has  prompted  the 
national  systemic  risk  board  to  activate  macro-prudential  (loan-to-value)  limits  and  to  increase  the 
countercyclical capital buffer as from January 2021. 

  House prices have increased at double-digit rates since the pandemic outbreak, with clear indications 
of  potential  overvaluation.  Price  rises  are  forecast  to  moderate  though,  on  the  back  of  the  adopted 
measures being implemented. They include reforms of land use and property taxation to help address 
the  structural  housing  under-supply.  Investments  in  residential  construction  are  also  stepped  up, 
aiming at improving the public supply of affordable housing.  

  The banking sector is well capitalised and liquid, although profitability dropped in 2020. The ratio 
of non-performing loans has remained very low, also due to timely and appropriate policy responses, 
including  moratoria  and  short-term  employment  schemes.  A  persistence  of  dynamic  mortgage 
growth, amid already high household indebtedness, represents a risk for the banking sector. 

Luxembourg entered the COVID-19 crisis with no identified macroeconomic imbalances, although with 
some risks related to increasing housing prices and household debt. These risks have increased further. 
Overall, the Commission does not consider it necessary at this stage to carry out further in-depth analysis 
in the context of the MIP.  

65 

Graph A16: Credit supply conditions-40-20020406008Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4LuxembourgBanks' risk tolerance (from 2015)Risk perceptionsCompetitionCost of funds and balance sheet constraintsActualTighteningEasingSource: ECB 
 
4.17.  HUNGARY 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for  Hungary.  In  the 
updated  scoreboard  including  figures  until  2020,  the  net  international  investment  position  (NIIP),  unit 
labour cost (ULC) growth, general government debt, financial sector liabilities and youth unemployment 
indicators are above their indicative thresholds. 

After a 4.7% decrease in 2020, real GDP is forecast to increase by 7.4% in 2021 and 5.4% in 2022. The 
nominal GDP level in 2022 is forecast to be 25.1% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  On the external side vulnerabilities remain, although 
the  large  negative  NIIP  consists  mostly  of  foreign 
improved 
direct 
investment 
to  keep 
gradually  until  2020  and 
increasing going  forward. The current  account turned 
to  -1.5%  of  GDP  in  2020  and  is  expected  to  remain 
overall stable in 2021 and 2022. 

stocks.  The  NIIP 
is  expected 

  Marked increases of nominal unit labour costs have 
so  far  been  partly  offset  by  currency  depreciations. 
Wages  are  set  to  accelerate  over  2021  and  2022, 
impacted  also  by  a  minimum  wage  hike  and  public 
sector wage increases, reverting to their pre-pandemic 
trend  of  strong  growth;  despite  a  recovery 
in 
productivity, unit labour costs are forecast to increase 
markedly. Like other countries in the region, Hungary 
continued  to  gain  export  market  shares,  which  benefited  from  recent  inward  FDI  projects.  Official 
reserves recovered somewhat since early 2020. 

  Private sector indebtedness rose in 2020, owing to preferential loan schemes and a debt moratorium 
introduced  during  the  COVID-19  pandemic.  The  household  debt-to-GDP  ratio  remains  among  the 
lowest in the EU. Nearly two fifths of the domestic loans of non-financial corporations are in foreign 
currency.  The  crisis  brought  a  temporary  deterioration  on  the  labour  market.  The  unemployment 
rate stood at 4.3% in 2020, but is forecast to start falling in 2021. 

  The  growth  of  real  house  prices  slowed  to  1.9%  in  2020  (5%  in  nominal  terms),  after  marked 
dynamism in the past half decade. Nominal house price growth accelerated visibly in the first half of 
2021,  to 11.9%  in  the  second  quarter.  House  prices  show  signs  of  potential  overvaluation  in  some 
areas, posing some affordability challenges. Residential construction has been expanding on the back 
of various policy initiatives. 

  The general government debt increased by 15 pps in 2020, to 80.1% of GDP, mainly because of 
additional  borrowing  due  to  the  COVID-19  crisis  and  the  revaluation  of  the  foreign  currency 
denominated  debt.  It  is  forecast  to  decrease  to  slightly  above  77%  of  GDP  by  2022  even  though 
discretionary  spending remains  strong on  the  back of  windfall revenues. Gross  financing needs  are 
high,  but  are  projected  to  decrease  due  to  the  increasing  average  maturity.  The  Central  Bank 
maintains a generous asset purchase programme absorbing some two-thirds of the government issued 
bonds. The banking sector remains overall sound but public sector feedback loops are of relevance 
with holdings of government debt accounting for almost one fifth of bank assets. Rising liabilities of 
the  financial  sector  are  partly  explained  by  liquidity-boosting  monetary  policy  measures  to  support 
the economy in 2020. The withdrawal of debt moratorium schemes may pose challenges for banking 
sector, whose tier 1 capital ratio is lower than the EU average. 

Hungary entered the COVID-19 crisis with no identified macroeconomic imbalances, although with risks 
related to cost pressures, government debt structure, and the housing market. With the COVID-19 crisis, 
risks  have  remained.  Overall,  the  Commission  does  not  consider  it  necessary  at  this  stage  to  carry  out 
further in-depth analysis in the context of the MIP.  

66 

Graph A17: NIIP, private debt and government debtSource: Eurostat,ECB and Commission services050100150200250-150-100-50050101112131415161718192021f% of GDP% of GDPHungaryGeneral government debt (rhs)Private sector debt (rhs)Net international investment positionreserve assets 
4.18.  MALTA 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for  Malta.  In  the 
updated  scoreboard  including  figures  until  2020  two  indicators  are  above  their  indicative  thresholds, 
namely the private debt and unit labour cost (ULC) growth. 

After the decline of 8.3% in 2020, real GDP is forecast to grow by 5% in 2021 and 6.2% in 2022 on the 
back of a strong recovery from the COVID-19 crisis, leaving nominal GDP in 2022 7.3% above its 2019 
level. 

A number of relevant developments can be summarised as follows:  

  The net international investment position (NIIP) is 
strongly positive, reflecting the Malta’s position as an 
international  financial  centre.  After  recording  strong 
positive surpluses for three years until 2019, Malta’s 
current account turned into a deficit of -2.9% in 2020, 
mainly  due  to  a  decline  in  tourism.  It  is  expected  to 
remain  in  moderate  deficit  over  the  forecasting 
horizon.  Unit  labour  costs  grew  markedly  in  2020 
amid  a  sharp  fall  in  productivity  as  policy  measures 
supported employment, but are set to remain broadly 
unchanged in 2021 and slightly decline in 2022. 

  The private debt-to-GDP ratio increased in 2020, to 
the 

thereby  mildly  exceeded 

about  139%  and 
scoreboard threshold. The ratio is expected to remain around the same level in 2021. Corporate debt 
increased in 2020 from an already high level but is forecast to start declining slightly in 2021. While 
steps had been taken to address some anti-money laundering framework issues, Malta has been added 
to the list of jurisdictions under increased monitoring by the Financial Action Task Force (an inter-
governmental body against money laundering). Still, the consequences of this decision are expected 
to  remain limited if the identified shortcomings are  swiftly addressed as Malta is committed to do. 
Household debt increased strongly in 2020 and is expected to remain broadly unchanged in 2021, at 
just over 100% of household gross disposable income. Household debt mainly consists of mortgages. 
House  prices  have  grown  in  a  sustained  way  in  recent  years,  with  some  indications  of  potential 
overvaluation  although  their  growth  was  lower  in  2020.  Data  for  the  first  half  of  2021 suggest  the 
growth is picking up again. 

  Government debt has increased by 13 pps in 2020, to 53.4% of GDP due to the COVID-19 crisis, 
reflecting the depth of the recession and in particular the government support measures. It is expected 
to continue increasing in 2021 and 2022 and to fall back to just above 60% by 2031. 

  The  banking  sector  is  well  capitalised  with  a  strong  liquidity  position.  The  provisioning  levels 
increased  and  the  coverage  ratio  improved  but  profitability  plummeted  in  2020.  At  3.6%,  the  non-
performing  loans  ratio  remained  moderate  in  2020.It  will  be  important  going  forward  to  monitor 
closely the effect of the phasing out of public support measures, such as the loan moratoria and the 
guarantee schemes. There is an ongoing review of the insolvency framework. Exposure of banks to 
the real estate sector is substantial. 

  The unemployment rate remains low. It slightly increased to 4.4% in 2020, reflecting the effects of 
the COVID-19 crisis. However, as recovery takes hold, it is expected to start declining in 2021 and 
decrease to almost pre-crisis level in 2022.  

Malta  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances  although  relatively 
dynamic house price growth involved limited risks, also in relation to banks’ exposure to real estate. With 
the  COVID-19  crisis,  house  price  pressures  moderated  somewhat,  but  still  require  monitoring.  Private 
and government debt increased. Overall, the Commission does not consider it necessary at this stage to 
carry out further in-depth analysis in the context of the MIP.  

67 

Graph A18: Debt decompositionSource: Eurostatand Commissionservices050100150200250300070809101112131415161718192021f% of GDPMaltaNon financial corporationsHouseholdGeneral government 
4.19.  THE NETHERLANDS 

In  June  2021,  the  Commission  concluded  that  the  Netherlands  was  experiencing  macroeconomic 
imbalances, in particular involving the  high stock of private  debt and the large current account surplus, 
which have cross-border relevance. In the updated scoreboard including figures until 2020, a number of 
indicators  are  above  their  indicative  thresholds,  namely  the  three-year  average  of  the  current  account 
balance, nominal unit labour costs, private sector debt and house price growth.  

After a  3.8% decrease in 2020, real GDP is forecast to increase  by 4% in 2021 and 3.3% in 2022. The 
nominal GDP level in 2022 is forecast to be 10.2% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  The  current  account  surplus  decreased  to  7%  of 
GDP  in  2020  but  the  three-year  average  of  9.1% 
remains  well  above  the  scoreboard  threshold.  The 
decline  in  2020  was  a  result  of  a  decrease  in  income 
account  balances,  mainly  in  investment  income.  The 
trade  balance  remained  stable  in  2020  though  with 
lower  underlying  trade  volumes.  From  a  savings 
perspective, 
the  household  and 
corporate  sectors  widened  but  this  was  more  than 
offset by the government sector, which moved sharply 
into net borrowing territory due to the implementation 
of  crisis-related  fiscal  support  measures.  The  overall 
savings 
remains  high 
compared  to  fundamentals  and  other  EU  countries.  For  2021  and  2022,  the  savings  surplus  is 
expected to increase moderately, with the government deficit forecast to narrow.  

the  Netherlands 

the  surplus 

rate 

in 

in 

  Private  indebtedness  continued  to  increase  in  2020  to  almost  234%  of  GDP  and  remains 
significantly  above  the  scoreboard  threshold.  The  high  level  of  corporate  debt,  which  is  mainly 
driven  by  the  intra-group  debt  of  multinationals,  remained  roughly  stable  in  2020.  The  household 
debt ratio rose to over 100% of GDP, mostly due to the drop in GDP, but is expected to decrease in 
2021 as economic activity recovers from the COVID-19 crisis.  

  Real house prices increased by 6% in 2020, with some indications of potential overvaluation. High 
house prices are driven by a number of long-term factors on both the demand (low interest rates in 
combination  with  mortgage  interest  deductibility,  underdeveloped  private  rental  market)  and  the 
supply side (housing construction falling short of demographic requirements). House price growth is 
expected to continue and stay above the threshold in 2021. 

The  Netherlands  entered  the  COVID-19  crisis  with  a  long-standing  large  domestic  savings  surplus 
accompanied by high private debt levels. Having somewhat decreased during the COVID-19 crisis, the 
savings  surplus  is  expected  to  increase  again  going  forward.  Private  sector  debt  has  remained  high. 
Overall, the Commission finds it opportune, also taking into account the identification of imbalances in 
June, to examine further the persistence of imbalances or their unwinding. 

68 

Graph A19: Net lending/borrowing by sector Source: Eurostat-10-5051015101112131415161718192021f22f% of GDPThe NetherlandsCorporationsHouseholds and NPISHGeneral governmentTotal economy 
 
 
4.20.  AUSTRIA 

No  macroeconomic  imbalances  were  identified  in  Austria  in  the  previous  round  of  the  MIP.  In  the 
updated  scoreboard,  which  includes  figures  until  2020,  government  debt,  house  price  growth  and  unit 
labour cost (ULC) growth indicators are above their indicative thresholds.  

After  a  sharp  contraction  of  economic  activity  in  2020  -6.7%,  real  GDP  is  forecast  to  bounce  back  by 
4.4% in 2021. With the economic recovery under way, real GDP is expected to grow by 4.9% in 2022, 
with nominal GDP 8.8% above its 2019 level.  

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  and  competitiveness 
concerns  remain  limited.  The  current  account 
surplus  declined  to  1.9%  of  GDP  in  2020  and  the 
current account is expected to be broadly balanced 
going  forward.  The  net  international  investment 
position  remains  positive  at  a  moderate  level.  The 
temporary  increase  in  unit  labour  cost  growth  in 
2020  reflects  temporarily  lower  productivity  amid 
labour  hoarding  in  the  context  of  the  COVID-19 
crisis. 

  Private indebtedness rose to approximately 131% 
of  GDP  in  2020,  mainly  due  to  both  the  COVID-
19-induced  decline  in  GDP  and  some  net  credit 
flows, especially to corporates. This is projected to 
be partly reversed in 2021, reflecting the economic recovery.  

  Government debt departed from its downward trajectory and increased by 13 pps. in 2020, to 83.2% 
of  GDP,  as  a  direct  result  of  automatic  stabilisers  and  the  significant  fiscal  response  taken.  The 
government debt-to-GDP ratio is forecast to start declining in 2021. 

  Risks  associated  with  the  banking  sector  seem  to  be  limited.  Banks  have  little  net  exposure  to 
neighbouring  countries,  improved  capitalization  and  lowered  leverage.  The  non-performing  loans 
ratio dropped continuously since 2014, to 2.0% in 2020.  

  Real  house  prices  accelerated  in  2020,  to  6.2%,  with  indications  of  potential  overvaluation.  The 
growth in  house prices  increased further in the  first two quarters of 2021. At the  same  time, credit 
growth  accelerated  in  2021  and  household  debt  levels  are  broadly  in  line  with  their  long-standing 
level.  

 

In  the  labour  market,  short-time  work  schemes  helped  to  mitigate  the  effect  of  the  economic 
downturn on unemployment,  leading  instead to a  strong drop in hours  worked. The unemployment 
rate increased moderately, to 5.4% in 2020, but is forecast to decline from 2021 onwards.  

Austria weathered the COVID-19 crisis with no identified macroeconomic imbalances. With the COVID-
19 crisis, government and private debt have increased and house prices are on the rise, although part of 
these developments are expected to be partly reversed going forward. Overall, the Commission does not 
consider it necessary at this stage to carry out further in-depth analysis in the context of the MIP.  

69 

Graph A20: Real house price index-10-50510152040608010012014016003Q404Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q4Rate of change y-o-y (%)2015 = 100AustriaIndex 2015 = 100y-o-y % change (rhs)Source: Eurostat, ECB,Commission services 
 
 
4.21.  POLAND 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in  Poland.  In  the 
updated  scoreboard  including  figures  until  2020,  the  net  international  investment  position  (NIIP),  unit 
labour cost (ULC) growth and house price growth indicators are above their indicative thresholds. 

After a 2.5% decrease in 2020, real GDP is forecast to increase by 4.9% in 2021 and 5.2% in 2022. The 
nominal GDP level in 2022 is forecast to be 23.6% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  remain  contained,  as  the 
NIIP,  while  negative,  improved  gradually  until  2020. 
In addition, it consists mainly of the accumulated stock 
of foreign direct investment and a  sizeable part of the 
FDI inflows comes from reinvested earnings. The NIIP 
is forecast to continue improving throughout 2021 and 
2022.  The  current  account  turned  more  positive  in 
2020 and is expected to slightly decrease in 2021. 

  Private 

sector 

remains 

indebtedness 

low,  as 
households and non-financial companies in Poland are 
still  among  the  least  indebted  in  the  EU.  The  private 
sector  debt-to-GDP  ratio  increased  in  2020,  but  is 
projected to decrease in 2021.  

  House  price  growth  reached  7.1%  in  2020,  as  low 

interest  rates  and  increased  savings  from  the  pandemic  led  to  a  spike  in  demand  for  houses. 
Nevertheless, mortgage growth remains contained so far. As the recovery in the construction sector 
gathers pace, increasing the supply of houses, house price growth is expected to ease in 2021.  

  The banking sector remained overall well capitalised and in good condition, despite the pandemic. 
The non-performing loans ratio dropped in 2020 but is comparatively high and may increase going 
forward as a result of the COVID-19 crisis. Government debt increased to 57.4% of GDP in 2020, 
compared to 45.6% in 2019, mainly due to additional borrowing in light of the COVID-19 crisis. It is 
forecast to start falling in 2021. 

  Despite the COVID-19 crisis, labour market conditions continued to improve. The unemployment 
rate dropped slightly in 2020, but it is expected to marginally increase to 3.3% in 2021 driven by the 
phase-out  of  government  support  measures.  Emerging  labour  shortages  have  been  putting  upward 
pressure  on  unit  labour  costs,  which  increased  by  6.3%  in  2020.  These  shortages  are  expected  to 
ease  as  migration  inflows  return  and  pent-up  demand  gradually  fades.  Compensation  growth  is 
forecast  to  be  strong  though,  with  a  marked  productivity  upswing  expected  to  mitigate  unit  labour 
cost growth. 

Poland  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with  a 
negative  net  international  investment  position  involving  limited  risks.  With  the  COVID-19  crisis, 
government debt has increased and house price growth has accelerated, but the associated risks appear 
contained. Overall, the Commission does not consider it necessary at this stage to carry out further in-
depth analysis in the context of the MIP.  

70 

Graph A21: Real house price index-8-6-4-202468102040608010012014010Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q4Rate of change y-o-y (%)2015 = 100PolandIndex 2015 = 100y-o-y % change (rhs)Source: Eurostat, ECB,Commission services 
 
 
 
4.22.  PORTUGAL 

In  June  2021,  the  Commission  concluded  that  Portugal  was  experiencing  macroeconomic  imbalances, 
relating  to  large  stocks  of  net  external  liabilities,  private  and  government  debt,  while  non-performing 
loans remained high, against a backdrop of low productivity growth. In the updated scoreboard including 
figures  until  2020,  a  number  of  indicators  are  above  their  indicative  thresholds,  namely  the  net 
international  investment  position  (NIIP),  private  and  government  debt,  house  price  growth,  unit  labour 
cost (ULC) growth and the activity rate. (44) 

After  contracting  by  8.4%  in  2020  as  a  result  of  the  COVID-19  pandemic,  real  GDP  is  forecast  to 
increase by 4.5% in 2021 and 5.3% in 2022. Nominal GDP in 2022 is forecast to be around 5.7% above 
its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  sustainability  remains  an  issue  due  to  a 
large  stock  of  net  external  liabilities,  amid  some 
deterioration in the current account balance during the 
COVID-19  crisis.  Nevertheless,  despite  the  country’s 
large  exposure  to  cross-border  tourism,  the  NIIP-to-
GDP ratio has recovered to pre-pandemic levels as of 
mid-2021.  It  is  set  to  gradually  improve  further  over 
the  forecast  period.  After  years  of  moderate  growth, 
nominal unit labour costs have increased strongly in 
2020  and  moved  above  the  indicative  threshold  but 
are expected to recede somewhat going forward. 

  Private  sector 

interrupted 

its 
indebtedness  has 
downward path during the COVID-19 shock in 2020, 
mainly  due  to  the  economic  contraction,  which 
pushed  the  ratio  of  private  debt  up  by  14  pps.  close  to  164%  of  GDP.  Going  forward,  private 
indebtedness is set to return to a downward path. Helped by debt moratoria, the non-performing loans 
(NPLs) ratio continued to decrease during the pandemic, to 4.9% in 2020. It will be important going 
forward to monitor closely the effect of the phasing out of public support measures, such as the loan 
moratoria  and  the  guarantee  schemes.  Moreover,  the  capital  ratio  of  the  banking  sector  and  its 
profitability are low. 

  Government  debt  increased  by  19  pps.  in  2020,  to  an  all-time  high  of  135.2%  of  GDP,  due  to  a 
sudden primary deficit and an unfavourable snowball effect in the context of the COVID-19 crisis. 
The  government  debt-to-GDP  ratio  is  set  to  resume  its  downward  path  in  2021.  While  mitigating 
factors  are  at  play  linked  to  its  profile  and  composition,  as  well  as  the  substantial  cash  buffer,  the 
government  debt-to-GDP  ratio  is  expected  to  remain  above  its  pre-pandemic  level  for  some  years. 
Risks  associated  to  financial  and  public  sector  feedback  loops  remain  and  may  be  amplified  by 
increasing vulnerabilities in the corporate sector related to the pandemic. 

  Real growth in house prices exceeded the  indicative  threshold for  five  years in a row  until 2020.   

House prices show signs of potential overvaluation. However, the house price growth slowed down 
in  2021,  helped  by  increased  construction  volumes  and  moderation  in  demand  in  some  market 
segments. 

  The activity rate declined in 2020. This coincides with a slight increase in the unemployment rate. 

Both the activity rate and unemployment rate are expected to start improving again this year.  

Portugal entered the COVID-19 crisis with vulnerabilities linked to large stocks of external, private and 
government  debt  in  a  context  of  low  productivity  growth.  With  the  COVID-19  crisis,  debt  ratios  have 
increased further. Overall, the Commission finds it opportune, also taking into account the identification 
of imbalances in June, to examine further the persistence of imbalances or their unwinding. 

(44)  The  Post-Programme  Surveillance  (PPS)  report  from  autumn  2021  for  Portugal  also  discusses  some  of  the  vulnerabilities 

highlighted in the AMR.   

71 

Graph A22: NIIP, private debt and government debtSource: Eurostat and Commissionservices050100150200250300350-140-120-100-80-60-40-200101112131415161718192021f% of GDP% of GDPPortugalGeneral government debtPrivate sector debtNet international investment position 
                                                           
4.23.  ROMANIA 

In June 2021, the Commission concluded that Romania was experiencing macroeconomic imbalances, in 
particular  a  persistent  sizeable  current  account  deficit  in  a  context  of  large  government  deficits,  while 
previous overheating pressures were receding. In the updated scoreboard including figures until 2020, a 
number  of  indicators  are  above  their  indicative  thresholds,  namely  the  current  account  balance,  the  net 
international investment position (NIIP) and unit labour cost (ULC) growth.  

After a decrease of 3.9% in 2020, due to the COVID-19 crisis, real GDP is forecast to pick up in 2021, 
increasing by 7% in 2021 and 5.1% in 2022. Nominal GDP in 2022 is forecast to exceed its 2019 level by 
21.4%. 

A number of relevant developments can be summarised as follows.  

  As  to  external  sustainability,  the  current  account 
deficit at 5% of GDP in 2020 is forecast to widen in 
2021 to around 6% of GDP, largely due to a strongly 
negative  trade  balance  The  NIIP  is  set  to  remain 
stable at around -48% of GDP in 2021 and 2022. The 
NIIP excluding non-defaultable instruments (NENDI) 
is slightly negative.  

  Competitiveness was further negatively affected by a 
marked increase in nominal unit labour costs in 2020, 
partially  due  to  the  sharp  fall  in  output  and  the 
subsequent  fall  in  productivity  amid  labour  hoarding 
during  the  COVID-19  crisis.  For  2021  and  2022, 
however,  marked  recuperations  in  productivity  are 
expected  to  limit  unit  labour  cost  growth  despite 
comparatively strong growth of compensation per employee.  

  House prices increased slightly in 2020 but house price growth is forecast to accelerate in 2021.  

  General government debt, while still clearly below the 60% of GDP threshold, has increased by 12 
pps in 2020, due to COVID-19 crisis measures and continued fiscal deficits. The government debt-to-
GDP ratio is estimated to increase to 49.3% of GDP for 2021 and expected to continue growing in 
2022. 

  The non-performing loans ratio of the banking sector was broadly stable over 2020 and early 2021 

at around 4% of total loans. Private sector debt is very low.  

  The unemployment rate increased to 5% in 2020. It is forecast to remain at the same level in 2021, 
but start declining afterwards. Also the youth unemployment rate increased in 2020 and is forecast to 
increase further in 2021. 

Romania entered the COVID-19 crisis with vulnerabilities linked to a widening current account deficit, a 
deteriorating  external  position  and  significant  cost  competitiveness  losses.  With  the  COVID-19  crisis, 
government debt has increased, albeit from low levels. Overall, the Commission finds it opportune, also 
taking  into  account  the  identification  of  imbalances  in  June,  to  examine  further  the  persistence  of 
imbalances or their unwinding. 

72 

Graph A23: Debt decompositionSource: Eurostat-20-15-10-505101506070809101112131415161718192021f22f% of GDPRomaniaHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
 
 
 
4.24.  SLOVENIA 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for  Slovenia.  In  the 
updated scoreboard including figures until 2020, the current account surplus, unit labour cost growth, the 
general government gross debt and the youth unemployment growth indicators are above their indicative 
thresholds. 

After a 4.2% decrease in 2020, real GDP is forecast to increase by 6.4% in 2021 and 4.2% in 2022. The 
nominal GDP level in 2022 is forecast to be 11.1% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  The 

large  current  account  surplus  widened 
further  from  6%  to  7.4%  of  GDP  in  2020,  pushing 
the  3-years  average  above  the  upper  indicative 
threshold.  The  current  account  surplus  is  forecast  to 
narrow  somewhat  in  2021  and  2022.  The  negative 
NIIP has been gradually but steadily improving since 
2012,  reaching  -15.2%  of  GDP  in  2020  and  is 
to  balance  by  2022. 
expected 
Slovenia’s  export  market  share  has  grown  visibly 
over the latest number of years. 

to  move  close 

  Private  sector  indebtedness  increased  only  slightly 
in  2020  to  69.7%  of  GDP  and  remains  below  the 
prudential  and 
fundamental  benchmarks.  This 
increase mainly reflects the drop in GDP as the credit 
flow was negative in 2020. House prices grew at 5.2%, in line with recent trends.  

  The  banking  sector  remains  well  capitalised,  its  profitability  declined  only  slightly,  and  the  non-

performing loans ratio continued to ease in 2020. 

  Government  debt  increased  to  79.8%  of  GDP  in  2020,  compared  to  65.6%  in  2019,  due  to  the 
additional  borrowing  in  light  of  the  COVID-19  crisis  the  sharp  drop  in  GDP  in  2020  to  a  lesser 
extent. General government debt is forecast to decline in 2021 and 2022. 

  Labour  market  conditions  deteriorated  somewhat  in  context  of  the  COVID-19  pandemic.  The 
unemployment  rate  increased  slightly  to  5%  in  2020,  compared  to  4.5%  in  2019.  The  youth 
unemployment  rate,  which  had  declined  strongly  in  previous  years,  increased  particularly  sharply, 
from 8.1% in 2019 to 14.2% in 2020. However, 2021 data point towards an improvement in labour 
market conditions and fall in unemployment rates.  Unit labour cost grew by 7.4% in 2020, on the 
back  of  labour  hoarding  associated  with  the  COVID-19  crisis.  Improved  productivity  over  the 
recovery is forecast to lead to a decline in unit labour costs in 2021 and 2022. 

Slovenia  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with  a 
high government debt, involving limited risks. With the COVID-19 crisis, government debt has increased 
and  the  large  current  account  surplus  widened  further.  Overall,  the  Commission  does  not  consider  it 
necessary at this stage to carry out further in-depth analysis in the context of the MIP.  

73 

Graph A24: Net lending/ borrowing by sector-20-15-10-50510152006070809101112131415161718192021f22f% of GDPSloveniaHouseholds and NPISHGeneral governmentCorporationsTotal economySource: Ameco 
 
 
4.25.  SLOVAKIA 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in  Slovakia.  In  the 
updated scoreboard including figures until 2020, the net international investment position (NIIP), the real 
effective  exchange  rate  (REER),  unit  labour  cost  (ULC)  growth  and  house  price  growth  indicators  are 
above their indicative thresholds. 

After  a  4.4%  decrease  in  2020,  real  GDP  is  forecast  to  increase  by  3.8%  in  2021  and  5.3%  in  2022, 
bringing nominal GDP in 2022 13.6% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  remain.  At  around  -66%  of 
GDP,  the  NIIP  was  still  significantly  above  the 
threshold in 2020. Most of it is due  to non-defaultable 
liabilities  related  to  past  investment  flows,  which  may 
be  more  stable  and  thereby  less  of  a  risk.  The  NIIP  is 
forecast to gradually improve in 2021 and 2022 on the 
back of positive net lending flows.  

  Unit labour cost growth was high before the pandemic 
and  accelerated  further  in  2020.  However,  recent 
developments  mostly  reflect  labour  hoarding  in  the 
context  of  the  COVID-19  crisis.  Going  forward,  ULC 
growth  is  expected  to  markedly  slow  down  due  to  a 
reversal  of  the  labour  hoarding  effect  on  productivity, 
while the high growth of compensation per employee is 
set to continue weighing on it. The HICP-based REER was slightly above the threshold in 2020, but 
export  market  shares  have  not  been  adversely  affected.  High  export  concentration  in  a  few  sectors 
and integration in global value chains remain risk factors though. 

  Private  sector  indebtedness,  and  in  particular  household  mortgage  debt,  has  been  increasing  for 
several years, but its growth rate had decreased. Household debt increased to around 47% of GDP in 
2020. It remains slightly below prudential levels but in excess of the level implied by fundamentals.  

  Real  house  prices  accelerated  to  7.2%  in  2020,  thereby  possibly  contributing  to  household 
indebtedness. House prices show signs of potential overvaluation. House price growth is expected to 
decrease in 2021. 

  Due to supportive fiscal policy, government debt increased by 12 pps, to 59.7% of GDP in 2020. It 
is expected to marginally increase in 2021 but to revert to around 60% of GDP afterwards, supported 
by robust growth, low interest rates and declining primary budget deficits. 

  The banking sector is sound with robust capital buffers. The non-performing loans ratio continued 
to  decrease  in  2020  and  is  below  the  EU  average,  but  it  could  increase  as  crisis  measures  are 
withdrawn. Housing market exposure of bank balance sheets has increased. 

Slovakia entered the COVID-19 crisis with no identified macroeconomic  imbalances, although external 
sustainability, domestic price pressures and dependence on the automotive industry involved some risks. 
With  the  COVID-19  crisis,  some  risks  have  increased.  Overall,  the  Commission  does  not  consider  it 
necessary at this stage to carry out further in-depth analysis in the context of the MIP.  

74 

Graph A25: House price and mortgage growth0204060801001201401600510152025303506Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q42015=100Rate of change y-o-y (%)SlovakiaMFI loans for house purchase (y-o-y growth rate)Real house price index (2015=100), right axisNominal house price index (2015=100), right axisSource: Eurostat, ECB,Commission services 
 
 
4.26.  FINLAND 

In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in  Finland.  In  the 
updated  scoreboard  including  figures  until  2020  two  indicators,  private  sector  debt  and  general 
government gross debt, are above their indicative thresholds. 

After a 2.9% decrease in 2020, real GDP is forecast to increase by 3.4% in 2021 and 2.8% in 2022. The 
nominal GDP level in 2022 is forecast to be 8.7% above its 2019 level. 

A number of relevant developments can be summarised as follows:  

  On  the  external  side,  the  current  account  balance 
turned  positive  and 
trade  surplus  widened 
the 
marginally  in  2020  as  export  market  share  increased. 
Going  forward,  the  current  account  is  expected  to 
international 
record  a  small  surplus.  The  net 
investment  position  decreased  to  -5.3%  of  GDP  in 
2020.  Unit  labour  costs  rose  marginally,  due  to  the 
drop in productivity induced by the crisis.  

  Private  sector  indebtedness  continued  to  increase, 
with  the  private  debt-to-GDP  ratio  increasing  in  part 
due  to  a  drop  in  GDP.  This  is  projected  to  be  partly 
reversed in 2021 with the firming  up of the economic 
favourable  credit  conditions 
recovery.  However, 
including  low  interest  rates  and  rapid  growth  in  residential  building  construction  are  expected  to 
sustain  the  increase  in  the  private  debt-to-GDP  ratio  even  if  the  effect  of  the  COVID-19  recession 
fades.  

  Government  debt  increased  to  69.5%  of  GDP  in  2020,  compared  to  59.5%  in  2019,  due  to  the 
government’s  fiscal  response  to  the  crisis  and,  to  a  lesser  extent,  the  drop  in  GDP  in  2020.  It  is 
forecast to stabilise at 71% from 2021 onwards. 

  The  banking  sector  remains  well  capitalised  and  the  non-performing  loans  ratio  is  low  and  has 
remained broadly unchanged and is not expected to rise significantly. There was no visible impact of 
COVID-19  crisis  on  debt  servicing  nor  on  number  of  company  bankruptcies.  Risks  to  financial 
stability  remain  limited,  despite  significant  cross-border  exposures,  especially  with  other  Nordic 
countries.  

  Labour  market  conditions  deteriorated  marginally  during  the  crisis  aided  by  government  support 
measures that limited the increase in the unemployment rate to 1.1 percentage points, bringing it to 
7.8% in 2020. The unemployment rate is forecast to start gradually declining from 2021 onwards, as 
the economy recovers, but it is not expected to drop to its pre-pandemic level before 2023.  

Finland  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with 
vulnerabilities  linked  to  the  private  sector  debt.  With  the  COVID-19  crisis,  the  private  debt  ratio  has 
increased, but risks remain limited. Overall, the Commission does not consider it necessary at this stage 
to carry out further in-depth analysis in the context of the MIP. 

75 

Graph A26: Debt decomposition by sectorSource: Eurostatand Commission services050100150200250070809101112131415161718192021f% of GDPFinlandNon financial corporationsHouseholdGeneral government 
 
 
 
 
 
 
 
 
 
4.27.  SWEDEN 

In  June  2021,  the  Commission  concluded  that  Sweden  was  experiencing  macroeconomic  imbalances, 
relating to risks of overvalued house prices coupled with a high and rising household debt. In the updated 
scoreboard  including  figures  until  2020,  two  indicators  are  above  their  indicative  thresholds,  namely 
private debt and youth unemployment.  

After declining by 2.8% in 2020, real GDP is forecast to increase by 3.9% in 2021 and by 3.5% in 2022. 
The nominal GDP level in 2022 is forecast to be 9.9% above the 2019 one. 

A number of relevant developments can be summarised as follows:  

  The  current  account  surplus  increased  to  5.7%  of 
GDP in 2020 while the NIIP decreased slightly, close 
to  16%  of  GDP.  In  2021  and  2022,  the  current 
account surplus is expected to remain at around 5% of 
GDP.  Export  market  shares  continued  increasing  in 
2020. The real effective exchange rate appreciated by 
3% in 2020 after three years of depreciation. 

  Private  sector  debt  reached  a  new  high  in  2020  at 
around  216%  of  GDP,  continuing  its  upward  trend. 
Both  household  and  corporate  debt  are  above 
prudential  and  fundamental  benchmarks.  For  2021,  a 
levelling off at high levels is expected for private debt 
while  net  financial  assets  are  set  to  become  more 
negative. Household debt grew to about 95% of GDP 
in  2020.  Mortgage  loans  to  households  continued  to 
grow  in the first  half of 2021.  House prices  accelerated over 2020 and particularly  strongly  in  the 
second  quarter  of  2021.  House  prices  remain  overall  very  high  with  indications  of  potential 
overvaluation.  

  The government debt level remains low despite significant support measures during the pandemic. 
In 2020, government debt increased to 39.7% of GDP. In 2021, it is expected to start declining. 

  The  banking  sector  remains  healthy.  During  the  pandemic,  the  tier-1  capital  ratio  and  the  non-
performing  loans  incidence  improved  from  already  sound  scores.  The  FSA  partly  reversed  the 
loosening of macro-prudential measures during 2021 and reinstated the amortization requirement as 
of  1  September  2021.  Regardless  of  the  overall  healthy  financial  position,  the  leverage  ratio  of 
Swedish banks is among the highest in the EU. 

  Notwithstanding  policy  support  measures,  unemployment  increased  to  8.3%  in  2020.  Youth 
unemployment  jumped  to  approximately  24%  in  2020.  The  unemployment  rate  is  forecast  to  start 
falling from 2021 onwards. 

Sweden entered the COVID-19 crisis with vulnerabilities linked to risks of overvalued house price levels 
coupled with high and continuously rising household debt. With the COVID-19 crisis, private debt ratios, 
house  prices and the unemployment rate have increased. Overall, the Commission finds it appropriate, 
also  considering  the  identification  of  imbalances  last  June,  to  examine  further  the  persistence  of 
imbalances or their unwinding. 

76 

Graph A27: House price and mortgage growth020406080100120140160-10-505101520253006Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q42015=100Rate of change y-o-y (%)SwedenMFI loans for house purchase (y-o-y growth rate)Real house price index (2015=100), right axisNominal house price index (2015=100), right axisSource: Eurostat, ECB,Commission services 
 
 
 
 
 
ANNEX 1: FORECASTS AND NOWCASTS OF THE HEADLINE 
SCOREBOARD INDICATORS 

To  enhance  the  forward-looking  elements  in  the  scoreboard  reading,  the  AMR  analysis  builds  also, 
whenever possible, on forecasts and projections for 2021 and beyond and on ‘nowcasts’ for the current 
year. Whenever available, such figures are  based on the Commission autumn 2021 forecast.  Otherwise, 
figures  mostly  display  nowcasts  based  on  proxy  indicators,  prepared  by  Commission  services  for  this 
AMR.  

The  table  below  summarises  the  assumptions  used  for  the  forecasts  and  nowcasts  figures  of  headline 
scoreboard indicators. The GDP figures used as denominators in some ratios stem from the Commission 
autumn 2021 forecast.  

In case of multi-annual rates of change (e.g., the five-year change of export market shares), only the 2021 
and 2022 component is based on forecasts, whereas components related to 2020 or earlier years use the 
Eurostat data underlying the MIP scoreboard.  

Table 1: Approaches to forecasts and nowcasts for MIP scoreboard headline indicators 

Indicator 

Approach 

Data sources 

Current  account  balance,  % 
of GDP (3 year average) 

Values from Commission autumn 2021 forecast of the current account 
balance (Balance of Payments concept) 

AMECO 

international 
Net 
investment  position  (%  of 
GDP) 

The Commission autumn 2021 forecasts for total economy net 
lending/borrowing provides the NIIP change that reflects transactions 
for 2021-2023, for 2024 and 2025, the current account forecast from 
the IMF's World Economic Outlook is used assuming the capital 
account to stay constant. Other effects (e.g. valuation changes) are 
taken into account until 2021Q2, and assumed to remain nil thereafter. 

Real effective exchange rate 
– 42 trading partners, HICP 
deflator (3 year % change) 

Export market share – % of 
world  exports  (5  year  % 
change) 

Values from the Commission autumn 2021 forecast 

Figures are based on the Commission autumn 2021 forecast of: i) 
nominal goods and services (G&S) exports for EU Member States 
(national accounts concept), and ii) Commission forecast of G&S 
exports in volumes for the rest of the world, translated to nominal 
levels by the Commission US import deflator and EUR/USD exchange 
rate forecasts. 

Nominal  unit  labour  cost 
index,  2010=100  (3  year  % 
change) 

Values from the Commission autumn 2021 forecast 

AMECO, 
Eurostat 

AMECO 

AMECO 

AMECO 

price 

House 
(2015=100),  deflated 
year % change) 

index 
(1 

The forecast for 2021 includes 2021Q1-Q2 data where available. It 
assumes 2021Q3-Q4 house price growth to follow the predicted 
growth rate from the short-term relationship given by a housing 
valuation model shared with Member States in the context of the EPC 
LIME working group.  

Eurostat, 
Commission 
services 

77 

 
 
 
Private  sector  credit  flow, 
consolidated (% of GDP) 

The figure for 2021 represents a proxy of credit flows 2020Q4-
2021Q3, using consolidated data from ECB quarterly sectoral accounts 
for 2020Q4-Q2, plus proxies for some credit flow components from 
2021Q3. The latter uses ECB BSI MFI loan flows to the private sector 
to project 2021Q3 bank loan components, and ECB SEC nominal debt 
security issuance to project 2021Q3 bond issuance. 

ECB (QSA, BSI, 
SEC) 

Private 
consolidated (% of GDP) 

sector 

debt, 

General  government  gross 
debt (% of GDP) 

Unemployment  rate  (3  year 
average) 

Total 
sector 
financial 
liabilities,  non-consolidated 
(1 year % change) 

The figure for 2021 proxies private sector debt for end-2021Q4. It uses 
consolidated data from ECB quarterly sectoral accounts for 2021Q2. 
This figure is projected forward to 2021Q3 using bank loan figures 
(based on ECB BSI) and bond liability data (based on ECB SEC), and 
assumes 2021Q4 credit to be the same as in 2020Q4 (see above). 

ECB (QSA, BSI, 
SEC) 

Values from the Commission autumn 2021 forecast 

Values from the Commission autumn 2021 forecast 

AMECO 

AMECO 

2021 figure represent 12-month ECB MFI liabilities growth until 
September 2021. 

ECB (BSI) 

Activity  rate  -  %  of  total 
population  aged  15-64  (3 
year change in pp) 

The 2021 and 2022 rate of changes are based on the Commission 
autumn 2021 forecast for the change in the entire labour force (all 
ages) minus the Commission autumn forecast for the population 
change (15-64 age group). 

AMECO 

-  % 

Long-term  unemployment 
active 
rate 
population  aged  15-74  (3 
year change in pp) 

of 

The nowcast for 2021 is based on latest data (2021Q1-Q2, assuming a 
constant rate for rest of the year) 

Eurostat (LFS) 

Youth unemployment  rate  - 
% of active population aged 
15-24 (3 year change in pp) 

The nowcast for 2021 is based on latest data (2021 Jan-Sep, assuming 
a constant rate for rest of the year) 

Eurostat (LFS) 

78 

 
ANNEX 2: MIP SCOREBOARD 

Table 1. MIP scoreboard 2020 

Figures highlighted are the ones at or beyond the threshold. Flags: b: Break in series. p: Provisional. e: Estimated.  
1) For the employment indicators, see page 2 of the AMR 2016. 2) House price index e = estimate by NCB for EL. 3) Labour Force Survey indicators, b = due to technical issues with the introduction of 
the new German system of integrated household surveys, including the LFS, the figures for Germany in 2020 are not direct estimates from LFS micro-data, but based on a larger sample including 
additional data from other integrated household surveys. 
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, WEO (for world volume 
exports of goods and services) 

79 

Current account balance - % of GDP (3 year average)Net international investment position (% of GDP)Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)Export market share - % of world exports(5 year % change)Nominal unit labour cost index (2010=100)(3 year % change)House price index (2015=100), deflated (1 year % change) Private sector credit flow, consolidated (% of GDP)Private sector debt, consolidated (% of GDP)General government gross debt (% of GDP)Unemployment rate (3 year average)Total financial sector liabilities, non-consolidated(1 year % change)Activity rate - % of total population aged 15-64(3 year change in pp)Long-term unemployment rate - % of active population aged 15-74(3 year change in pp)Youth unemployment rate - % of active population aged 15-24(3 year change in pp)Thresholds-4%/+6%-35%±5% (EA)±11% (Non-EA)-6%9% (EA) 12% (Non-EA)6%14%133%60%10%16.5%-0.2 pp0.5 pp2 ppBE0.1 44.4 2.5 10.9 7.5p3.61.1p192.0p112.8 5.7 8.8 0.6b-1.2 -4.0 BG0.8 -26.3 7.1 16.0 20.4 5.2p4.2 94.3 24.7 4.8 11.1 0.9 -1.1 1.3 CZ1.5 -12.5 5.6 10.1 19.2 5.52.4 81.9 37.7 2.3 3.4 0.5 -0.4 0.1 DK8.1 68.8 0.9 11.5 6.2 4.64.8 220.9 42.1 5.2 5.7 1.1b-0.3 -0.8 DE7.4 61.7 2.4 1.3 11.1p7.16.0p120.1p68.7 3.4bp11.3 1.1bp-0.5bp0.6bpEE1.0 -21.5 5.3 17.6 17.1 6.93.6 104.4 19.0 5.5 17.5 0.5 -0.7 5.8 IE-5.8 -174.0 -1.2 50.0 -6.3 -0.2-1.8 188.9 58.4 5.5 7.2 -0.8 -1.7 0.9 EL-3.7 -175.0 0.4 -10.1 6.4p5.5e5.4p125.3p206.3 17.6 27.4 -0.9 -4.7 -8.6 ES1.6 -85.5 1.1 -6.8 11.0p2.24.4p146.4p120.0 15.0 9.5 -1.7 -2.7 -0.3 FR-1.0 -30.2 2.7 -6.9 4.6p4.413.0p173.7p115.0 8.5 11.6p-0.5 -1.3 -1.9 HR1.6 -47.8 0.5 0.1 13.7p7.31.3p98.0p87.3 7.5 7.3 0.7 -2.5 -6.3 IT3.2 2.4 0.6 -2.8 5.5 2.24.1 118.9 155.6 9.9 6.8 -1.3 -1.8 -5.3 CY-6.6 -136.7 0.1 28.5 5.8p0.7p-2.6p260.5p115.3 7.7 -2.5 1.9 -2.4 -6.5 LV0.7 -34.7 5.9 18.2 18.4 2.7-1.8 66.5 43.2 7.3 10.8 1.2 -1.1 -2.1 LT3.7 -15.8 6.9 39.3 18.3 6.40.3 54.7 46.6 7.0 28.5 2.6 -0.2 6.3 LU4.5 39.9 1.5 20.6 11.1 13.844.5 316.8 24.8 6.0 -3.6 2.0 -0.4 7.8 HU-0.7 -48.1 -4.9 8.2 13.2p1.9p7.7p76.4p80.1 3.8 55.3 1.6 -0.6 2.1 MT3.0 60.3 2.1 13.2 19.7 2.2p9.0 139.1 53.4 3.9 1.9 4.9 -0.9 0.3 NL9.1 113.9 3.8 7.4 14.0p6.0p-1.3p233.7p54.3 3.7 3.3p1.2 -1.0 0.2 AT1.6 9.3 3.2 5.2 12.2 6.24.7 131.2 83.2 4.9 10.6 0.2 -0.5 0.7 PL0.7 -44.5 1.1 36.9 12.3p7.1p1.5 75.9 57.4 3.5 11.7 1.4 -0.9 -4.0 PT0.0 -106.4 0.0 -0.9 16.2p7.74.4p163.7p135.2 6.8 7.2 -0.4 -2.2 -1.3 RO-4.9 -48.3 3.4 20.6 26.1p2.31.3p48.5p47.4 4.4 13.4 1.9 -0.5 -1.0 SI6.4 -15.2 1.9 20.2 14.9 5.2-0.9 69.7 79.8 4.9 14.0 0.4 -1.2 3.0 SK-1.8 -65.7 5.3 8.1 16.4 7.23.7 95.3 59.7 6.3 9.9 0.3 -1.9 0.4 FI-0.4 -5.3 2.3 12.3 6.1 1.36.5 155.2 69.5 7.3 7.7 1.6 -0.9 1.3 SE4.6 16.4 -4.8 4.5 9.4 3.011.6 215.7 39.7 7.2b11.2 0.0 -0.1 6.0 Year2020External imbalances and competitivenessInternal imbalancesEmployment indicators¹ 
 
 
 
Table 2. Auxiliary indicators, 2020 

Flags: e: Estimated. p: Provisional. 
1) Official transmission deadline for 2020 data on Gross domestic expenditure on R&D is 31 October 2021 while data were extracted on 22 October 2021. 2) House price index e = estimate by NCB for EL. 
Source: European Commission, Eurostat and Directorate General for Economic and Financial  Affairs  (for  Real Effective  Exchange  Rate), European Central  Bank (for  Consolidated banking leverage and Gross 
non-performing loans, domestic and foreign entities), and International Monetary Fund data, WEO (for world volume exports of goods and services) 

80 

 
 
 
 
Table 2 (continued):  Auxiliary indicators, 2020 

Flags: b: Break in series. p: Provisional. u: Low reliability. 
1) Labour Force Survey indicators, b = due to technical issues with the introduction of the new German system of integrated household surveys, including the LFS, the figures for Germany in 2020 are not 
direct estimates from LFS micro-data, but based on a larger sample including additional data from other integrated household surveys. 2) Official transmission deadline for 2020 data for the Income and 
Living Conditions (EU-SILC) indicators is 30 November 2021 while data were extracted on 22 October 2021; b = major substantive and methodological changes for DE. 
Source: European Commission, Eurostat 

81