EU warns of economic imbalances in Spain and Slovenia

Wednesday 10 April 2013 18.15
European Commission Olli Rehn gives updated health checks on 13 euro zone countries
European Commission Olli Rehn gives updated health checks on 13 euro zone countries

The European Commission has warned that Spain and Slovenia face "excessive" problems balancing their economies.

In a health-check of the economies of 13 European Union countries, the Commission said that "high domestic and external debt levels continue to pose serious risks for growth and financial stability" in Spain.

The executive arm of the 27-member EU also warned that Slovenia faces a "substantial" risk from high corporate debt, bad loans and deteriorating public finances.

Both countries are hit by a recession, high unemployment and ailing financial sectors.

The Commission added that both countries must move swiftly to fix their ailing banking sectors - either through recapitalising or winding down some banks - to ensure a path toward sustainable growth.

Meanwhile, Germany has taken steps to reduce its current account surplus but there is much more it can still do to stimulate domestic demand, the European commissioner for monetary affairs said today.

"We recommended that Germany take steps to boost domestic demand through structural reform, which we find more important," Commissioner Olli Rehn said. He was speaking after issuing a report on macroeconomic imbalances across the European Union.

Rehn listed the opening up of services market, increasing the participation of women in the labour force and encouraging wages to increase in line with productivity as among the steps that Germany could take to improve domestic demand.

That in turn could help stimulate output in other EU countries as steps are taken to meet the increased demand in the EU's largest economy.

The report did not include the economies of the four bailed out euro zone countries, including Ireland.

Commissioner Rehn also said today that Italy is likely to be removed from the list of European Union countries with excessive budget deficits as soon as May.

He said the Commission's decision to work with Italy to pay down debt owed to small and medium-sized companies would help reduce the government's deficit.

"This will facilitate the exit of Italy from excessive deficit procedure, which I consider a very high probability once we see the final figures in May in the context of our spring forecast," Mr Rehn said.