EU to say French economy out of balance, Germany surplus too high

BRUSSELS (Reuters) - The European Commission will tell France on Wednesday its economy is improving but still has excessive imbalances, while chiding Germany over its current account surplus and warning Italy it must reduce its rising public debt, an EU official said.

FILE PHOTO - Flags of Germany, France and Europe flutter at the Chancellery in Berlin May 16, 2007. REUTERS/Tobias Schwarz (GERMANY)

The European Union’s executive arm is to publish in-depth reviews of the economies of several countries identified last November as having “imbalances” or “excessive imbalances” such as large public debts, budget deficits or trade surpluses.

The countries named were Bulgaria, Croatia, Cyprus, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden.

The idea is to prevent the excessive economic imbalances in these countries from developing eventually into a full-blown crisis that could threaten others in Europe and especially those in the euro zone.

In November, the Commission said France’s main economic imbalance was its rising public debt in the context of low productivity growth and weak competitiveness.

France, which holds presidential elections in April and May, will see its debt rise to 97.0 percent of gross domestic product (GDP) next year from 96.7 percent seen this year, the Commission forecast last week.

The EU official, who is familiar with the content of the Commission reviews, said that compared with last year France’s economy has improved as previous reforms have begun to produce some results but that this improvement was not enough.

The Commission will also urge Germany, the largest economy in Europe, to reduce its current account surplus, which rose to a record high of 8.7 percent of GDP last year from 8.5 percent in 2015 and invest more to ensure sustained and stable growth.

Last week the Commission forecast that investment in Germany, which has been registering budget surpluses since 2014, will actually fall to 2.1 percent of economic output this year from 2.5 percent in 2016.

Italy was more of a concern as its public debt continued to balloon, breaking EU rules under which it should be falling. In November the Commission said Italy’s main imbalance was its high public debt and the banking system burdened with bad loans in a context of weak productivity growth.

Italy’s debt is set to increase to 133.3 percent of GDP this year from 132.8 percent last year, the Commission forecast last week, while under EU rules the debt should fall by 3.65 points.

Unless Rome delivers on promises made to the Commission in February to reduce by the end of April its structural budget deficit, which excludes one-off items and the effects of the business cycle, by 0.2 percent of GDP, the EU executive will open disciplinary steps against Italy, EU officials said.

The fourth-largest euro zone economy, Spain, would not be a particular concern, the EU official said, because its high unemployment looks set to fall to 17.7 percent of the workforce this year from 19.6 percent last year and to 16 percent in 2018.

Editing by Jan Strupczewski and Hugh Lawson