Overcast

Winnipeg, MB

18°c Overcast

Full Forecast

Latest News

The Canadian Press - ONLINE EDITION

EU Commission sees excessive economic imbalances in Spain and Slovenia, warns France

Posted: 04/10/2013 6:15 AM | Comments: 0

Last Modified: 04/10/2013 10:47 AM

Advertisement

  • Print

BRUSSELS - The European Commission turned up the heat on Spain and Slovenia Wednesday, warning that the two struggling countries are facing "excessive" problems fixing their economies, while France's government came under pressure to get its debt under control.

In its health-check of European Union countries with debt and deficit problems, the Commission singled out Spain and Slovenia as countries where swift action was needed. Both countries have been hit by recession, high unemployment and ailing financial sectors.

The Commission's report recommended that the two countries must both move swiftly to fix their ailing banking sectors — either through recapitalizing or winding down some banks — to ensure a path toward sustainable growth.

As well as being the EU's executive branch in Brussels, the Commission is also the 27-country bloc's economic watchdog, with the power to identify and pressure countries with vulnerable economies into taking action.

Unveiling the Commission's finding, Olli Rehn, the EU's top economic official, said that Spain must maintain the reform momentum since country faces "formidable challenges."

The report added that "high domestic and external debt levels continue to pose serious risks for growth and financial stability" in Spain.

Spain, the EU's fifth-largest economy with a 1.04 trillion euro gross domestic product, is in its 18th month of recession with an unemployment rate of more than 26 per cent. The country's problems stem from its banking industry, which has been struggling under toxic property loans and assets since Spain's property bubble collapsed in 2008.

Spain has already received 40 billion euros in European Union assistance for its financial sector on the condition that it overhaul its banking sector. The country's government has also embarked on a program of harsh austerity measures to bring its deficit down from the current 6.94 per cent of GDP, way above the EU target of 3 per cent.

The Commission also warned that Slovenia faces a "substantial" risk from high corporate debt, bad loans and deteriorating public finances.

Markets have started worrying about Slovenia because of the nation's shaky banks, also reeling from a burst real estate bubble and unpaid property loans. While its overall public debt load of 48 per cent of its GDP is below the EU average of 85 per cent, the country of 2 million is already facing difficulties refinancing its debt, with its borrowing costs increasing steadily over the past months.

That has fueled fears it could soon find itself unable to afford to raise money on the international bond markets and become the sixth country among the 17 EU countries that use the euro — after Greece, Portugal, Ireland, Spain and Greece — to seek a rescue loan package.

The Commission identified 11 other countries in its report with deficit and debt problems, but said their problems were not as bad as Spain and Slovenia's. The countries were: Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom.

However, Rehn did warn that France, the second-largest economy in the EU, must strengthen its reform effort to regain competitiveness, and show "decisive action" to tackle its growing debt burden.

"There are too main challenges for France: the deterioration of its exports performance ... and the elevated level of public debt," he said.

The "high and increasing" debt burden is weakening France's position to react to any adverse shocks, thereby endangering the domestic economy and even the eurozone as a whole, it warned.

"France's public sector indebtedness represents a vulnerability, not only for the country itself but also for the euro area as a whole," the report said.

France's debt is set to exceed 93 per cent of its GDP by the end of this year, the Commission said.

With the French economy in recession and persistently high unemployment, the government in Paris is struggling to get the budget deficit under control and is set to miss this year's target of 3 per cent of GDP.

The EU will decide in May whether to grant France an additional year to meet the target or to launch a procedure that could lead to economic sanctions.

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories? Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.