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Italy, France, Belgium vulnerable to shocks because of high debt, low growth: EU

BRUSSELS (Reuters) - The European Union executive arm warned Italy, France and Belgium that their large public debts and low potential growth make them vulnerable to economic shocks, the European Commission said on Thursday .

A view shows the illuminated Eiffel Tower and La Defense business district (background) in Paris February 24, 2015. REUTERS/Gonzalo Fuentes

“The combination of large stocks of public debt and a declining trend in potential growth or competitiveness is a source of concerns in a number of countries,” the Commission said in report about France, Italy and Belgium.

The economic situation in the three countries “increases the likelihood of unstable debt-to-GDP trajectories and the vulnerability to adverse shocks,” the so-called Alert Mechanism Report (AMR) said.

Italy’s public debt is expected to grow this year to 133 percent of the Gross Domestic Product, making it the largest in the European Union after Greece, Commission forecasts on Nov. 5 showed. It is to ease in 2016 and 2017.

France’s public debt is to continue to grow, reaching 97.4 percent of GDP in 2017, the Commission believes. Belgium’s debt is seen peaking at 107.1 percent in 2016, before declining.

Under EU fiscal rules, EU countries must keep public debt below 60 percent of GDP or reduce it every year by 1/20 of the excess over 60 percent until they reach that target.

“Structural reforms aimed at unlocking growth potential must continue or be stepped up, in particular in countries of systemic relevance like Italy and France,” the Commission said.

“Such reforms would help not only to remove growth bottlenecks, but they would also contribute to support confidence on the sustainability of fiscal imbalances in these countries,” it said.

French and Belgian potential growth is around or just above 1 percent, roughly in line with the euro zone average.

But Italy’s potential growth, the rate at which an economy can expand without increasing the inflation rate, is negative and may only become zero next year.

The AMR, published every year by the Commission, focuses on identifying macro-economic imbalances in the 28 members of the EU, such high levels of unemployment, excessive current account surpluses or deficits or private and public debts.

Countries that are persistently showing imbalances and ignore Commission warning to address them may be eventually fined, under EU rules.

Reporting by Francesco Guarascio