The Greek economy still faces “excessive imbalances” such as a high public debt, unemployment and a high rate of non-performing loans, despite progress made in the last few years, the European Commission said in its European Semester report released on Wednesday, which examines macroeconomic imbalances in all EU member-states.
This year’s report, which includes Greece for the first time since the country’s exit from the memorandum, said that three countries faced “excessive imbalances” (Greece, Cyprus and Italy), while another 10 faced “imbalances” (Bulgaria, Germany, Spain, France, Croatia, Ireland, Holland, Portugal, Romania and Sweden).
The Commission report said that Greece faced excessive imbalances and noted that, while the country made significant improvements in the previous years on cost competitiveness, this had, however, frozen recently due to a subdued increase in productivity.
The report said that the country’s public debt level remained high and noted that the debt was in the hands of official creditors and that the country’s financing needs were relatively low for at least a decade. It stressed that the debt reduction rate was largely dependent on the continuation of achieving agreed fiscal targets and on the implementation of reforms to create a sustainable growth outlook.
The Commission said that Greece’s “excessive imbalances” were related with high public debt, a negative external position, a high non-performing loans rate set in a framework of high – albeit declining – unemployment and low growth prospects.
Greece managed to successfully exit the support programme of the European Stability Mechanism (ESM) in August 2018, after making significant improvements in the last few years, the report said, adding that there were still large imbalances, including an extremely negative international position in net investments, which continues to deteriorate amid a moderate increase of nominal GDP and a negative current account balance.
The report said the Greek financial sector remained vulnerable due to a very large number of non-performing loans and low profitability, hindering credit expansion and a recovery of investments. It added that private debt was falling and active deleverage was continuing.
The Commission report said that Greek authorities have pledged to ensure the continuation and completion of reforms monitored in the framework of an enhanced post-programme surveillance of the country.