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Commission analyses economic imbalances in UK and 12 other Member States
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The UK’s most important macroeconomic imbalances are linked to household debt, the housing market, sluggish goods exports and weak productivity growth, according to a European Commission in-depth analysis published on 10 April.

The Commission says these imbalances deserve monitoring and policy action. (More detail below)

    Commissioner Olli Rehn

    Commissioner Olli Rehn

    However, the UK imbalances are not “excessive” – unlike those in Spain and Slovenia - says the Commission’s report.

    It concludes that in Spain, very high domestic and external debt levels continue to pose risks for growth and financial stability.

    While in Slovenia, the risk of financial sector stability stemming from corporate indebtedness and deleveraging is substantial, including through interlinkages with the level of sovereign debt. 

    The Commission has also published analyses of imbalances in Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland and Sweden.

    Greece, Ireland, Portugal and Cyprus are not included as detailed policy remedies are agreed separately for Eurozone countries receiving EU/IMF loans.


    “Our transformed economic governance enables us to address macroeconomic imbalances pre-emptively and to create the foundations for sustainable growth,” said Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro.

    “Decisive policy action by Member States and at EU-level is helping to rebalance the European economy. But significant challenges remain: it will take some time yet to complete the unwinding of the imbalances that were able to grow unchecked in the decade up to the crisis, and which continue to take a toll on our economies.”

    Summary of the findings for the UK

    In particular, macroeconomic developments in the areas of household debt, linked to the high levels of mortgage debt and the characteristics of the housing market, as well as unfavourable developments in external competitiveness, especially as regards goods exports and weak productivity growth, continue to deserve attention.

    More specifically, the UK faces tensions between the needs for deleveraging, maintaining financial stability and avoiding compromising investment and growth. The primary cause of the growth in household debt was high and volatile house prices, linked to an insufficient and rigid supply of housing.

    Household deleveraging continued in 2012 and house prices corrected further but this may not be sustained once the economy improves and housing transactions return to more normal levels.

    Policy measures have been introduced aiming at increasing residential construction, although it is not yet clear whether they will prove effective.

    As a consequence of a combination of high house prices and the widespread and growing use of variable-rate mortgages, households are particularly exposed to interest rate changes.

    The stock of UK corporate debt is modestly high yet some firms are having difficulty accessing adequate funding for investment.

    The UK is also confronted with the twin challenge of sustaining the pre-crisis dynamism in service exports and boosting the underlying drivers of productivity in the industrial sectors in order to regain the external competitiveness that was partly eroded in the pre-crisis years.

    The net trade outturn for 2012 was lower than expected.

    Overall public investment remains low and it is not clear when and to what extent private investment will pick-up.

    On current policies, the flow of credit may only be normalised once broader macroeconomic conditions improve.

    Skill gaps persist and closing them will require a substantial long-term investment.

    Given the size of the British economy, the imbalances may generate spill-overs to the other European economies.


    These analyses form part of the EU’s "Macroeconomic Imbalances Procedure (MIP)" which aims to ensure that harmful economic imbalances in one Member State do not spill over and cause problems for others.

    This in turn is part of wider EU efforts – under the overall European economic governance system revamped as a result of the economic crisis - to boost growth and jobs and to prevent future crises.

    The MIP procedure can lead to the EU making formal "country specific recommendations" for the countries concerned.

    A recommendation on the UK housing market was, for example, among those already agreed for – and by - the UK last year.

    For Eurozone countries, though not others, where imbalances are regarded as excessive, the procedure could in principle mean fines if country specific recommendations are not implemented and corrective action is not taken.

    The Commission will propose this year's recommendations later this spring, based on the MIP analyses and on other tools, in particular the Commission's Annual Growth Survey and the Member States' own national reform programmes, drawn up under the Europe 2020 strategy for sustainable growth and jobs in the long-term. 

    The recommendations will then be discussed and agreed by EU leaders at their June summit before being formally adopted by Finance Ministers.

    So they are not imposed from the centre but finalised through exchanges of views at the highest political level, underpinned by extensive technical analysis by Member State experts as well as those within the Commission.

    In this way the EU's economic governance system gives the UK the opportunity to take part in deciding on recommendations to other Member States.

    In more general terms, it gives Member States the opportunity to agree collectively on what each Member State needs to do individually to create jobs, bring the economic crisis to an end and lay the foundations for sustainable growth across the EU in the future.


    For more information, please contact the London press office on 020 7973 1971.
    Please note: all amounts expressed in sterling are for information purposes only.

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    Last update: 10/04/2013  |Top