European Commission warns UK economy ‘unbalanced’

The UK is among a dozen countries identified as being potentially “economically unbalanced” in a new report published by the European Commission.

According its first ever Alert mechanism report, the European Commission identifies 12 EU member states whose macroeconomic situation it believes needs to be more thoroughly analysed.

Factors contributing to UK instability include: the loss of export market shares over the last ten years; high levels of private debt, which the report says is linked to weak public finance; and increases in housing prices that have resulted in the accumulation of household debt.

Other countries whose macroeconomic situation needs to be looked at more closely include Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Hungary, Slovenia, Spain and Sweden.

Countries not requiring further review include Austria, the Czech Rebublic, Estonia, Germany, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland and Slovakia.

Greece, Ireland, Portugal and Romania already benefit from a financial assistance programme and therefore are already subject to close macroeconomic scrutiny.

The report is part of the Macroeconomic Imbalance Procedure, which is in turn part of a new set of legislation which came into effect late last year and is meant to strengthen macroeconomic surveillance of EU countries.

Olli Rehn, vice-president for economic and monetary affairs and the euro at the European Commission, said: “This crisis has highlighted risks that macroeconomic imbalances pose for financial stability, economic prospects and for the welfare of a country, its citizens and the European Union as a whole.

“Today, we kick off an in-depth scrutiny of a country’s macroeconomic situation as a first step. If it turns out that imbalances exist and that they are harmful, this new tool is a meaningful step towards correcting the imbalances which built up over the years.

“Sound fiscal policies and early detection and correction of risky economic imbalances are necessary conditions to return to sustainable growth and jobs.”