November 27, 2015
Imbalances everywhere and, on aggregate, not really getting better. In its alert mechanism report the European Commission this time places a greater emphasis on the eurozone as a whole, noting that it has one of the world's largest current account surpluses in value terms, €390bn, or a projected 3.7% of GDP. Three countries - Germany, the Netherlands, and to a lesser extent Italy - contributed to the bulk of this. Germany alone constitutes 2.5pp of those 3.7%. It says the persistence of surpluses in countries like Germany, which have no deleveraging need, pointed to a lack of domestic sources of growth.
Here is the first section of the snapshot table, on the external imbalances. Germany's 3-year average current account surplus is put at 6.9% of GDP, while that of the Netherlands is 10.9%. The net international investment position - the difference between a country's net external assets and liabilities - remains very high in the periphery countries - in the neighbourhood of -100% of GDP (Cyprus has -140%).
The Commission also notes that the process of deleveraging is not going well. Household debt declined from 63.1% in 2009 to 59.7% in 2014, while non-financial corporation debt is down from 81.9% to 79.5%. Household net lending is still at twice the level as in the pre-crisis years. The report describes the fiscal stance of the eurozone as broadly neutral, but notes that in a number of countries - Greece, Spain, France, Italy, and Portugal - the fiscal adjustment is slowing down.
This report kicks off the European Semester 2016. The final report on the macroeconomic imbalances is due in February.
As ever, the Commission's report tries to strike the customary balance of not offending Germany too much while recommending policy action for Germany that is almost certain to be ignored. In any case, despite the high surplus, Germany is not considered to be the country with the most severe macroeconomic imbalances. On the scale of one to six, measuring the gravity of the imbalances, Germany occupies a middle position at three, while France, Italy and Portugal are at stage five.
We also have stories on Anibal Cavaco Silva's warning to Portugal's new prime minister; on the possibility of a two-tiered deposit rate; on refugees' employment perspectives in Germany; on Alexis Tsipras calling for party leader consensus for pension reform; on French unemployment reaching new record levels and what it means for the Socialists' campaign; and on rising inequality and labour share in Germany.