EU Country Reports Signals Member States Recovering At Uneven Pace
- Italy and France Risks stemming mostly from high level of public debt
- German high current account surplus needs close monitoring
- Spain risks stemming from private and public sector indebtedness
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The EU Country Reports released today by the European commission signaled the Euro Area is continuing recovery, but an uneven pace. The European Union has set up a yearly cycle of economic policy coordination called the “European Semester”. Each year, the Commission undertakes a detailed analysis of EU Member States' plans of budgetary, macroeconomic and structural reforms and provides them with recommendations for the next 12-18 months deemed as priorities.
Looking into the reports, the Commission said that all of the European Union member states are expected to grow in 2015 for the first time since 2007. This improvement should carry through to 2016, supported by lower oil prices, lower Euro and stimulus by the ECB. With that being said, the commission mentioned that the recovery remains fragile and economic growth will not be sufficient to deliver a clear improvement in job growth. The situation is worse in a number of member states, signaling an uneven pace in the recovery. Furthermore, total investment is expected to accelerate in 2016 to 4.6% in the EU, which the comittee deemed as below levels needed to boost jobs and growth potential. The commission commented that risks in certain member states, and in particular those with large external liabilities make debtor countries highly vulnerable. Focus was put on assessments of Italy and France to step up structural reforms in order to address growth bottlenecks, while German favorable saving balance was said to be a possible source for supportive investments.
More specifically, the committee signaled insufficient private and public investment in Germany as a drag on growth contributing to the very high current account surplus which needs to be closely monitored. Spain was said to suffer from risks stemming from high levels of private and public sector indebtedness, highly negative net international investments, and very high unemployment. The committee said risk stemming from indebtedness significantly increased for both France and Italy.
Taking this macro view into consideration, Euro-Zone data in recent weeks may help the Euro bear case gather momentum as was recently mentioned by DailyFX Currency Strategist Christopher Vecchio.
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