BRUSSELS: The European Commission warned yesterday that Spain and Slovenia pose the biggest economic risks and must quickly tackle excessive imbalances while France’s growing debt was turning into the eurozone’s “major challenge.”
Spanish Prime Minister Mariano Rajoy said he had taken the Brussels “reprimand” on the chin but insisted that concrete results would feed through from further reforms due to be announced April 26.
Spain, where the banking system has already been bailed out, and Slovenia, favourite to become the sixth eurozone country to need a rescue, had “built up excessive macroeconomic imbalances,” the worst rating of 13 EU countries reviewed, the Commission said.
With more bleak data out of Spain, the Commission said imbalances in debt, unemployment and growth were doing long-term damage, with more than 50 percent of under-25’s unable to find a job.
“Our citizens are still paying the price for the unchecked development of imbalances in the past,” said a Commission statement, noting especially “very high domestic and external debt levels” in Spain.
Spain needed to deliver a “decisive” reform programme, it said.
A “further contraction in economic activity, rising unemployment and the need for public support for the recapitalisation of a number of banks... exposed the vulnerabilities represented by those imbalances for growth, employment, public finances and financial stability,” it said.
Rajoy argued that the latest data painted a more favourable picture, citing for example renewed growth in inward investment even as he admitted the outlook for the jobless remained bleak. “We have to keep up the reform effort,” he said.
The report comes as Eurozone and EU finance ministers prepare for informal weekend talks in Dublin, likely to touch on everything from a tweak to the Cyprus bailout deal to a popular drive to clamp down on tax evasion.
Speculation about another eurozone bailout for Slovenia will be particularly hard to shake, especially as it struggles to stabilise a banking system.
For Slovenia, “urgent policy action is needed to halt the rapid build-up of these imbalances and to manage their unwinding,” the Commission report said.
The Slovenian finance ministry said in a statement that the government “agrees” with the Commission’s analysis and that a fresh budget revision was planned and steps were being taken to deal with the banks.
New Slovenian Prime Minister Alenka Bratusek insisted on Tuesday after meeting Commission head Jose Manuel Barroso that her government was already working “day and night” to save a banking system the Organisation for Economic Co-operation and Development says is in urgent need of repair.
AFP
