11 EU States Facing Economic Imbalances

The European Commission said on Wednesday that 11 European Union states were experiencing economic imbalances that should be addressed and from among these Italy, Cyprus and Croatia had “excessive” imbalances.

Brussels has warned Italy’s economy is suffering from severe imbalances, heightening tension between the EU and Rome after the triumph of populist Eurosceptic parties at its elections at the weekend, news outlets reported.

In its latest health-check of member states’ economies, the European Commission said Italy was one of two eurozone economies that are still experiencing “excessive economic imbalances” as a result of its high debt pile and slow progress in enacting major structural reforms.

The report was drawn up before the country’s weekend election where mainstream parties were trounced at the ballot box in favor of anti-establishment forces who have promised to rip up EU spending rules.

Brussels is watching closely as the Five Star Movement, or M5S—which emerged as the biggest single party on Sunday—tries to find coalition partners to allow it to form a majority government. M5S campaigned to implement a universal basic income for Italian citizens and overhaul major pension reforms, both policies that would likely blow a hole in Italy’s public finances.

Matteo Salvini, head of the anti-immigrant Northern League, which is also vying to form a rightwing coalition government has promised to take back control of the spending levers to help the poorest. “We will go to Europe to change rules which have impoverished the Italians”, Salvini said this week.

Italy has long struggled to comply with the eurozone’s debt and deficit rules and has the highest debt pile of any eurozone economy after Greece. But the EU has been careful to avoid stoking tension with Rome under its 15-month caretaker government, giving Rome time and leeway to hit its targets.

But on Wednesday the commission acknowledged Italy had only made “some” progress on the implementing EU-mandated reforms. “Limited progress” had been achieved in revamping the tax system, privatizing state assets and creating a more efficient civil judicial system, said the report.

Delays over forming a new coalition government could still lead Brussels to avoid taking any tough action against the country, said Valdis Dombrovskis, EU vice commissioner in charge of the euro.

The eurozone’s third-largest economy—one of the EU’s founding member states—has been the worst performing member state in terms of economic growth since the start of the single currency, Reuters said.

“Given its systemic importance, Italy is a source of potentially significant spillovers to the rest of the eurozone”, said the commission.

Bulgaria, France, Germany, Ireland, the Netherlands, Portugal, Spain and Sweden are the other eight states that need to address economic shortcomings. Slovenia has been removed from the list of countries experiencing imbalances.