The European Commission on Wednesday removed Spain from its list of European Union member states with excessive economic imbalances but imposed a fresh set of demands on the conservative government of Prime Minister Mariano Rajoy to correct persistent problems.
In its latest Macroeconomic Imbalance Procedure (MIP) review released Wednesday, Brussels said: “In the case of Spain, the Commission considers that a significant adjustment has taken place over the last year and that, on current trends, imbalances will continue to abate over time.” However, it added: “While this is the basis to conclude the imbalances are no longer excessive in the sense of the MIP, the Commission stresses that substantial risks are still present.”
The pace of debt reduction has been limited by high unemployment
The EC said that high domestic and external debt levels of both the government and the private sector continued to pose risks for economic growth and financial stability. It added that the country’s export drive needs to be maintained to reduce the external debt pile, although it noted that Spain posted a current account surplus last year.
Companies and households continue to deleverage themselves, although in the case of the latter the pace of debt reduction has been limited by high unemployment and falling wages. The Commission said that while unemployment has fallen somewhat recently, the jobless rate at 26 percent “remains at alarming levels.” It added that “additional reforms” to the labor market might be required on top of the major overhaul introduced in February 2012 to make it more flexible.
It said that while the government is expected to have missed its fiscal-reduction targets for last year, it expects Spain to meet its commitments this year.
One of the major developments in the latest MIP review was the addition of Italy to the sick list of EU members alongside recent members Croatia and Slovenia.