ATLAS ALPHA • THOUGHT LEADERSHIP • ACCESS • SERVICE

Economics

European Progress Monitor:

ready for a new shock?

10 May 2019

Holger Schmieding Chief Economist

+44 20 3207 7889 holger.schmieding@berenberg.com

Florian Hense European Economist

+44 20 3207 7859 florian.hense@berenberg.com

Economics

THE AUTHORS

Holger Schmieding is chief economist of Berenberg. Previously, he was an economist at

the International Monetary Fund, head of research on central and eastern Europe at the

Kiel Institute of World Economics and chief economist Europe of a major global investment

bank.

Florian Hense is European economist at Berenberg. Previously, he worked as an economist

at the European Commission and at the Center for Financial Studies.

For our disclosures in respect of Article 20 of Regulation (EU) No. 596/2014 of the

European Parliament and of the Council of 16 April 2014 on market abuse (market abuse

regulation - MAR) and our disclaimer please see the end of this document.

Please note that the use of this research report is subject to the conditions and restrictions

set forth in the disclosures and the disclaimer at the end of this document.

Economics

3

Highlights at a glance

Ready for a new shock? We see no economic reason to expect a grave financial crisis or a genuine recession within the next two years. However, trade tensions, the Brexit turmoil and the current industrial downturn caused partly by Chinese problems raise an obvious question: what if?

For three reasons, European countries should be less afraid of a new economic shock than five or 10 years ago: First, they have become more resilient to shocks. Second, the next recession will likely be comparatively mild as we detect no serious imbalances that would require a painful cleansing. Third, new institutions such as the ESM and tighter regulation can contain the risks of financial panics.

Better able to cope: This report deals in detail with the first of these three points. We analyse key economic fundamentals as well as the recent adjustment process in all 28 EU member states. We find that most economies of the European Union have improved their fundamental health at least somewhat. They are better placed to brave a future downturn than they were in 2007 and 2008. The economic surprise of the past nine months, namely the resilience of Eurozone domestic demand amid serious external shocks, probably reflects the less fragile starting position.

Serious problems remain: The political situation looks more fragile than it did before. The pains of post-crisis adjustment have contributed to the anger on which the populists in Europe are still thriving. In addition, the double blow of the great financial and the euro crisis left deep wounds that have still not healed sufficiently. They are visible in still elevated levels of public debt and non-performing loans.

The example of employment: The employment rate exemplifies both the progress and the remaining problems. Chart 1 shows the major rise in the rate for the Eurozone since the 2013 trough to a level well above that of 2007. But the gains have been uneven. The countries most afflicted by the euro crisis are mostly on the right track. They have adjusted well to the challenge of the crisis. Nonetheless, they have not yet recovered all their previous losses. A few countries such as Italy remain afflicted by grave structural problems despite some progress since 2015.

Chart 1: Mixed progress – the rebound in employment

Employment in percent of working age population (16-64 years). Weighted average for reform-5: Spain, Ireland, Portugal,

Greece and Cyprus. Source: Eurostat

No reason to expect a new

crisis soon – but what if?

Three reasons to be less

afraid

Most countries better placed

to brave a future downturn

But the political situation is

more challenging...

...and gains have been

uneven

Economics

4

Table of contents

Highlights at a glance 3

I. Key conclusions 5

Fundamental health and recent adjustment progress 6

Main results 6

A note on political populism 11

II. Fundamental health 12

III. Adjustment progress 15

IV. Five pillars of analysis: results in detail 19

External position 20

Labour market 26

Regulations and reforms 30

Fiscal sustainability 33

Financial resilience 39

V. Results by country 46

Methodology 74

Notes on key components 75

References and additional reading 77

Disclaimer 78

Economics

5

I. Key conclusions

About 10 years after the end of the great financial crisis, Europe is in better shape than it was before the crisis. Most economies of the European Union have improved their fundamental health at least somewhat. They are now better placed to brave a future downturn than they were in 2007 and 2008. Berenberg’s detailed analysis of the 28 EU member countries also shows that, even after the end of the euro crisis in the autumn of 2012, many countries have either used the less turbulent years from 2013 onwards for some further progress or have at least not fallen back too much into bad old habits of pre-crisis times. All in all, most countries have successfully tackled fiscal and external deficits, reined in labour cost rises, reduced their financial fragility and strengthened some key structural characteristics of their economies (see Charts 2 and 3).

While a recession will come eventually, we doubt it will be quite as severe as the mega-slump of 2008/2009. Policymakers rarely make the same grave mistakes twice in row. With their less vulnerable economic fundamentals, most EU member states should now be able to cope with a standard recession. Short of major political accidents such as a dramatically escalating US-EU trade war or an Italian fiscal suicide, the absence of serious economic excesses on either side of the Atlantic suggests that the next recession may strike no sooner than 2022 rather than already in 2019 or 2020.

Nonetheless, Europe still faces grave risks. Most importantly, the political situation looks significantly more fragile than it did before. The rise of potentially destructive populist forces has many causes unrelated to specific European affairs (think Trump, for example). Nonetheless, the pains of post-crisis adjustment have probably contributed to the anger on which the populists in Europe are still feeding. In addition, the double blow of the great financial crisis and the euro crisis has left deep wounds that have still not healed sufficiently.

Whereas most countries are in a much healthier position in terms of their current fiscal deficits, the ratio of public debt to GDP that had surged during the bad years remains well above the 2007 level for most despite some recent progress. This remains a concern. In some cases, the higher public debt ratios are the flipside of less leveraged household and bank balance sheets. To some extent, debt has migrated from weaker to stronger debtors. The move of a significant part of public debt to central banks – and to the European Stability Mechanism (ESM) for a few euro crisis countries – is an extreme example of this trend. This reduces the vulnerability to future shocks.

Chart 2: Structural fiscal balance Chart 3: Current account balance

Structural balance in percent of GDP. Source: IMF Current account balance in percent of GDP. Source: Eurostat

Europe is in better shape

than it was in 2007

Most EU member states

could cope with a recession

Europe still faces grave risks

– the political situation is

more fragile

Public debt is high – but

some debt has migrated into

stronger hands

Economics

6

Fundamental health and recent adjustment progress

This report analyses key economic fundamentals in all 28 EU member states. We address three questions.

How healthy are the countries’ economies?

Are they more or less vulnerable to shocks than they were in 2007 – that is, just ahead of the great financial crisis?

Have they made further progress since the immediate pressure of the financial and euro crises eased in 2013?

For this purpose, we compile two separate rankings of all 28 EU countries. First, we look at the current state of key economic fundamentals to assess their economic health. We also compare the resulting scores with the ones which the countries would have attained on their 2007 rather than their 2018 data to judge whether they are more or less ready to cope with a shock. Second, we look at the progress – or lack thereof – which the 28 current EU members have made in the five years since 2013. For this exercise, we rank the countries according to their post-2013 adjustment progress.

In this report, we derive our conclusions from economic data. We do not explicitly analyse the institutional changes that have given the Eurozone new tools to prevent or fight financial panics and new regulations designed to make financial systems in the EU more stable. We suspect that our key conclusion, namely that the European economies are in somewhat better shape to cope with crises than they were in the past, would be strengthened by the presumably positive impact of new institutions such as the ESM and regulatory changes. While the European Central Bank (ECB) would have little room to react to a new shock with rate cuts, the ECB and other central banks have shown since 2009 that they can deploy other, less conventional tools instead.

This report builds on our annual “Euro Plus Monitors” that we published jointly with the Lisbon Council from 2011 to 2017.

1 In the new “European Progress Monitor”, we shift the

focus from the immediate reaction to the great financial crisis and the subsequent euro crisis to the post-2013 follow-up. As time passed, the question to which extent and how fast countries have corrected the serious imbalances that were laid bare by the two crises is now less relevant than the related but slightly separate questions as to whether they are ready for the next downturn, whenever that may come, and whether they are relaxing the reins too much again as the pressure eased. Also, we narrow our focus slightly by omitting some long-term factors such as demographics and PISA test scores as indicators for the human potential of countries. Recent years have shown that, with a great degree of labour mobility within Europe and the tendency of qualified non-EU migrants to go to those places which offer suitable jobs, demographics are not (yet) a binding constraint on a country’s fundamental economic position. For example, Germany continues to do well with strong gains in employment despite its still-low birth rate as more than half of new jobs are filled by workers without a German passport. Also, the underperformance of Italy versus Spain seems to have very little to do with demography.

Main results

1. Solid progress: In the wake of the great financial crisis of 2008/2009 and the subsequent euro crisis of 2011/2012, 22 of the 28 EU members have improved their key economic fundamentals. As a result, the region as a whole is now less vulnerable to economic and financial shocks than in 2007. The exceptions are Finland and Sweden with slight declines in their scores as well as the UK, Luxembourg, Denmark and Belgium with roughly constant scores for fundamental health for 2018 relative to 2007. Whereas this poses no serious problem yet for Sweden, Luxembourg and the UK, whose scores remain well above average, Finland and – to a lesser extent – Belgium need to watch out.

2. Stronger fundamentals: For the Eurozone, significant improvements in the external balance, structural fiscal deficits and some pro-growth reforms have raised the score in our assessment of fundamental economic health from 5.0 to 5.9 on a scale of 0 to 10.

1 See the references on page 78 for a list of these reports.

Looking at key

fundamentals in all 28 EU

members

Two separate rankings for

28 countries

New institutions may have

made Europe more resilient

than economic data suggest

Shifting the focus to post-

2013 changes

22 out of 28 EU members

have improved their key

economic fundamentals

More prudence, stronger

external position, more pro-

growth reforms

Economics

7

3. A new Hanseatic League?: The Netherlands lead our 2019 ranking for fundamental health with a score of 7.5, just ahead of Germany (number two with a score of 7.3), Ireland (number three) and Denmark (number four) with almost identical scores of 7.2. A further advanced core European economy, Sweden (number seven), as well as two small Baltic economies from the periphery, Lithuania (number five) and Estonia (number six), also excel in this ranking (see Chart 4).

4. Fundamental problems remain: At the bottom of the league for fundamental health, Portugal (number 21), Romania (number 22), France (number 23), Bulgaria (number 24), Croatia (number 25), Cyprus (number 26), Italy (number 27) and Greece (number 28) remain beset by serious structural and/or financial problems. However, all of them have raised their scores substantially since 2007 – except for Cyprus, which has managed only a modest improvement because a still high burden of non-performing loans has largely offset its progress on other counts. Fortunately, Cyprus is tackling the issue.

5. Masters of their own fate: Whether or not countries have adopted the euro does not seem to make a major difference. Some euro members as well as some non-members are at or close to the top of the league, while others are at or close to the bottom. In the same vein, the sheer divergence of results for EU members shows that the rules of the common market and the common minimum regulations imposed by the EU do not impede countries’ progress. It is up to their own domestic policy choices whether they end up in a strong position such as the Netherlands, Germany, Ireland and Denmark or whether they suffer from serious structural problems such Croatia, Cyprus, Italy and Greece.

Chart 4: Fundamental health indicator – a new Hanseatic League?

Top seven highlighted. Except for Germany, they all participate in the “New Hanseatic League” initiative of finance ministers. See also notes under Table 1

on page 13. Source: Berenberg

6. Adjustment progress – the most improved countries: In our separate ranking for adjustment progress since 2013, a number of small countries from various parts of the EU periphery take the lead, with Ireland (number one) just ahead of Malta (number two), Croatia (number three) and Greece (number four). They are followed by Austria (number five) and Cyprus (number six). Almost all leaders of our adjustment league have advanced significantly further in the past two years (2017 and 2018). Only Greece is an exception on this count: after markets and debtors forced it into a wrenching adjustment in 2010 to 2012 already, it raised its score only modestly further in the past few years.

7. Tough love is working: All five countries that had to ask other European countries for help in the euro crisis make it into the top half of the post-2013 adjustment league table (see Chart 5 on page 8) although the scores for Portugal (number 10) and Spain (number 13) are now less stellar than those for Ireland, Greece and Cyprus. Our results suggest that, despite some slippage in pro-growth reforms in Portugal, Spain and Greece in the past few years, the erstwhile euro crisis countries have by and large remained on the right track even after the pressure of the immediate crisis had eased. Official creditors had offered these countries help under some conditions which, except in the case of Spain, were rather tough. All in all, the approach has worked despite the flaws of some

Northern strength

Most of the laggards have

improved since 2007

A wide range of results: EU

rules let countries be the

masters of their own fate

The leaders of the

adjustment league

Euro crisis countries remain

mostly on the right track –

despite signs of slippage

Economics

8

of the adjustment programmes. For example, as we pointed out from the very beginning in our Euro Plus Monitors, the design, implementation and control of the programmes initially focused too much on short-term fiscal repair rather than longer-term pro-growth structural reforms.

8. Tu felix Austria: The small Alpine republic deserves some special praise. No other mature core European economy has adjusted better in the past five years to economic and financial challenges than Austria. While Ireland (number one in the league for post-2013 adjustment) and the Netherlands (number seven) owe their strong results partly to their status as European hubs for global technology giants, Austria benefits from significant pro-growth reforms and a strong improvement in its fiscal position. Judging by the envisaged tax reform and other plans of its current government, Austria’s progress, which started under the previous government, looks set to continue.

9. Some convergence within a very diverse EU: Countries with strong fundamentals can allow themselves to relax a little. Weaker countries with low scores for their fundamental health need to shape up more forcefully. By and large, we find some evidence of continued convergence within the EU. Most importantly, seven out of the 10 countries with the most pronounced fundamental health problems have made it into the top half of our adjustment league. They are shaping up faster than the median EU member. Conversely, seven of the 12 strongest countries in terms of their underlying fundamentals feature in the bottom half of the adjustment league.

Chart 5: Adjustment progress indicator (reform countries highlighted)

See notes under Table 2 on page 16. Source: Berenberg

10. Star performers: Combining the results of our two separate rankings, we find a small group of star performers: Ireland, Malta, the Netherlands and Slovenia make it into the top 10 on both counts. While they are already among the more solid economies in Europe, they have also managed to improve at a rate well above average in the past five years. They are followed by Austria which misses “star performer” status only by a whisker as it comes in as number 13 for fundamental health on top of its excellent result as number five in our adjustment league.

11. Switchers: Most countries at the bottom of our adjustment league, namely Luxembourg (number 28), Sweden (number 27), Estonia (number 26) and Lithuania (number 23) can afford to be in that position at least for the time being. Despite clear signs of complacency, they remain among the top 12 for fundamental health with still solid scores. Put differently, a less robust external or fiscal balance or a below-average pace of pro-growth reforms has not yet dented these countries’ competitive advantage seriously. We call them switchers. The key issues they have to watch include: an insufficient increase in the employment rate; high private debt and a bad score for the ease of doing business in the case of Luxembourg; overly slow pro-growth reforms; high and rising private debt and a deteriorating current account balance in the case of Sweden; and a fast rise in labour costs in the case of Estonia. In a similar vein, Lithuania (number 23 on adjustment progress but number five on fundamental health) remains in excellent shape. However, it needs to rein in the fast rise in its labour costs and address the reasons for its negative and declining household savings rate.

Finally on the right track in

Vienna

On balance, many of the

weaker countries are now

shaping up

A small group of star

performers excels in both

rankings

Strong countries have less

need to adjust – and it

shows

Economics

9

12. Potential problem cases: Combining the two strands of our analysis, the assessment of fundamental health and recent adjustment progress, two countries stand out as potential problem cases. Both Finland and Romania have scores for fundamental health that are below average. Although they should thus adjust at a pace that is either above or at least not well below average, they have failed to do so in the past five years. The story is similar for Slovakia which has lagged behind Finland and Romania in terms of adjustment effort since 2013. But as Slovakia (number 25 on post-2013 adjustment) did so from a better starting position, it still achieves a result for fundamental health that remains in line with the Eurozone average. To a lesser extent, this also applies to Hungary (number 21 on adjustment effort) despite a below-average result for fundamental health (number 16 on that count).

13. A Baltic gap: In terms of its below-par adjustment efforts, Finland (number 22) does slightly better than its Baltic Sea neighbours Estonia (number 26) and Sweden (number 27). But unlike Sweden and Estonia, which maintain a healthy score well above average, Finland merely comes in as number 17 on fundamental health. Finland suffers from a more precarious external position as well as still excessive government expenditure, a less healthy fiscal balance and a significant rise in bank assets as a share of GDP. This feature could make it vulnerable in the event of another financial crisis. Fortunately, we find some evidence that Finland has started to improve again in the past two years, notably by reining in the rise in unit labour costs, reducing the share of government expenditure in GDP and bringing down its public debt ratio to below 60% in 2018. If Finland stays this most recent course and manages to raise its export ratio, which is currently significantly lower than it should be for a country of its size, it could well rise in our rankings in the next few years.

14. An accident waiting to happen? As a dynamic economy catching up, Romania has been quite successful on many economic counts in the past few years. Real GDP has expanded at an average rate of 3.8% since 2011. Romania has attracted significant inward investment. However, it is showing clear signs of excess that could undermine its success. Emerging markets are even more prone to boom-bust cycles than most of the more mature economies. Romania’s combination of a fast rise in nominal unit labour costs (up 26% since 2015), an excessive current account deficit (4.5% of GDP in 2018), a very high structural fiscal deficit (3.8% of GDP in 2018) and a negative household savings rate (-6% of disposable income in 2018) makes it vulnerable. Instead of using periods of fast GDP growth to build up fiscal buffers and strengthen its resilience, the country seems to be throwing a party that cannot last. In our ranking, Romania is close to the bottom for adjustment (number 24) and at a mere number 22 for its fundamental health.

15. Teetering on the brink: Two of the biggest countries in the EU, France and Italy, are teetering on the brink of turning into potential problem cases. Although both have improved their fundamental health relative to 2007 roughly in line with the advance by the Eurozone as a whole, the gains for France and Italy have been from such low starting levels that they remain stuck close to the bottom of our league for fundamental health, with France as number 23 and Italy as number 27. While their adjustment efforts since 2013 have been stronger than those of Romania and Finland, the results of their recent adjustment remain below par so far with below-average scores in our adjustment league.

16. Italy – on the wrong track again: Having almost fallen victim to the euro crisis in 2011, Italy finally implemented some serious fiscal and structural reforms during and in the immediate aftermath of the crisis. As a result, it comes in at number 15 in our post-2013 adjustment league with a score of 5.0 that is only modestly below the Eurozone average of 5.3. For a country that remains close to the bottom in terms of its fundamental health, that result is not good enough, however. Even worse, the recent reform drive seems to have petered out. The current government initiatives to de facto lower the pension age and increase social spending, which are not yet reflected in our results based on 2018 data, threaten to deepen Italy’s malaise. With a high and rising burden of public debt and its low rate of trend growth, Italy is more vulnerable to rising risk spreads than any other economy in the Eurozone. Its low export ratio reflects competitiveness problems (see Chart 6 on page 10). Italy’s employment rate, still the second lowest in the Eurozone after Greece’s, is edging up at only a snail’s pace and lags well behind the increases elsewhere in Europe. Unless Rome changes course and returns to pro-growth reforms, Italy may soon end up in the “problem case” category.

Finland and Romania:

adjustment laggards despite

a clear need to shape up

Sweden can take it easy –

Finland cannot

Throwing a party that

cannot last

France and Italy need to do

more to improve their

fundamentals

After some post-2013 gains,

Italy’s partial reform drive

seems to be petering out

Economics

10

Chart 6: Italian export ratio versus Eurozone ex-Italy Chart 7: French and German employment: big gap = big potential

Exports in percent of GDP. Source: Eurostat Employment in percent of working age population (16-64 years). Source:

Eurostat

17. France – finally trying to do better: In France, the labour market and welfare reforms masterminded partly by Emmanuel Macron during his stint as economics minister (August 2014 to August 2016) in the final phase of the Hollande presidency and during the first part of his own term as president (since May 2017) are starting to show up in some data, notably in a sustained rise in the employment rate since 2015 after 12 years of stagnation (see Chart 7). However, the effects are not pronounced enough yet to offset the other weaknesses of the country. Despite some recent progress, France still burdens itself with the highest ratio of public spending to GDP in the entire EU. Its structural fiscal deficit remains high. Its low export ratio and an employment rate well below the Eurozone average reflect competitiveness problems. A significant increase in private debt and in bank assets could turn into a negative in the event of a new crisis. Fortunately, a score for recent structural reforms that is well above average offers hope that France can advance in the next few years. The contrast between the French and German employment rates (Chart 7) shows the success of the German reforms implemented around 2004 and the potential which France could realise with its own reforms if its stays the course.

18. UK – solid economy but no longer improving: The UK remains a solid and exceptionally business-friendly economy well placed to cope with shocks. However, the direction of travel is unclear. While many economies in Europe are gradually improving on trend, the UK is not. In our ranking for fundamental health, it attains a stable score of 6.2, unchanged on the score it would have attained for its 2007 data. As other countries have mostly raised their scores, the UK has moved from well above to only modestly above the Eurozone average. It is lagging behind the gains elsewhere in Europe partly because of a fall in the household savings rate from 8.5% in 2007 to 4.5% in 2018 and because of an improvement in its external accounts that is much weaker than that of the Eurozone (see Chart 8 on page 11). In our separate adjustment progress league, the UK’s score of 4.8 falls modestly short of the 5.3 Eurozone average. Our results do not include any explicit analysis of the potential effects of Brexit. While the UK seems strong enough to cope with any immediate Brexit shock, reduced access to its largest market could still cause serious long-run problems for a country whose external position is already well below average. If the Brexit turmoil were to lead to political changes that could undermine the country’s key strength, namely its pro-business regulatory regime, the UK’s position could become significantly more precarious.

19. Germany – in good shape but at risk of complacency: By and large, Germany remains in a comfortable position. While its external and fiscal surpluses are controversial and do not represent an optimal use of the country’s resources, they do provide a cushion against potential shocks. The current cyclical situation highlights Germany’s resilience: despite an industrial recession caused by trade tensions and problems in China, its domestic economy is thriving thanks to a boom in construction and a strong labour market with a 2% yoy gain in core employment (subject to social security contributions) in early 2019. For a country that comes in as number two in terms of fundamental health, a below-average result in our ranking for post-2013 adjustment (number 20) is no particular concern. The above-average rise in German nominal unit labour costs (up

Recent reforms are starting

to show up in the data

Low household savings rate

lowers the score for the UK

Cushion against shocks help

– but do they need to be that

big?

Economics

11

by 9.6% since 2013 versus 4.3% for the Eurozone and c2.5% for the Eurozone ex-Germany, see Chart 9 on page 11) is part and parcel of a welcome convergence within the currency area. However, a lack of recent pro-growth reforms, initiatives to re-regulate the labour and real estate markets, and a penchant to raise pension entitlements more than public investment point to a degree of complacency. In the long run, Germany can probably not afford this. Whereas Germany receives top marks for fiscal prudence, the quality of its fiscal policy is near the bottom of our league. For example, it needs to shift public spending from social consumption to more productive expenditure on investment and education.

Chart 8: Export ratios: Eurozone versus UK Chart 9: Nominal unit labour costs: Germany versus Eurozone

Exports in percent of GDP. Source: Eurostat Nominal unit labour costs indexed at 2005=100. Source: European Commission

20. More action needed to strengthen the banking system: Our conclusion that the Eurozone can now cope better with shocks than in 2007 comes with one caveat. The score for the resilience of the financial system, although up significantly since 2013, is not yet higher than in 2007. Modest improvements in most other areas relative to 2007 have been overshadowed by the rise in non-performing loans. At the peak of the financial boom in 2007, non-performing loans were no major concern for banks. In the wake of the crises, they turned into a big issue, notably for the countries directly hit by the euro confidence crisis. All in all, further action to clean up bank balance sheets is among the most urgent political tasks required to enhance the Eurozone’s resilience to shocks.

A note on political populism

To which extent the pains of adjustment have contributed to the anger on which radical populists are feeding across much of Europe is beyond the scope of this study. The rise of Donald Trump in the US and the UK’s Brexit mess show that disruptive populism is not specific to the EU or the Eurozone. If anything, the worst populist upsets (Trump, Brexit) have happened outside the Eurozone. More to the point, the most painful immediate post-crisis adjustments are history. EU members continue to face serious challenges. But they can largely afford to phase in painful changes such as entitlement cuts, for example in the French and Spanish pension systems, at such a gradual pace that current pensioners and those close to retirement age need not suffer disproportionately.

While populists continue to thrive, recent elections (Spain) or opinion polls (Italy) suggest that left-wing populists are losing ground, whereas right-wing populists are still advancing. This shift may partly reflect economic developments. Left-wing populists railing against actual or perceived social injustices often do well in times of economic hardship. Right-wing populists, however, base their appeal more on issues of identity and on fear of foreigners. Immigration is often a sign of economic success that attracts migrants rather than of economic misery. In this sense, the shift from left-wing to right-wing populists may partly reflect a perceived easing of the economic pain associated with the post-crisis adjustment and a reaction to some new gains in prosperity.

Europe needs to tackle NPLs

to increase its resilience

against financial shocks

Pains of adjustment can fuel

popular anger

Right-wing populists

showed gains but left-wing

populists seem to be past

their peak

Economics

12

II. Fundamental health

Table 1: Fundamental health indicator

For the score, we rank all sub-indicators on a linear scale of 10 (best) to 0 (worst). We use the average of the scores for the sub-indicator as the overall

score for each country. Change refers to the change in the 2018 score relative to the score which the countries would have attained for their 2007 data.

Based on the scores, we calculate the relative ranking of each country, with the number one rank assigned to the country with the highest and the number

28 rank to the one with the lowest score. Source: Berenberg

Shocks happen; occasional recessions are a fact of life. Economies have to cope with them if and when they occur. The fundamental health indicator is designed to identify underlying strengths and weaknesses of the 28 member countries of the European Union that affect their ability to deal with and recover from shocks and recessions. More precisely, we examine:

the external position;

the labour market;

the ease of doing business;

the fiscal sustainability; and

the potential resilience to financial shocks.

For each of the five pillars of our analysis, we aggregate the results on a number of sub-criteria into one score. The total score for each country is then the average of its scores for the five pillars.

A good score on fundamental health does not mean that the country will not fall victim to a financial panic or economic shock. Instead, its signals a greater resilience in two respects: first, it would take a bigger blow than otherwise to seriously harm it. Second, if hit by a bad shock, the country could hope to recover fast once the worst is over.

To illustrate the point, we apply our methodology to 2007 data for the six countries that made headlines during the euro crisis of 2011/2012. It indicates that Ireland should have been in a comparatively strong position, with Spain modestly below the average, while Greece, Cyprus and Portugal would have looked rather weak. Roughly in line with that, Ireland has enjoyed an astonishing rebound from its crisis while Spain also continues to recover fairly rapidly, somewhat ahead of Portugal and Cyprus and well ahead of Greece.

1 6 Netherlands 7.5 0.9 6.6 9.9 1.9 8.0 7.9 0.2 7.7 6.0 0.6 5.4 7.2 0.6 6.6 6.6 1.3 5.4

2 3 Germany 7.3 0.4 7.0 8.5 0.5 8.0 7.6 0.6 7.0 6.7 -0.4 7.1 5.9 0.2 5.7 8.1 1.1 7.0

3 4 Ireland 7.2 0.3 6.9 9.9 4.2 5.7 7.5 0.9 6.6 7.5 -2.5 10.0 7.3 0.0 7.3 3.8 -1.3 5.1

4 2 Denmark 7.2 0.1 7.1 6.0 1.3 4.7 7.2 -0.7 7.9 10.0 0.0 10.0 5.9 -0.9 6.8 6.8 0.9 6.0

5 15 Lithuania 7.0 2.5 4.5 5.7 5.7 0.0 6.0 0.8 5.2 8.4 3.5 4.9 8.0 2.1 5.9 6.6 0.3 6.2

6 10 Estonia 6.9 1.4 5.4 5.2 4.7 0.5 4.9 -0.9 5.7 8.5 2.5 6.0 7.5 -0.5 8.1 8.3 1.4 7.0

7 1 Sweden 6.9 -0.3 7.1 5.2 -1.2 6.4 7.4 -0.2 7.6 8.2 0.6 7.6 5.7 -0.8 6.5 7.8 0.2 7.6

8 14 Slovenia 6.8 2.2 4.5 8.0 5.1 2.8 6.4 0.0 6.4 5.3 5.3 0.0 6.6 0.9 5.7 7.6 -0.2 7.8

9 12 Czech Republic 6.7 1.9 4.8 7.1 2.7 4.4 6.6 0.7 5.9 5.2 5.2 0.0 7.1 1.7 5.4 7.5 -0.9 8.4

10 22 Malta 6.3 2.7 3.6 9.7 4.4 5.3 7.3 4.1 3.2 0.1 0.1 0.0 7.4 3.3 4.1 6.9 1.7 5.2

11 7 Luxembourg 6.3 0.0 6.3 9.1 -0.8 10.0 5.1 -0.8 5.8 1.7 1.4 0.4 9.0 -0.5 9.5 6.4 0.6 5.8

12 8 United Kingdom 6.2 0.0 6.2 2.9 0.2 2.7 7.1 0.4 6.7 9.0 -0.7 9.7 6.3 0.5 5.7 5.8 -0.4 6.2

13 9 Austria 6.2 0.5 5.7 5.8 0.4 5.4 6.8 0.0 6.8 7.1 1.2 5.9 4.7 0.9 3.9 6.5 0.0 6.6

14 21 Poland 5.9 2.2 3.7 5.8 3.1 2.7 5.8 1.8 4.0 6.6 6.6 0.0 5.3 0.3 5.1 5.8 -0.7 6.5

15 13 Slovakia 5.9 1.1 4.7 6.9 3.2 3.7 4.5 -0.3 4.8 5.4 4.1 1.3 5.2 -0.9 6.1 7.2 -0.6 7.8

16 25 Hungary 5.8 2.4 3.4 7.4 2.9 4.4 6.8 2.9 3.9 4.9 4.9 0.0 3.9 0.6 3.3 5.9 0.5 5.3

17 5 Finland 5.7 -1.0 6.7 2.3 -1.9 4.2 6.9 -0.1 7.0 8.1 -0.2 8.3 4.8 -2.3 7.1 6.3 -0.5 6.8

18 18 Latvia 5.5 1.5 3.9 2.8 2.8 0.0 3.9 -0.7 4.6 8.0 5.2 2.8 6.6 -0.2 6.9 6.2 0.7 5.4

19 17 Spain 5.3 1.3 4.1 4.8 4.5 0.3 5.1 -0.5 5.6 6.9 4.5 2.4 4.5 -2.0 6.5 5.2 -0.3 5.5

20 11 Belgium 5.2 0.1 5.1 6.4 -0.2 6.5 4.9 0.0 4.9 5.6 1.1 4.5 3.0 -1.5 4.5 6.0 1.0 5.0

21 23 Portugal 4.9 1.4 3.5 3.0 3.0 0.0 7.7 1.1 6.6 6.0 4.2 1.8 4.7 -0.1 4.8 3.1 -1.3 4.4

22 24 Romania 4.8 1.4 3.5 2.9 2.9 0.0 5.3 -0.3 5.6 5.5 5.1 0.4 5.4 0.0 5.4 5.2 -0.8 6.0

23 19 France 4.8 0.9 3.8 4.1 0.6 3.5 5.1 -0.4 5.5 6.1 4.9 1.2 2.9 -0.4 3.3 5.6 0.0 5.7

24 16 Bulgaria 4.7 0.5 4.2 4.9 4.0 0.9 2.9 -2.4 5.3 4.8 4.6 0.2 6.2 -1.9 8.1 4.5 -1.9 6.4

25 27 Croatia 4.4 1.4 3.0 3.5 2.9 0.7 6.0 1.5 4.5 3.4 3.4 0.0 4.5 0.8 3.7 4.6 -1.6 6.2

26 20 Cyprus 4.2 0.4 3.8 1.3 1.0 0.3 7.5 0.1 7.3 3.7 2.3 1.4 6.9 1.1 5.7 1.5 -2.7 4.2

27 26 Italy 3.9 0.7 3.2 5.0 1.9 3.0 3.6 -0.5 4.1 3.8 3.8 0.0 3.0 -0.5 3.5 4.3 -1.2 5.5

28 28 Greece 3.5 0.7 2.8 2.3 2.3 0.0 4.1 -1.0 5.1 1.7 1.7 0.0 5.3 1.6 3.7 4.0 -1.0 5.0

EZ19 5.9 0.9 5.0 6.3 1.9 4.4 5.8 -0.1 5.8 6.0 2.4 3.6 5.2 0.1 5.1 6.1 0.0 6.1

RankRankRankRank CountryCountryCountryCountry Total health scoreTotal health scoreTotal health scoreTotal health score External positionExternal positionExternal positionExternal position Labour marketLabour marketLabour marketLabour market RegulationsRegulationsRegulationsRegulations Fiscal sustainabilityFiscal sustainabilityFiscal sustainabilityFiscal sustainability Financial resilienceFinancial resilienceFinancial resilienceFinancial resilience

2018 Change 2007 2018 Change 2007 2018 Change 2007 2018 Change 2007 2018 Change 2007 2018 Change 20072018 2007

Occasional recessions are a

fact of life

Aggregating the results

Good health does not

preclude accidents – but

makes it easier to recover…

…as the years after the great

financial crisis have shown

Economics

13

Although Italy did not have to ask other countries for help in the wake of the euro crisis, it continues to struggle. This fits the assessment that, based on 2007 data, its fundamentals looked shakier than those of any other EU member except Greece even before the crises started.

In a similar vein, Germany’s highly export-orientated economy initially suffered far more than most other European economies during the post-Lehman plunge. While Germany’s real GDP plunged by 6.9% yoy in Q1 2009, the economy in the remainder of the Eurozone contracted by a sizeable but less spectacular 5.0%. Due to its excellent underlying fundamentals as reflected in our fundamental health indicator, Germany enjoyed a much more V-shaped recovery thereafter, however, snapping back to a 5.6% yoy gain in Q1 2011 versus a 1.8% yoy rebound for the remainder of the Eurozone at that time.

The German experience also illustrates how much structural reforms matter: struggling with the costs of re-unification, Germany did not outperform Italy until 2005. Strengthened by a series of reforms implemented around 2004, Germany then rebounded from the great financial crisis much faster than Italy. On trend, the gap has widened ever since – and will probably continue to do so until Italy implements more serious pro-growth structural reforms (see Chart 11).

Key findings of the fundamental health indicator

1. Europe has strengthened its ability to cope with shocks: For the Eurozone, significant improvements in the external balance, structural fiscal deficits and business friendliness have raised the score from 5.0 for 2007 to 5.9 for 2018 on a scale of 0 to 10 in our fundamental health indicator (see Chart 10 on page 13). All in all, 22 out of the 28 EU members score better on fundamental health than before. With the exception of Finland and Belgium, the six countries with lower or roughly constant scores than in 2007 are still in the top half of the league on their 2018 data. In other words, while their slippage may be unfortunate, they could arguably afford it.

Chart 10: Fundamental health scores for Eurozone average Chart 11: German versus Italian real GDP

Scores for fundamental health and its five pillars on a scale of 0 to 10. See

notes under Table 1 on page 12. Source: Berenberg

Real GDP, indexed at Q1 1991=100. Sources: Destatis, Istat

2. Strong northern core: Germany and two of its immediate neighbours have the healthiest fundamentals, according to our ranking, with the Netherlands (number one) just ahead of Germany (number two) and Denmark (number four). They are joined at the top by Ireland (number three), whose score is almost identical to that of Denmark. Within the group of best performers, the Netherlands and Ireland excel with their very strong external position, Denmark receives top marks for ease of doing business, while Germany shows a particularly strong resilience to potential financial shocks. Estonia (number six) and Sweden (number seven) also shine with good scores for their regulatory regimes and their financial resilience. For Sweden, which is trying to deflate a potential real estate bubble, this is particularly reassuring. The country seems to have learned important lessons from its 1990-1992 financial crisis.

While healthy Germany

suffered badly in early 2009,

it then rebounded very fast

Better able to cope with

shocks

Germany and two of its

northern neighbours top the

ranking

Economics

14

3. North-south gap: While the top seven countries in our league are all located in the northern half of the EU, the bottom eight are all in the south, with Portugal (number 21) ahead of Romania (number 22), France (number 23), Bulgaria (number 24), Croatia (number 25), Cyprus (number 26), Italy (number 27) and Greece (number 28). This is merely a geographical observation, however. As we discuss in our section on adjustment progress, the countries currently at the lower end of the league for their fundamental health are a very diverse group. Some of them are changing fast – notably Croatia, Greece, Cyprus and Portugal. However, Romania, France and Italy are still in the bottom half of our league for adjustment efforts over the past five years despite their need to shape up (see what difference structural reforms can make to GDP in Chart 11 on page 13).

4. Gains at the bottom: At lot has happened in Europe since 2007. Comparing the scores in our fundamental health league for 2018 with the scores which the countries would have achieved with their 2007 data, we find that all countries in the bottom 10 of the current league (except Belgium) have raised their scores noticeably relative to 2007. While they are still more vulnerable to shocks and crises than the other countries in the EU, they are at least less prone to succumb to shocks than they were in 2007.

5. Almost all EU members are in a more comfortable external position than they were in 2007: With the exception of Belgium, Finland, Luxembourg and Sweden, all countries have raised their respective scores. All 28 countries are now more integrated into global markets than they were in 2007. They export more goods and services as a share of their GDP than in 2007. Also, the number of countries with a current account deficit of more than 2% of GDP has fallen to five in 2018 (Cyprus, Romania, the UK, Greece and Slovakia) from 17 out of 28 in 2007. With Germany’s current account surplus of 7.3% of GDP close to its 2007 level of 6.8%, this shows that imbalances within the EU and the Eurozone, while still significant and arguably excessive, have diminished somewhat. The Eurozone as a whole has moved from a balanced current account in 2007 to a surplus of 2.9% of GDP in 2018.

6. Better places to do business: 24 of the 28 EU members have raised their scores in the World Bank’s ease of doing business ranking from 2007 to 2018. The exceptions are Finland, Germany, Ireland and the UK. Whereas these four countries have fallen back somewhat, they have done so from a good starting position. Their scores in the World Bank survey for 2018 remain above the European average.

7. In terms of fiscal sustainability, the news is mixed: 20 out of 28 EU members have improved their structural fiscal balance by more than 1ppt of GDP relative to 2007. However, the great financial and the euro crisis have left a legacy of higher public debt. With the exception of Germany, Malta and Sweden, all countries had a higher ratio of public debt to GDP in 2018 than in 2007.

8. In stronger hands: The higher public debt burden need not herald a greater vulnerability to shocks, however. Under the ECB’s public sector asset purchase programme, the European system of central banks has bought bonds to the tune of €2,256bn, equivalent to 19.5% of the Eurozone’s 2018 GDP. By chance, this amounts to almost the entire rise in the Eurozone’s debt ratio from 65% of GDP in 2007 to 85.1% in 2018. While sovereign bonds held by the ECB remain public debt that could be put on the market again in the future, this fraction of public debt is of limited relevance for an assessment how vulnerable the Eurozone would be to a new economic downturn. In such a case, the ECB would almost certainly have no reason to tighten monetary policy by reducing its holdings of sovereign bonds. Put differently: adjusted for the migration of a significant part of public debt into the strong hands of the central banks, the Eurozone’s score for fiscal sustainability would have improved more meaningfully from 5.1 in 2007 to 5.4 in 2018 instead of rising to just 5.2. In the same vein, the UK’s score would have increased by a similar margin.

While the bottom eight are

all from the south…

…they have all raised their

scores since 2007

A comfortable external

position

24 of 28 EU members now

receive higher scores from

the World Bank

Lower deficits – but still a

huge burden of public debt

Some of the debt has

migrated into stronger

hands, including those of

the ECB

Economics

15

III. Adjustment progress

Table 2: Adjustment progress indicator

The adjustment progress indicator score is calculated in the same way as the fundamental health indicator score. For further explanations, see the note

under Table 1 on page 12 and the notes on key components on page 75. Change refers to the change in the score based on the data for 2013 to 2018 relative

to the score which the countries would have attained for the shorter 2013-2016 period. Source: Berenberg

The adjustment progress indicator tracks the progress countries have made since 2013. It complements the fundamental health indicator. Ideally, countries with below-average scores for fundamental health should be reforming fast and attain above-average scores for their adjustment since 2013.

The adjustment progress indicator summarises five key measures of short- to medium-term adjustment: 1) the rise (or fall) in exports relative to imports in the external accounts; 2) the change in public finances; 3) changes in unit labour costs and employment; 4) pro-growth structural reforms; and 5) changes in key variables such as private debt and non-performing loans that can make countries more or less vulnerable to financial shocks.

The first three adjustment criteria measure changes that are almost immediately visible in hard economic data. For example, fiscal tightening affects economic statistics almost instantaneously because it represses domestic demand and steers resources towards export-orientated activities. But the structural reforms measured in criterion number four often work with a long time lag. While they may not show up in hard economic data for a while, they are a crucial element of the adjustment process. The separate criteria of financial vulnerability can sometimes change rapidly but usually evolve slowly over time. Our assessment of fiscal adjustment includes not just the overall size of the shift; we also take into account whether a country has adjusted its fiscal stance more through raising taxes or, preferably, through reining in public expenditures.

We first calculate these five sub-indicators for each country on a scale of 0 (worst) to 10 (best). We then aggregate them to assign an overall adjustment progress indicator score. This yields a relative ranking for each country, with the number one rank assigned to the country with the highest and the number 28 rank to the country with the lowest score. A good score on the adjustment progress indicator shows that countries are improving rapidly and seeing results in the key areas that their fiscal repair and structural reforms were meant to address.

2013 2013 2013 2013 2013 2013 2013 2013 2013

-2018 -2016 -2018 -2016 -2018 -2018 -2018 -2018 -2018

1 1 Ireland 7.8 0.4 7.5 8.0 2.6 8.6 1.9 5.4 -4.6 9.9 0.1 7.2 1.8

2 2 Malta 7.8 0.7 7.1 6.7 0.3 9.6 2.2 n.a. n.a. 8.1 0.2 6.9 0.2

3 8 Croatia 6.4 0.7 5.7 6.8 -0.9 9.1 2.1 n.a. n.a. 4.7 0.8 5.0 0.8

4 6 Greece 6.2 0.3 5.8 6.7 0.9 7.1 1.2 8.4 -1.6 3.9 -0.2 4.9 1.4

5 18 Austria 5.8 1.0 4.8 5.2 0.0 4.6 0.7 8.5 2.4 5.4 1.2 5.3 0.5

6 10 Cyprus 5.8 0.5 5.3 2.8 -2.3 8.4 2.6 n.a. n.a. 4.8 -0.2 7.1 1.9

7 20 Netherlands 5.7 0.9 4.7 5.5 0.5 6.0 1.1 4.1 0.7 6.7 0.6 6.1 1.8

8 14 Slovenia 5.6 0.6 5.0 7.6 0.8 7.8 2.4 0.0 -2.6 5.9 1.5 6.6 0.8

9 15 Latvia 5.6 0.6 4.9 4.8 -2.9 4.0 0.9 10.0 n.a. 2.8 -1.1 6.1 1.1

10 3 Portugal 5.4 -1.3 6.7 4.4 -0.8 8.5 1.7 2.0 -8.0 6.2 0.7 6.0 0.0

11 25 Belgium 5.2 1.3 4.0 5.7 -0.4 5.6 0.8 4.8 3.8 5.4 0.4 4.6 1.7

12 11 Bulgaria 5.2 0.0 5.2 4.6 -1.7 5.9 1.0 n.a. n.a. 4.0 0.1 6.4 0.7

13 4 Spain 5.1 -1.0 6.1 4.4 -0.9 7.9 1.5 4.6 -5.2 3.1 -0.4 5.3 0.1

14 12 Denmark 5.0 -0.2 5.2 3.3 -1.4 4.9 -0.1 3.0 -0.8 7.1 0.7 6.7 0.8

15 19 Italy 5.0 0.2 4.8 5.5 0.0 5.5 0.6 5.3 0.2 3.4 -0.3 5.0 0.6

16 17 United Kingdom 4.8 0.0 4.9 4.2 0.6 5.7 0.2 5.8 -0.9 5.4 0.5 2.9 -0.6

17 9 Czech Republic 4.8 -0.5 5.3 5.7 -0.8 6.2 0.0 3.6 -1.8 5.3 -0.4 3.4 0.4

18 7 Poland 4.8 -1.0 5.7 6.4 -0.5 6.8 0.9 2.8 -5.0 4.2 -0.4 3.8 0.3

19 26 France 4.8 0.8 4.0 5.0 0.2 4.8 0.5 7.1 3.0 3.2 -0.1 3.7 0.3

20 21 Germany 4.8 0.3 4.5 5.1 -0.6 4.6 0.2 3.2 1.1 4.9 0.3 6.0 0.3

21 5 Hungary 4.7 -1.4 6.1 3.4 -4.2 7.6 -0.6 2.9 -2.5 2.8 -0.1 6.6 0.6

22 23 Finland 4.4 0.3 4.1 3.7 0.2 6.4 2.0 3.7 -1.8 4.8 0.8 3.4 0.4

23 27 Lithuania 4.4 0.9 3.5 4.6 2.2 5.0 0.7 n.a. n.a. 4.4 0.1 3.5 0.3

24 13 Romania 4.3 -0.7 5.1 4.0 -1.8 3.1 -0.8 n.a. n.a. 3.3 -0.4 7.0 0.2

25 22 Slovakia 4.2 -0.3 4.4 3.6 -0.2 6.0 0.3 4.2 -3.0 3.3 1.0 3.7 0.5

26 16 Estonia 4.1 -0.8 4.9 3.2 -0.7 4.7 0.3 5.3 -4.7 2.5 -0.2 4.9 1.1

27 24 Sweden 3.8 -0.3 4.1 3.3 -0.8 5.4 0.3 0.6 -1.6 4.3 -0.1 5.2 0.7

28 28 Luxembourg 3.3 -0.2 3.5 5.0 -1.6 3.7 0.0 0.7 0.7 3.2 -1.1 3.8 1.0

EZ19 5.3 0.3 4.9 5.5 -0.1 5.9 0.8 4.8 0.3 4.8 0.2 5.2 0.6

RankRankRankRank CountryCountryCountryCountry Total adjustment scoreTotal adjustment scoreTotal adjustment scoreTotal adjustment score

Change

External positionExternal positionExternal positionExternal position Labour marketLabour marketLabour marketLabour market Regulations & reformsRegulations & reformsRegulations & reformsRegulations & reforms Fiscal sustainabilityFiscal sustainabilityFiscal sustainabilityFiscal sustainability Financial resilienceFinancial resilienceFinancial resilienceFinancial resilience

Change Change Change Change Change

Health and adjustment – the

two sides of the coin

Some changes show up in

the data fast

Summarising five measures

of adjustment

Economics

16

The five pillars of our analysis of adjustment progress since 2013 are very similar to those used in the fundamental health indicator. Apart from one significant shift in the source data on which we base our results for reforms and regulations (see notes on key components on page 75), the key difference is that fundamental health assesses the state of data in 2018, whereas the adjustment progress indicator summarises the change in these data since 2013. In other words, whatever their starting situation, we analyse whether countries have used the past five years to shape up or not.

In our previous analyses of the EU member countries published as annual “Euro Plus Monitors” from late 2011 to late 2017, we examined the cumulative adjustment progress which countries had made since 2010 (or since 2009 for some variables). The results were shaped by the deep changes which the euro confidence crisis had forced onto the most vulnerable countries at the EU periphery. For our new “European Progress Monitor”, we shift the focus away from the euro crisis and its immediate aftermath. Instead, we check whether the 28 member countries of the European Union have used the less turbulent years from 2013 onwards either to make further progress or have at least not fallen back too much into bad old habits of pre-crisis times.

2

Beyond calculating an adjustment progress score for the 2013-2018 period, we also run the exercise for the shorter 2013-2016 period. The difference between the scores based on 2018 and 2016 as the end date indicates whether countries have made further progress or allowed themselves some significant slippage in 2017 and 2018, during the two years of mostly satisfactory or even rapid economic growth. The results are shown in the table for adjustment progress as the change since 2016 (see Table 2 on page 15). Of course, the data for shorter periods can be more volatile than those for the full five years. We thus have to interpret these results with a dose of caution.

Key findings of the adjustment progress indicator

1. Europe continues to adjust: Most countries have successfully tackled fiscal and external deficits, reduced their financial fragility and improved some key structural characteristics of their economies since 2013.

2. A better balance: Following huge adjustment efforts of the periphery in the 2010-2013 period and some recent progress across major parts of the region (including some core countries), the Eurozone as a whole is turning into a more balanced and potentially more dynamic economy. While disparities within the area and within the overall EU27 remain significant, they have diminished somewhat further since 2013.

3. Some convergence: By and large, we find some evidence of continued convergence within the EU. Most importantly, seven out of the 10 countries with the most pronounced fundamental health problems have made it into the top half of our adjustment league. They are shaping up faster than the median EU member. Conversely, seven of the 12 strongest countries in terms of their underlying fundamentals feature in the bottom half of the adjustment league.

4. Tough love at work: Since 2010, the Eurozone has offered its weaker members a deal: it protect them against market turbulence and helps to finance their budget if they slash their fiscal deficit and raise their growth potential through serious structural reforms. All in all, the approach is paying off. After surging to record levels, unemployment has come down noticeably in the reform countries since spring 2013 (see Charts 12 and 13 on page 17). Serious labour market reforms and wage restraint are paying off. The countries that stay the course could be in the early stages of a long-term surge in employment and incomes comparable to the one which started in Germany two years after its 2004 labour market reforms.

5. Gains at the core are coming to the fore: While the post-crisis wave of reforms at the periphery is petering out, the data show some signs of a new wave of change in parts of the core. Looking at the developments since 2016, we find that Belgium, Austria and the Netherlands raised their scores for adjustment progress faster in this period than all

2 A second reason why our results for adjustment progress are close to but not fully comparable to those

of our prior analyses in the 2011-2017 Euro Plus Monitors is that we have added the changes in financial vulnerability criteria to the assessment of adjustment progress.

Whatever their starting

situation, are countries

making progress?

Shift in focus to more recent

progress

A brief look at the most

recent changes – but short-

term data can be volatile

Most countries have tackled

fiscal and external problems

Eurozone is becoming more

balanced

More troubled countries are

doing better

Support for the periphery

has worked

Some countries in the core

are now adjusting faster

Economics

17

other countries. Even France (number 19 on cumulative post-2013 adjustment progress) advanced noticeably since 2016, although from a low base, largely because of pro-growth structural reforms in or around 2016.

Chart 12: Unemployment approaching pre-crisis levels in periphery Chart 13: Unemployment falling further across Europe

Unemployment in percent of labour force (16-64 years). Weighted average for

reform-5, ie Spain, Ireland, Portugal, Greece and Cyprus. Source: Eurostat

Unemployment in percent of labour force (16-64 years). Source: Eurostat

6. Progress on three major counts: For the Eurozone as a whole, the adjustment progress since 2013 is most visible on three counts: (i) helped by a return to sustained economic growth and benefiting from some post-crisis labour market reforms in a number of countries ranging from Spain to Greece, Italy and France, the employment rate has risen from a trough of 63.5% in 2013 to a new record of 67.4% in 2018; (ii) a reduction in the share of government expenditure from 49.8% of GDP to 46.8% and a decline in the public debt ratio from 91.8% to 85.1% have raised the score for fiscal adjustment; and (iii) declines in private debt and bank assets relative to GDP and some success in tackling the burden of non-performing loans (down from 5.9% of all bank loans in 2013 to a still elevated 4.0% in 2017) have improved the region’s resilience to financial shocks.

7. External adjustment – preserving the gains: The Eurozone has strengthened its external position only modestly further since 2013. By and large, it had little need to. While the region raised its current account surplus further from 2.3% of GDP to 2.9% in 2018 (after a 3.2% peak in 2017), real net exports of goods and services contributed slightly less to GDP in 2018 than in 2013. The rise in real exports, up from 43.4% of GDP in 2013 to 48.8% in 2013, has been fully matched by a gain in imports. That makes sense. With the comfortable cushion of an external surplus, the region could even afford to raise imports faster than exports.

8. Minnows versus giants: Our ranking for adjustment progress since 2013 shows one clear pattern: small countries dominate both the top and the bottom of the league, whereas the bigger countries such as Italy, France, Germany and the UK hold positions closer to the average. Small open economies find it politically and economically easier to turn around whereas the big tankers take longer to change direction. Of course, the consequences of relaxing the reins also show up faster and more starkly among the minnows than among the giants.

9. A diverse bunch at the top: Beyond the fact that they are mostly comparatively small, the top 10 countries in our adjustment league have little in common. They range from the far northwest (Ireland as number one) to the far southeast of the EU (Cyprus as number six). This list includes countries from the core such as Austria (number five) and the Netherlands (number seven) as well as some from the euro periphery (Greece as number four and Cyprus as number six). Some of the top performers also hail from the region that escaped the clutches of communism in the 1990s (Croatia as number three, Slovenia as number eight and Latvia as number nine).

10. Relaxed at the very bottom: The three countries with the worst scores for post-2013 adjustment, Luxembourg as number 28, Sweden as number 27 and Estonia as number 26, share one trait. They can still rest on economic fundamentals that are significantly better than average, as shown by their scores in our fundamental health indicator. In

More employment, less

private debt

The external adjustment has

been completed successfully

Smaller countries can

change faster

Fast change in the

northwest as well as the

southeast

Some countries can afford

to take it easy

Economics

18

this sense, they are the right kind of countries to be at the bottom of the adjustment league. To some extent, they can afford to take it easier than others. This also applies to Lithuania as number 23 of the adjustment league and number 5 for fundamental health. Still, even these countries need to pay attention. If they fall behind in relative terms because other countries are shaping up, fine. However, that the low adjustment scores for Luxembourg, Sweden and Estonia have fallen even further since 2016 could be an ominous sign. Even top athletes need to keep exercising if they want to remain competitive.

11. Not doing enough: Two other countries with adjustment scores well below the average ought to do much better. Finland (number 22) and Romania (number 24) look vulnerable, owing to their below-average scores for fundamental health. Fortunately, at least Finland seems to be moving in the right direction. Judging by data for the past two to three years, the strongly adverse trend visible in many data points for the 2013-2016 period may have been broken (see Table 2 also page 15).

12. Taking it a little easy again lately: Relative to the adjustment scores they would have attained on their 2018 data, Hungary, Portugal, Spain and Poland show the most pronounced slippage for the past two years. While Portugal still remains among the top 10 for its cumulative adjustment progress since 2013 and Spain at least stays in the top half, Hungary and Poland have fallen into the lower half of the league for overall adjustment progress. As both still come in around average for their fundamental health, we need not worry much about them yet. Still, if the past two years are setting a trend, their situation could become more precarious in a few years’ time.

13. Further progress at the top: Most leaders of our total post-2013 adjustment league have advanced significantly further in the past two years (2017 and 2018). Among the top five, only Greece is a partial exception on this count: after markets and debtors forced it into a wrenching adjustment in 2010 to 2012 already, it raised its score only modestly further in the past few years. Nonetheless, its adjustment score remains well above average. As long as it avoids significant slippage in the next few years, Greece is by and large still on the right track.

Finland and Romania look

more vulnerable

Hungary and Poland have

fallen into the lower half of

the adjustment league

The big wave of change is

over – but Greece maintains

a solid score for adjustment

Economics

19

IV. Five pillars of analysis: results in detail

This section gives the detailed results of the five pillars of our analysis:

external position;

labour market;

reforms and regulations;

fiscal sustainability; and

financial resilience.

For each pillar, we first present the table on fundamental health based on the 2018 position. For comparison, this table also includes the score which a country would have attained based on its 2007 rather than 2018 data. We then show the table on adjustment progress since 2013, ie on the change between 2013 and 2018, for each of the five pillars.

Aggregating the results for

our five pillars of analysis

Economics

20

External position

Table 3: Fundamental health: external position

Ranks, scores and score changes for external position and sub-indicators in 2018 relative to 2007. Values given in percent are for 2018: (1) current account

in percent of GDP, (2) net exports of goods and services in percent of real GDP, and (3) exports of goods and services in percent of real GDP (export ratio).

For further explanations, see notes under Table 1 on page 12 and the notes on key components on page 75. Since a change in statistics in early 2015 relating

to some transactions of international enterprises, Irish data for GDP, exports and imports have become difficult to interpret. We have tried to adjust the Irish

data for that distortion. Source: Berenberg

About 12 years ago, persistent external deficits had made many countries at the Eurozone periphery vulnerable to shocks. The deficits largely reflected credit-fuelled excesses in domestic consumption. In the wake of the post-Lehman financial crisis and the subsequent euro crisis, many EU members needed to find a better domestic and external balance. To assess the strength of the external position (fundamental health) and to track progress in the external accounts (adjustment), we examine three different aspects of the external position, namely: 1) the current account balance, 2) the balance of exports and imports of goods and services (net exports), and 3) the share of exports in GDP. The current account is a nominal variable; export and net exports data are expressed in real terms.

Of course, a high and/or rising current account surplus is not a desirable economic feature per se. Surplus countries such as Germany or the Netherlands could do better if they spent more on investment at home instead of channelling a savings surplus towards financial investments abroad. However, a strong external surplus does provide a cushion against shocks. For the purpose of this particular analysis which includes a discussion of whether EU members have increased their ability to cope with a new economic downturn or other shocks, we count a declining deficit or a rising surplus as a positive. However, we set the scores in such a way that countries with an extreme current account surplus do not receive a better score than countries with a sizeable but less extreme result.

The Eurozone as a whole has turned into an even more open economy since 2013; the share of exports to GDP has risen to 48.8% last year from 43.4% five years ago and 38.9% in 2007

3

(see Chart 14 on page 21). The current account surplus has widened modestly further from 2.3% of GDP in 2013 to 2.9% last year after a balanced current account in 2007 and a deficit of 1.5% of GDP in 2008. Whereas solid foreign demand had boosted the surplus to a peak of

3 The export and export ratio data for the Eurozone include trade between Eurozone member countries

and not just extra-Eurozone trade.

Score Change Score Score Value Score Value Score Value

1 2 Netherlands 9.9 1.9 8.0 10.0 10.8 10.0 10.9 9.8 85.6

2 6 Ireland 9.9 4.2 5.7 10.0 10.2 10.0 23.7 9.7 110.0

3 8 Malta 9.7 4.4 5.3 10.0 11.2 10.0 18.9 9.1 145.3

4 1 Luxembourg 9.1 -0.8 10.0 7.4 4.8 10.0 29.7 10.0 209.1

5 3 Germany 8.5 0.5 8.0 8.6 7.3 7.4 6.3 9.3 50.1

6 16 Slovenia 8.0 5.1 2.8 8.5 6.9 8.9 9.0 6.5 86.9

7 10 Hungary 7.4 2.9 4.4 5.2 0.5 7.0 5.6 9.9 97.4

8 11 Czech Republic 7.1 2.7 4.4 5.2 0.3 7.4 6.2 8.9 84.6

9 13 Slovakia 6.9 3.2 3.7 3.8 -2.5 7.7 6.8 9.4 102.2

10 4 Belgium 6.4 -0.2 6.5 4.3 -1.3 4.9 1.9 9.9 95.4

11 9 Denmark 6.0 1.3 4.7 7.9 5.9 6.6 4.9 3.5 56.8

12 7 Austria 5.8 0.4 5.4 6.2 2.3 6.4 4.4 4.9 58.4

13 17 Poland 5.8 3.1 2.7 4.7 -0.7 5.0 2.0 7.6 53.0

14 25 Lithuania 5.7 5.7 0.0 5.8 1.6 3.9 -0.1 7.5 90.7

15 5 Sweden 5.2 -1.2 6.4 6.0 2.0 6.2 4.1 3.3 50.4

16 21 Estonia 5.2 4.7 0.5 5.9 1.7 4.0 0.3 5.6 85.5

17 15 Italy 5.0 1.9 3.0 6.2 2.5 5.0 2.0 3.6 32.0

18 19 Bulgaria 4.9 4.0 0.9 7.3 4.6 1.7 -4.0 5.7 65.0

19 23 Spain 4.8 4.5 0.3 5.5 0.9 6.1 3.9 2.8 32.8

20 14 France 4.1 0.6 3.5 4.8 -0.3 3.2 -1.2 4.1 32.1

21 20 Croatia 3.5 2.9 0.7 6.3 2.6 3.8 -0.2 0.5 48.9

22 24 Portugal 3.0 3.0 0.0 4.7 -0.6 2.7 -2.2 1.8 44.6

23 18 United Kingdom 2.9 0.2 2.7 3.1 -3.9 2.4 -2.6 3.2 30.2

24 25 Romania 2.9 2.9 0.0 2.7 -4.5 0.5 -6.1 5.4 50.5

25 25 Latvia 2.8 2.8 0.0 4.5 -1.0 1.6 -4.1 2.3 61.8

26 12 Finland 2.3 -1.9 4.2 4.1 -1.9 2.9 -1.9 0.0 41.4

27 25 Greece 2.3 2.3 0.0 3.6 -2.9 3.2 -1.2 0.0 34.1

28 22 Cyprus 1.3 1.0 0.3 1.5 -7.0 2.0 -3.3 0.5 63.0

EZ19 6.3 1.9 4.4 6.4 2.9 6.1 4.1 6.3 48.8

2018 2018 2018

Current accountCurrent accountCurrent accountCurrent account Net exportsNet exportsNet exportsNet exports ExportsExportsExportsExportsCountryCountryCountryCountry External positionExternal positionExternal positionExternal position

% of GDP % of GDP % of GDP

Rank

2018 2007 2018 2007

About 12 years ago, persistent deficits had made many countries vulnerable

A high current account

surplus need not be a

desirable feature

The Eurozone has become

an even more open

economy

Economics

21

3.2% of GDP in 2017 despite a major concurrent rise in imports, a series of external shocks depressed export growth in 2018, while domestic demand and hence the rise in real imports held up.

Chart 14: Higher export ratios across the board since 2007

Exports in percent of GDP. Source: Eurostat

All in all, the external position of most EU members looks quite comfortable today, and much more so than in 2007; 17 out of 28 EU members had a current account surplus in 2018, while only five had deficits exceeding 2% of GDP. In 2007, only eight EU members had an external surplus. In a similar vein, all EU members have raised the share of exports in GDP since 2018, in most cases by quite impressive amounts (see Chart 14 on page 21). On this count, Finland, Sweden and the UK are the only outliers with a rise in their export share of a mere 3ppt or less of GDP versus a Eurozone average of 10ppt. Despite potential issues in some smaller EU countries, notably Cyprus and Romania and – to a lesser extent – also Greece and Slovakia, the EU looks able to weather some external shocks.

Table 4: Adjustment progress: external adjustment

Ranks, scores and score changes for external adjustment and sub-indicators during 2013-2018 relative to 2013-2016. Values are for the adjustment during

2013-2018: (1) change in current account balance in percentage points (ppt) of GDP, (2) change in net exports in ppt of real GDP, and (3) change in exports

in ppt of real GDP (export ratio change). For further explanations, see notes under Table 2 on page 15 and the notes on key components on page 75. Since a

change in statistics in early 2015, Irish data for GDP, exports and imports have become difficult to interpret. We have tried to adjust the Irish data for that

distortion. Source: Berenberg

2013 2013 2013 2013

-2018 -2016 -2018 -2016

Score Change Score Score Value Score Value Score Value

1 15 Ireland 8.0 2.6 5.4 10.0 8.7 10.0 5.2 4.0 7.1

2 5 Slovenia 7.6 0.8 6.8 6.9 2.6 7.7 2.5 8.3 13.3

3 3 Croatia 6.8 -0.9 7.6 6.1 1.7 5.0 -0.5 9.2 8.3

4 12 Greece 6.7 0.9 5.8 3.8 -0.9 6.4 1.1 9.9 6.2

5 8 Malta 6.7 0.3 6.4 10.0 11.0 10.0 12.5 0.0 -9.5

6 4 Poland 6.4 -0.5 6.9 5.1 0.6 5.2 -0.3 8.9 8.7

7 10 Belgium 5.7 -0.4 6.1 3.6 -1.0 5.3 -0.2 8.3 14.6

8 7 Czech Republic 5.7 -0.8 6.5 5.3 0.8 5.4 -0.1 6.3 9.7

9 20 Netherlands 5.5 0.5 5.0 5.5 1.1 5.7 0.2 5.4 8.2

10 14 Italy 5.5 0.0 5.6 5.9 1.5 4.6 -0.9 6.1 3.5

11 17 Austria 5.2 0.0 5.3 4.9 0.4 6.0 0.6 4.9 4.9

12 13 Germany 5.1 -0.6 5.7 5.2 0.8 5.1 -0.4 5.0 4.3

13 6 Luxembourg 5.0 -1.6 6.6 4.0 -0.6 4.9 -0.6 6.3 23.7

14 21 France 5.0 0.2 4.8 4.7 0.2 4.9 -0.6 5.4 3.1

15 1 Latvia 4.8 -2.9 7.8 6.1 1.8 5.1 -0.4 3.2 2.9

16 28 Lithuania 4.6 2.2 2.4 5.2 0.8 3.1 -2.6 5.6 9.0

17 9 Bulgaria 4.6 -1.7 6.3 7.6 3.3 2.8 -2.9 3.4 3.2

18 16 Spain 4.4 -0.9 5.3 4.0 -0.6 5.1 -0.4 4.2 2.3

19 18 Portugal 4.4 -0.8 5.2 2.6 -2.2 2.6 -3.1 8.1 6.6

20 26 United Kingdom 4.2 0.6 3.6 5.7 1.3 4.5 -1.1 2.5 0.9

21 11 Romania 4.0 -1.8 5.8 1.4 -3.5 1.0 -4.9 9.6 9.0

22 27 Finland 3.7 0.2 3.5 4.9 0.4 3.9 -1.7 2.5 1.2

23 25 Slovakia 3.6 -0.2 3.8 0.6 -4.4 5.4 -0.1 4.7 8.2

24 2 Hungary 3.4 -4.2 7.7 1.5 -3.3 2.9 -2.8 5.9 10.3

25 23 Sweden 3.3 -0.8 4.1 1.6 -3.3 4.6 -0.9 3.8 3.0

26 22 Denmark 3.3 -1.4 4.7 2.9 -1.9 3.8 -1.8 3.1 2.5

27 24 Estonia 3.2 -0.7 3.9 5.7 1.2 3.7 -1.9 0.3 -2.3

28 19 Cyprus 2.8 -2.3 5.1 2.6 -2.1 0.6 -5.3 5.1 5.6

EZ19 5.5 -0.1 5.6 5.1 0.6 5.3 -0.1 6.1 5.4

Net exportNet exportNet exportNet export Export ratioExport ratioExport ratioExport ratio

change ppt of GDP

2013-2018 2013-2018 2013-2018

CountryCountryCountryCountry External adjustmentExternal adjustmentExternal adjustmentExternal adjustmentchange ppt of GDP change ppt of GDP

Current accountCurrent accountCurrent accountCurrent account

Rank

The external position of

most EU members looks

comfortable today

Economics

22

Turning from the assessment of the current external position to the changes since 2013, the results for external adjustment show a clear if unsurprising split: whereas most of the bigger EU members attain scores close to the overall average, many of the small open economies are either near the top or the bottom of our league for external adjustment. By their very nature, small open economies find it easier to correct external imbalances. Conversely, even modest policy mistakes can show up rapidly in a significant deterioration of the external account in such economies.

Our results also show a further pattern: following a rapid adjustment during the two crises of 2009-2012, most EU member countries continued to improve their external position after 2013. While the gains were initially led by the erstwhile crisis countries, notably Greece, Ireland, Portugal and Spain, they are now more broad-based. To some extent, the initial adjustment leaders have made so much progress that they can now afford to let imports rise again in line with or even slightly faster than exports. For the erstwhile euro crisis countries as a whole, the continuing external adjustment now shows up in continued rapid growth in exports but no longer as a further increase in the gap between exports and imports, that is in net exports (see Charts 15 and 16 on page 22).

Chart 15: Eurozone – exports and imports rise in tandem... Chart 16: ...partly because of a turnaround at the Eurozone periphery

Four-quarter rolling sum of real exports and imports for Eurozone, in millions of

chained 2010 euros. Source: Eurostat

Four-quarter rolling sum of real exports and imports for Spain, Greece, Portugal

and Cyprus, in millions of chained 2010 euros. Source: Eurostat

Two of the six top performers in terms of their external adjustment since 2013 are former euro crisis countries, with Ireland taking the lead (number one) well ahead of Greece (number four). The list also includes small Malta (number five) as well as three central and eastern European transformation countries, ie Slovenia (number two), Croatia (number three) and Poland (number six). The three other countries that once had to ask their European partners for help, namely Spain, Portugal and Cyprus, have results that are noticeably (Portugal and Spain) or even far below the Eurozone average in the case of Cyprus. For Spain and Portugal, this makes sense. After swallowing the bitter medicine of rapid adjustment during the height of the euro crisis, they have re-established their credentials among financial and business investors so that they can afford a return to a lower current account surplus of 0.9% of GDP for Spain in 2018 or even a small deficit of 0.6% for Portugal last year. For Cyprus, the external deficit of 7% of GDP is a serious potential problem, however.

Apart from Cyprus as number 28 in the external adjustment league, Estonia (number 27), Denmark (number 26), Sweden (number 25), Hungary (number 24) and Slovakia (number 23) have allowed themselves the most slippage in their external accounts since 2013: Finland also achieves only a poor result. While this is arguably not an issue yet for Estonia, Denmark and Sweden, as these three countries score well above average in our fundamental health league, this does not hold for Finland. Its current account deficit of 1.9% of GDP in 2018 is not alarming at all. Nonetheless, Finland needs to tackle its export problem. For a small open economy, Finland’s ratio of exports of goods and services of 41.4% in its GDP in 2018 remains far too low.

Greece (number four for external adjustment) remains a special case. Athens continues to receive good marks for its overall external adjustment with a score of 6.7. In the wake of the Greek crisis that started in 2010, most of the initial improvement in Greece’s external position came from a collapse in imports rather than a surge in exports. Exacerbated by the

A clear split: small countries

can correct their external

imbalances faster

Further significant export

gains after 2013

Two of the top performers are former euro crisis countries

Poor results for some

countries, including Finland

and Sweden

Greece remains a special

case

Economics

23

turmoil during the brief stint of Yanis Varoufakis as finance minister in the first half of 2015, political uncertainty, regulatory red tape and excessive taxes have hampered investment into export-orientated activities. Greek exports thus lagged far behind those of other countries at the euro periphery until 2016. Fortunately, the situation has changed in the past few years. Greek exports are now rebounding strongly, raising the share of Greek exports in GDP to 34.1% in 2018 after a mere 27.9% in 2013.

The two biggest Eurozone members, Germany (number 12 with a score of 5.1) and France (number 14 with 5.0) remain below the Eurozone average of 5.5 for external adjustment. For Germany, this makes sense. Due to its strong external position, Germany can afford to consume more, raising its imports at a faster rate than its exports, as it has done in four out of the six years after 2012. For France, its weak position remains a reason for concern. Although up from 29.0% in 2013, the share of exports in French GDP of 32.1% in 2018 is still too low. Whereas France is finally doing significantly more than before to become more competitive, it will take time for the results to show up.

Outside the Eurozone, the UK (number 20) managed to raise its below-average score modestly since 2016 as the plunge in the sterling exchange rate after the Brexit vote in June 2016 helped to dampen the growth in imports. Nonetheless, with a current account deficit of 3.9% of GDP and an export ratio of just 30.2% in 2018, the UK faces some serious competitiveness issues. The uncertainty about its future economic relations with the EU has already impaired investment into export-orientated activities and held back export growth in the past two years.

Most of the economies in southern and eastern Europe that are catching up are integrating themselves well into the European and global economy, as seen by the significant rise in the share of exports in their GDP over time. In our overall ranking for external adjustment, Slovenia (number two), Croatia (number three), Poland (number six) and the Czech Republic (number eight) attain scores above the Eurozone average of 5.5.

Current accountCurrent accountCurrent accountCurrent account

Countries that need to attract capital from abroad to finance a current account deficit are more vulnerable to economic and financial shocks than countries with an external surplus. As the first sub-criterion to judge external adjustment since 2013, we thus look at the shift in current account balances from 2013 to 2018. Of the 28 EU member countries, 17 reduced their current account deficit or raised their surplus, while the current account position worsened for 11 countries.

Following a major shift from a current account deficit of 1.5% of its GDP in 2008 to a surplus of 2.3% in 2013, the Eurozone raised its surplus further to a peak of 3.2% in 2017 before the surplus receded to 2.9% in 2018 under the impact of a slowdown in global demand and a temporary spike in oil prices.

Among individual countries, small Malta and Ireland attained outsized shifts in their current account positions, with Malta raising its surplus from 0.1% of GDP in 2013 to a whopping 11.2% in 2018, followed by Ireland’s rise from 1.6% to 10.2% last year. Apart from these two outliers, Bulgaria (shift by 3.3ppt from 1.3% to 4.6% of GDP), Slovenia (plus 2.6ppt from 4.4% to an arguably excessive 6.9%), Latvia (from a deficit of 2.7% to a deficit of 1%) and Croatia (from 0.9% to 2.6%) also strengthened their current account position substantially from 2013 to 2018. On this count, two of the biggest EU economies, namely Italy (with an increase in its current account surplus from 1% to 2.5% of GDP) and the UK (reducing its deficit from 5.1% of GDP in 2013 to a still elevated deficit of 3.9% last year) also attain comparatively good marks.

At the bottom of the league in terms of the post-2013 change in the current account, Slovakia allowed its current account position to deteriorate by 4.4ppt, turning a surplus of 1.9% of GDP in 2013 into a deficit of 2.5% last year. In a similar vein, Romania, Sweden and Hungary also let their external balance slip by more than 3ppt of GDP. For Sweden and Hungary, this poses no problem yet as both simply reduced their prior surpluses to 0.5% of GDP for Hungary and to 2.0% of its GDP for Sweden in 2018. However, Romania’s swelling current account deficit, up from 1.1% of GDP in 2013 to 4.5% in 2018, is a bigger concern.

Net exportsNet exportsNet exportsNet exports

Closely related to shifts in the current account are changes in net exports, the balance of exports and imports. They are not identical, however. For example, we can examine exports and imports of goods and services in real terms, stripping out changes that stem merely

France still below average

for external adjustment

Insufficient external

progress in the UK

Most of Europe’s emerging

markets are rapidly

becoming more open

17 EU members improved

their current accounts

further after 2013 ...

… but the Eurozone’s

current account surplus has

peaked

Small Malta and Ireland

attain outsized shifts in

their current accounts

Slovakia’s deficit is not yet a

cause for concern

Net exports are a key

contributor to real GDP

Economics

24

from a shift in relative prices. As real net exports are a key contributor to changes in real GDP, we thus look at them separately.

Following a rapid adjustment during and right after the great financial crisis and the euro crisis, most EU members raised their imports faster than their exports in real terms from 2013 to 2018. To some extent, they have relaxed their reins a little since then. Only six of 28 member countries increased their net exports further as a share of their GDP over these five years. Once again, Malta and Ireland grab the headlines with outsized surges in net exports. Apart from these two outliers, Slovenia (net exports up by 2.5ppt of GDP), Greece (plus 1.1ppt), Austria (plus 0.6ppt) as well as the Netherlands (export share up by 0.2ppt of GDP) also raised the contribution of net exports to growth.

At the lower end of the scale, the external position as measured by the change in net exports became significantly more precarious for Cyprus and Romania with excessive falls in their ratio of net exports to GDP by c5ppt.

Share of exports in GDPShare of exports in GDPShare of exports in GDPShare of exports in GDP

In the immediate aftermath of the Eurozone confidence crisis of 2011/2012, a closer look at the drivers of external adjustment revealed a dark side to the story: in most erstwhile crisis countries, especially in Greece, the net export position initially improved more through a collapse in imports than via a rise in exports. However, this ceased to be the case in 2014. As the worst of the domestic fiscal squeeze ended in 2014, imports have rebounded in most reform countries for more than three years already, while the share of exports in GDP continues to grow. We thus complement our analysis of the net export position with a closer look at the ratio of exports to GDP.

By their very nature, small mature economies have a higher share of exports in their GDP. They also find it much easier to shift resources into export-orientated activities. Upon calculating our scores for the export share for the fundamental health league and for the post-2013 change in this export share for the adjustment progress league, we adjust for this fact by relating the export share to the size of the economy and the change in that share to the starting position.

Relative to the size of their economies, Luxembourg, Belgium, the Netherlands, Ireland, Slovakia and Germany are exceptionally well integrated into the European and global economies. At the lower end of the range, the export shares are still comparatively low for Greece, Finland, Cyprus and Croatia (see the scores in the column “exports” in Table 3 on page 20).

Looking at the post-2013 change in export shares for our analysis of adjustment progress, Luxembourg with its very small and very open economy managed the most impressive rise in its export share by a total of 23.7ppt of GDP from 2013 to 2018. It is followed by Belgium (a 14.6ppt shift), Slovenia (13.3ppt) and Hungary (10.3ppt). The results are also quite impressive for the Czech Republic with a shift of 9.7ppt, Romania (a 9.0ppt shift) and Lithuania (up 9.0ppt). Poland (with a shift of 8.7ppt), Croatia (8.3ppt) and the Netherlands (a shift of 8.2ppt) also rank among the top performers for the turnaround in their net exports since 2013. These export gains are especially impressive for Poland and the Netherlands due to their bigger and hence less open economies relative to those of most other frontrunners in this ranking.

At the other end of the spectrum, the share of exports in GDP has deteriorated significantly in Malta (by 9.5ppt of GDP) and more modestly in Estonia (by 2.3ppt). For the UK (export share up by 0.9ppt from 29.3% of GDP in 2013 to 30.2% in 2018), Finland (plus 1.2ppt to 41.4%), Spain (plus 2.3ppt), Denmark (plus 2.5ppt), Latvia (plus 2.9ppt), Sweden (plus 3.0ppt), France (plus 3.1ppt to 32.1%), Bulgaria (plus 3.2ppt) and Italy (plus 3.5ppt to 32.0%), the results are also far below the Eurozone average of 5.4ppt. Data for Malta and Luxembourg can be very volatile due the relatively small size of their economies relative to exports. See the data column on “change in net exports relative to GDP” in Table 4 on page 21 for more.

Of course, an analysis based merely on the shift in the share of exports in GDP is somewhat unfair. Small open economies such as Ireland, Malta, Luxembourg and the Baltic states find it much easier to shift resources from the domestically orientated to the export-orientated or import-competing sectors than larger and more closed economies. To account for this, we look not just at the shift in exports, but also at the shift in a country’s export position relative to the starting level in 2013.

After rapid adjustment,

many countries have now

relaxed the reins a little

For Romania, the fall in net

exports looks excessive

A darker side of the story

Small countries are more

open – we adjust the data

for this fact

Export shares are still low

for Greece, Finland, Cyprus

and Croatia

Impressive export gains for

Poland and the Netherlands

A significant deterioration

in Malta

Relative to its dismal

starting position…

Economics

25

To some extent, the results are similar: Romania, Slovenia and Belgium receive excellent scores on this count. However, relative to its 2013 starting level, Greece has achieved the most impressive improvement. Of course, this says more about the dismal starting point than about Greece’s export ratio in 2018 which, at 34.1% of GDP, remains low for an economy of its size. However, for our adjustment league – as opposed to the assessment of fundamental health – we rate the pace of improvement rather than the level already attained. If Greece continues to raise its share of exports in GDP rapidly in the next few years, it can expect to climb in our fundamental health ranking as well.

Combining the findings from the shift in current account positions, net exports and the change in the export ratio into one ranking yields the results for overall external adjustment as shown in Table 4 on page 21.

…Greece has made the

biggest shift

Economics

26

Labour market

Table 5: Fundamental health: labour market

Ranks, scores and score changes for labour market and sub-indicators in 2018 and 2007. Values are for (1) the index for real unit labour costs (RULC) with

2005=100, (2) the index for nominal unit labour costs (NULC) with 2005=100, and (3) employment rate for people aged 15-64 in percent. Change gives the

change in scores based on 2018 data versus the scores based on 2007 data. For further explanations, see notes under Table 1 on page 12 and the notes on

key components on page 75. The labour market score is a weighted average of a score for unit labour costs and the score for employment. For the unit

labour costs score we attach a weight of two-thirds to the sub-score for real and of one-third to the sub-score for nominal unit labour costs.

Source: Berenberg

Labour costs are an imperfect gauge of competitiveness. The ultimate yardstick of competitiveness is whether or not a company or country can profitably sell its wares. Other factors such as changes in product quality, brand value, consumer tastes and the mix of goods and services offered by a company or a country matter at least as much as labour costs. However, these other factors are often shaped by longer-term processes and are more difficult to quantify. Changes in nominal and real unit labour costs do provide some useful insights into a country’s near-term adjustment dynamics. This holds especially true if a decline in unit labour costs goes along with a rise in net exports, indicating that a country’s competitive position has indeed improved. Conversely, if a strong rise in labour cost goes along with a high and rising current account deficit, alarm bells should be ringing. This is the case for Romania.

To assess labour cost developments, we use the cumulative increase in real and nominal unit labour costs since 2005 as one key input into our analysis of fundamental health. For our adjustment progress league, we take the cumulative changes since 2013. Beyond an examination in changes in nominal and real unit labour costs, we also look at the employment rate for our assessment of fundamental health and at the change in this rate for post-2013 adjustment progress. We aggregate the results into one score each for the state of the labour market (fundamental health) and for overall labour market adjustment.

The Eurozone as a whole can count the rise in its employment rate from 63.5% in 2013 to 67.4% in 2018 as one of its key successes in the past five years. The rate comfortably exceeds the pre-crisis 65.4% in 2007. Remarkably, all 28 EU members raised their employment rate since 2013, supported by a return of economic growth to normal after years characterised by the great financial and euro crisis before.

Score Change Score Score Value Score Value Score Value

1 2 Netherlands 7.9 0.2 7.7 5.0 101.5 7.1 118.7 10.0 77.2

2 9 Portugal 7.7 1.1 6.6 8.8 88.9 8.3 106.9 6.7 69.7

3 6 Germany 7.6 0.6 7.0 5.0 101.4 6.8 121.8 9.5 75.9

4 4 Cyprus 7.5 0.1 7.3 8.9 88.8 8.6 104.3 6.2 68.6

5 10 Ireland 7.5 0.9 6.6 8.1 91.1 9.8 91.5 6.2 68.7

6 3 Sweden 7.4 -0.2 7.6 4.3 103.8 5.8 132.4 10.0 77.6

7 28 Malta 7.3 4.1 3.2 7.6 93.1 6.2 128.3 7.5 71.4

8 1 Denmark 7.2 -0.7 7.9 4.6 103.0 6.4 125.9 9.3 75.4

9 8 United Kingdom 7.1 0.4 6.7 4.8 102.1 5.9 131.0 9.0 74.7

10 5 Finland 6.9 -0.1 7.0 5.8 99.0 6.5 124.8 7.8 72.1

11 27 Hungary 6.8 2.9 3.9 8.1 91.3 5.0 139.8 6.5 69.3

12 7 Austria 6.8 0.0 6.8 4.9 101.8 6.2 127.8 8.2 73.0

13 12 Czech Republic 6.6 0.7 5.9 3.3 107.2 6.1 129.1 9.0 74.8

14 11 Slovenia 6.4 0.0 6.4 5.1 101.3 6.3 126.9 7.4 71.2

15 24 Croatia 6.0 1.5 4.5 10.0 83.7 8.4 106.2 2.6 60.7

16 19 Lithuania 6.0 0.8 5.2 4.5 103.1 3.3 157.5 7.9 72.4

17 26 Poland 5.8 1.8 4.0 5.9 98.6 6.3 126.6 5.6 67.4

18 16 Romania 5.3 -0.3 5.6 8.9 88.6 0.2 187.8 4.5 64.8

19 17 France 5.1 -0.4 5.5 4.5 103.2 7.1 119.3 4.9 65.9

20 15 Spain 5.1 -0.5 5.6 6.4 97.0 8.0 110.4 3.4 62.4

21 13 Luxembourg 5.1 -0.8 5.8 4.8 102.3 4.5 145.1 5.5 67.1

22 21 Belgium 4.9 0.0 4.9 4.9 101.9 6.5 124.5 4.3 64.5

23 14 Estonia 4.9 -0.9 5.7 1.1 114.5 0.0 196.9 9.0 74.8

24 22 Slovakia 4.5 -0.3 4.8 1.8 112.1 6.4 126.5 5.7 67.6

25 20 Greece 4.1 -1.0 5.1 7.9 92.1 8.7 102.8 0.0 54.9

26 23 Latvia 3.9 -0.7 4.6 0.1 117.5 0.0 196.5 7.6 71.8

27 25 Italy 3.6 -0.5 4.1 4.9 102.0 6.9 121.4 1.6 58.6

28 18 Bulgaria 2.9 -2.4 5.3 0.0 124.8 0.0 202.4 5.8 67.8

EZ19 5.8 -0.1 5.8 5.4 100.3 7.1 119.2 5.6 67.4

%

20182018 2007

Rank

CountryCountryCountryCountry Labour marketLabour marketLabour marketLabour market% since 2005 % since 2005

2018 2007 2018 2018

RULCRULCRULCRULC NULCNULCNULCNULC Employment rateEmployment rateEmployment rateEmployment rate

Labour costs are not a

perfect gauge – but they

matter

Looking at the cumulative

changes since 2005 and

since 2013

A key success for the

Eurozone: it has raised its

employment rate

Economics

27

Table 6: Adjustment progress: labour adjustment

Ranks, scores and score changes for labour market adjustment and sub-indicators during 2013-2018 relative to 2013-2016. Values are for (1) change in real

unit labour costs in percent since 2013, (2) change in nominal unit labour costs in percent since 2013, and (3) change in employment relative to 15-64 years-

old population (employment rate) in ppt. For further explanations, see notes under Table 5 on page 26 and the notes on key components on page 75.

Source: Berenberg

Three comparatively small economies, ie Malta, Croatia and Ireland, lead the ranking for overall labour adjustment, followed by Portugal, Cyprus, Spain, Slovenia, Hungary and Greece. Unsurprisingly, all countries that were forced to adjust because they fell victim to the euro crisis (Spain, Portugal, Ireland, Greece and Cyprus) or came close to asking for help (Slovenia) continued to restrain the increase in labour costs heavily in the years after 2013 (see Chart 17 and 18 on page 28). They reaped the benefit in terms of a rebound in the employment rate which, in the harsh years of the initial crisis, had fallen substantially. Unfortunately, the 22.3% increase in the minimum wage which Spain granted itself at the start of 2019, and which is thus not included in our comparison of 2018 data to 2013, could well cause a drop in Spain’s position in the next few years. Over time, it may also undermine Spain’s strong rate of employment growth.

The labour market in France does not yet function well enough to cope with the challenge of globalisation. Taking the past five years together, we find serious progress on some counts. Most importantly, nominal unit labour costs rose by merely 3.0%, slightly below the 4.3% cumulative increase for the Eurozone over this period. Helped by wage moderation and labour market reforms, the French employment rate finally started to move up again in 2016 after years of stagnation, reaching 65.9% in 2018. Because labour costs are still excessive, French unemployment – at 8.8% in the first quarter of 2019 – remains high. It will take more time until President Macron’s reforms show up more decisively in the labour market statistics.

2013 2013 2013 2013

-2018 -2016 -2018 -2016

Score Change Score Score Value Score Value Score Value

1 2 Malta 9.6 2.2 7.4 9.9 -9.8 7.7 0.7 10.0 9.2

2 3 Croatia 9.1 2.1 7.0 9.1 -7.8 9.5 -5.2 9.0 8.0

3 5 Ireland 8.6 1.9 6.7 9.1 -7.7 9.4 -4.9 8.0 7.0

4 4 Portugal 8.5 1.7 6.8 7.2 -3.0 6.5 4.5 10.0 9.0

5 10 Cyprus 8.4 2.6 5.8 8.4 -6.0 9.7 -6.1 7.9 6.8

6 6 Spain 7.9 1.5 6.4 6.9 -2.2 7.7 0.6 8.7 7.6

7 13 Slovenia 7.8 2.4 5.4 6.7 -1.8 6.5 4.6 8.9 7.9

8 1 Hungary 7.6 -0.6 8.2 6.0 -0.1 3.3 15.2 10.0 11.2

9 9 Greece 7.1 1.2 5.9 6.2 -0.5 8.4 -1.7 7.3 6.2

10 8 Poland 6.8 0.9 5.9 4.9 2.7 5.6 7.6 8.5 7.4

11 20 Finland 6.4 2.0 4.5 8.6 -6.6 8.0 -0.4 4.4 3.1

12 7 Czech Republic 6.2 0.0 6.2 4.5 3.8 4.0 13.0 8.2 7.1

13 18 Netherlands 6.0 1.1 4.9 7.1 -2.8 7.3 1.9 4.9 3.6

14 11 Slovakia 6.0 0.3 5.7 2.7 8.3 4.5 11.0 8.7 7.6

15 17 Bulgaria 5.9 1.0 4.9 3.0 7.6 1.5 21.0 9.3 8.3

16 12 United Kingdom 5.7 0.2 5.4 6.2 -0.6 5.5 8.0 5.4 4.1

17 19 Belgium 5.6 0.8 4.8 7.3 -3.2 7.0 3.1 4.0 2.7

18 16 Italy 5.5 0.6 5.0 6.7 -1.7 7.1 2.7 4.3 3.0

19 14 Sweden 5.4 0.3 5.2 6.9 -2.3 5.5 7.9 4.4 3.2

20 24 Lithuania 5.0 0.7 4.3 0.6 13.6 0.0 25.9 9.7 8.7

21 15 Denmark 4.9 -0.1 5.0 5.4 1.5 6.2 5.7 4.1 2.8

22 23 France 4.8 0.5 4.3 6.2 -0.5 7.0 3.0 3.2 1.8

23 22 Estonia 4.7 0.3 4.3 2.6 8.4 0.5 24.3 7.4 6.3

24 26 Austria 4.6 0.7 3.9 6.5 -1.3 5.6 7.5 3.0 1.6

25 21 Germany 4.6 0.2 4.4 5.7 0.8 5.0 9.6 3.7 2.4

26 28 Latvia 4.0 0.9 3.1 0.3 14.2 0.0 26.1 7.8 6.7

27 27 Luxembourg 3.7 0.0 3.7 4.8 2.9 4.1 12.6 2.8 1.4

28 25 Romania 3.1 -0.8 4.0 0.5 13.7 0.0 34.8 5.9 4.7

EZ19 5.9 0.8 5.1 6.6 -1.5 6.6 4.3 5.2 3.9

RULCRULCRULCRULC NULCNULCNULCNULC Employment rateEmployment rateEmployment rateEmployment rate

% since 2013 change ppt

Rank

2018

CountryCountryCountryCountry Labour adjustmentLabour adjustmentLabour adjustmentLabour adjustment% since 2013

2018 2013-2018

Three small countries lead

the ranking for labour

market adjustment

The labour market in France

does not yet function well

enough

Economics

28

Chart 17: Real unit labour costs since 2013 Chart 18: Nominal unit labour costs since 2013

Real unit labour costs indexed at 2013=100. Source: European Commission Nominal unit labour costs indexed at 2013=100. Source: European Commission

Italy has finally moved in the right direction during the past five years. After significant increases in nominal unit labour costs until 2013, wage pressures abated somewhat in the following five years, with Italy’s cumulative increase of 2.7% lagging behind the 4.3% rise in nominal unit labour costs in the Eurozone over that period.

The UK still combines a below-average ranking for labour market adjustment (number 16) with a low score for external adjustment (number 20). Unlike less-advanced countries with significant catch-up potential, such as the Baltic countries and several EU members from southeastern Europe, the UK cannot count on above-average productivity gains in its traded goods sector to offset a major rise in wages. Once again, nominal unit labour cost in 2017 and 2018 rose faster in the UK (by 4.8%) than in the Eurozone (up 2.6%) over these two years. Despite the boost to inflation caused by the 16% decline in the sterling exchange rate in the six months after the vote to leave the EU on 23 June 2016, real unit labour costs in the UK have still risen slightly in the past two years (by 0.6%) whereas they stayed nearly constant in the Eurozone (0.1%). For a country that needs to do more rather than less to improve its competitive position, the decision to put access to its dominant export market at risk looks somewhat foolhardy.

The three small Baltic economies – Estonia, Latvia and Lithuania – as well as Bulgaria have also let their unit labour costs rise substantially since 2013. However, they also managed to raise their employment rates at an above-average pace and enjoy comfortable external positions. For them, higher labour costs seem to be part of a healthy catching-up process rather than a sign of excess. Notably the Baltic countries, which had gone through a deep adjustment crisis in the years after 2007, have some room for living more comfortably again without having to worry too much about potential new excesses yet. As they started to relax the reins somewhat since 2014, the small Baltic economies are falling behind in the adjustment ranking, including for labour costs. Still, these countries may soon need to be more careful again. They should avoid a relapse into the excesses of the previous boom, which then had to be corrected by a bust.

On labour market adjustment, Romania (number 28) graces the bottom of the league table, just below Luxembourg (number 27), Latvia (number 26), Germany (number 25) and Austria (number 24). Luxembourg’s ranking is held back by a very small gain in its employment rate (up merely by 1.4ppt to a below-average 67.1% in 2018). Romania has allowed itself a strong increase in nominal unit labour costs by 34.8% since 2013, although its weak external position suggests that this increase in costs is excessive. For Austria, the slow rise in the employment rate by 1.6ppt since 2013 to 73% in 2018, on the back of labour cost increases that are modestly above the Eurozone average, is the only fly in the ointment in an otherwise fairly stellar performance in our overall adjustment ranking.

Reflecting the fundamental health of the German labour market, Germany’s wage gains outpaced those in most other western European countries in the sample, with a cumulative increase in German nominal labour costs of 9.6% in the past five years well ahead of the 4.3% average for the Eurozone. German increases in unit labour costs even outpace those in the UK (cumulative rise of 8.0% over the past five years).

Wage pressures abated in Italy in the past five years

Nominal labour costs are

rising at an above-average

pace in the UK

The Baltic countries can

probably afford their higher

labour costs – for now

Romania at the bottom for

labour adjustment

German wage gains outpace

those elsewhere

Economics

29

As part of a successful catching-up process with their more advanced peers, some countries with a particularly low starting level (Malta, Hungary, Croatia and Poland) raised their employment rates by significantly more than the average of all EU members.

Whereas Slovenia (number seven on labour market adjustment) let its nominal unit labour costs rise faster than the Eurozone average since 2013, they nonetheless managed to contain the increase in their real unit labour costs to below the Eurozone average. This is a feature often seen in catching-up economies as described by the Balassa-Samuelson effect.

4 From a

low starting level, prices for non-tradable goods tend to rise faster in catching-up economies than in more developed economies. As long as these catching-up economies maintain a competitive edge in tradable goods, usually by productivity gains in this sector in line with the overall rise in wages, the resulting gap between higher overall inflation in the catching-up economies and more subdued inflation in the more mature economies is a by-product of development rather than a concern.

4 The theory, first put forward by economists Bela Balassa and Paul Samuelson in 1964, holds that, in

fast-growing “catching-up” economies, productivity rises more in the traded goods sector than in other sectors relative to the gains in more mature economies. Industry can thus remain competitive in emerging markets even if wages and domestic prices rise faster than in more mature economies. See Bela Balassa, Policy Reform in Developing Countries (London: Pergamon, 2016).

Some upward convergence

of employment rates

Key question: do catching-

up economies keep their

competitive edge?

Economics

30

Regulations and reforms

Table 7a: Fundamental health: ease of doing business Table 7b: Adjustment progress: reform drive

Ranks, score and score changes for ease of doing business (health) and reform drive (adjustment). The values for ease of doing business refer to the 2018

World Bank’s Ease of Doing Business score, but exclude the score for “getting electricity” for lack of pre-2010 data; 0-100 (best) index. The values given for

the OECD reform responsiveness indicator refer to the average results from the OECD’s Going for Growth data for 2013/2014, 2015/2016 and 2017 combined.

We compare this value with the average for 2010, 2011/2012 and 2013/2014; 0-1 (best) index. For further explanations see notes under Tables 1 and 2 on

pages 12 and 15 and the notes on key components on page 75. Source: World Bank, OECD, Berenberg calculations.

To seize the opportunities of globalisation and rapid technological change, countries need to offer businesses attractive conditions to invest, innovate and create jobs. To make their fiscal positions sustainable in the long run without excessive pain, countries should raise their long-term growth potential. In short, they need pro-growth structural reforms.

Crises are handmaidens of change. Under the pressure of crisis, governments at the euro periphery have taken many steps to make their economies leaner and fitter for growth during and in the immediate aftermath of the euro crisis. They reformed labour markets, cut pension and other welfare entitlements, streamlined administrative procedures and deregulated some markets for products and services. While the benefits of such reforms only show up with a lag, they ultimately matter more than the initial readiness to rein in excesses in public or private spending.

Ease of doing business

As part of our analysis of fundamental health, we use the country scores from the World Bank’s “ease of doing business” reports. They give a broad overview of key conditions that businesses need to thrive.

5

The World Bank scores show a clear North-South divide. Denmark (number one) and the UK (number two) are the best places for business in the EU, followed by Estonia (number three), Lithuania (number four), Sweden (number five), Finland (number six) and Latvia (number

5 More precisely, we take a simple unweighted average of the scores that the World Bank provides for

each of the 10 pillars of its analysis, leaving out only the score for “getting electricity” for which the World Bank provides no 2007 data. Getting electricity should – hopefully – not be an issue in the EU (despite some concerns about Germany’s not exactly well managed “Energiewende”, to add a tongue-in-cheek comment).

Reform driveReform driveReform driveReform drive

0-1 index

2013 2013 2013 2010

-2018 -2016 -2018 -2014

Score Change Score Value Change Value Score Change Score Value

1 1 Denmark 10.0 0.0 10.0 84.0 0.7 83.3 1 n.a. Latvia 10.0 n.a. n.a. 0.58

2 3 United Kingdom 9.0 -0.7 9.7 81.1 -1.4 82.5 2 9 Austria 8.5 2.4 6.0 0.50

3 7 Estonia 8.5 2.5 6.0 80.2 4.8 75.4 3 1 Greece 8.4 -1.6 10.0 0.50

4 10 Lithuania 8.4 3.5 4.9 80.0 6.6 73.4 4 14 France 7.1 3.0 4.1 0.44

5 5 Sweden 8.2 0.6 7.6 79.6 1.2 78.4 5 8 United Kingdom 5.8 -0.9 6.8 0.39

6 4 Finland 8.1 -0.2 8.3 79.4 -0.5 79.9 6 1 Ireland 5.4 -4.6 10.0 0.37

7 12 Latvia 8.0 5.2 2.8 79.3 9.9 69.4 7 13 Italy 5.3 0.2 5.2 0.37

8 1 Ireland 7.5 -2.5 10.0 78.3 -5.8 84.1 8 1 Estonia 5.3 -4.7 10.0 0.37

9 8 Austria 7.1 1.2 5.9 77.6 2.3 75.3 9 20 Belgium 4.8 3.8 1.0 0.35

10 13 Spain 6.9 4.5 2.4 77.1 8.5 68.6 10 5 Spain 4.6 -5.2 9.8 0.34

11 6 Germany 6.7 -0.4 7.1 76.7 -0.8 77.5 11 7 Slovakia 4.2 -3.0 7.1 0.32

12 21 Poland 6.6 6.6 0.0 76.5 17.3 59.1 12 16 Netherlands 4.1 0.7 3.4 0.32

13 17 France 6.1 4.9 1.2 75.7 9.3 66.4 13 10 Finland 3.7 -1.8 5.5 0.30

14 14 Portugal 6.0 4.2 1.8 75.5 8.0 67.5 14 12 Czech Republic 3.6 -1.8 5.3 0.29

15 9 Netherlands 6.0 0.6 5.4 75.4 1.1 74.3 15 19 Germany 3.2 1.1 2.1 0.28

16 11 Belgium 5.6 1.1 4.5 74.7 2.2 72.5 16 15 Denmark 3.0 -0.8 3.7 0.27

17 18 Romania 5.5 5.1 0.4 74.4 9.6 64.8 17 11 Hungary 2.9 -2.5 5.5 0.27

18 16 Slovakia 5.4 4.1 1.3 74.3 7.8 66.4 18 6 Poland 2.8 -5.0 7.8 0.26

19 21 Slovenia 5.3 5.3 0.0 74.1 18.6 55.5 19 1 Portugal 2.0 -8.0 10.0 0.23

20 21 Czech Republic 5.2 5.2 0.0 74.0 14.4 59.6 20 21 Luxembourg 0.7 0.7 0.0 0.17

21 21 Hungary 4.9 4.9 0.0 73.3 9.6 63.7 21 18 Sweden 0.6 -1.6 2.2 0.16

22 20 Bulgaria 4.8 4.6 0.2 73.1 8.8 64.3 22 17 Slovenia 0.0 -2.6 2.6 0.14

23 21 Italy 3.8 3.8 0.0 71.1 8.0 63.1 Bulgaria n.a. n.a. n.a. n.a.

24 15 Cyprus 3.7 2.3 1.4 71.0 4.3 66.7 Croatia n.a. n.a. n.a. n.a.

25 21 Croatia 3.4 3.4 0.0 70.4 16.3 54.1 Cyprus n.a. n.a. n.a. n.a.

26 19 Luxembourg 1.7 1.4 0.4 67.3 2.6 64.7 Lithuania n.a. n.a. n.a. n.a.

27 21 Greece 1.7 1.7 0.0 67.2 9.2 58.0 Malta n.a. n.a. n.a. n.a.

28 21 Malta 0.1 0.1 0.0 64.2 2.4 61.8 Romania n.a. n.a. n.a. n.a.

EZ19 6.0 2.4 3.6 75.3 4.5 70.8 EZ19 4.8 0.3 4.6 0.35

2013-2017

Rank

20182007 2007

CountryCountryCountryCountry ReformsReformsReformsReformsCountryCountryCountryCountry RegulationsRegulationsRegulationsRegulations

2018

Ease of doing businessEase of doing businessEase of doing businessEase of doing business

0-100 index

2018 2007

Rank

Countries need to be

attractive places to invest

Crises are handmaidens of

change

Drawing on the expertise of

the World Bank

A North-South divide

Economics

31

seven). Except for the UK, these countries are all grouped around the Baltic Sea. Some Mediterranean countries such as Italy (number 23), Cyprus (number 24), Croatia (number 25), Greece (number 27) and Malta (number 28) receive the worst scores from the World Bank.

For Malta, the final place in the ease of doing business league is the only major black spot in an otherwise stellar set of results for fundamental health. If Malta had brought its ease of doing business rating up to that for the Eurozone average, it would have surged in our ranking for fundamental health to second place, just ahead of Germany, from its actual position as number 10.

For Finland, the opposite holds to some extent. Without its good score for ease of doing business (8.1 instead of a Eurozone average of 6.0), it would have slipped from number 17 to number 19 in our fundamental health league with a total score of 5.2 instead of 5.7, and would be significantly instead of just modestly below the Eurozone average of 5.9.

The only exception to the rule of a North-South divide is Luxembourg (number 26). The small country in central Europe apparently has so many other attractive features that it does not need to bother with making it even easier for companies to do business.

Comparing the 2018 scores to those for 2007 indicates a significant improvement across most of the European Union: 24 out of 28 countries have raised their scores. The exceptions are Ireland, Finland, Germany and the UK. Despite their slippage in the World Bank’s ranking, these four countries maintain scores well above that for the Eurozone average (see Chart 19 on page 31).

Chart 19: World Bank “ease of doing business” score

The values for ease of doing business refer to the World Bank’s Ease of Doing Business score, but exclude the score for “getting electricity” for lack of pre-

2010 data; 0-100 (best) index. Source: World Bank, Berenberg

Pro-growth reforms

For our adjustment progress league, we focus more on changes in government policies than on the factors used in the World Bank’s “ease of doing business” ranking which includes private as well as public initiatives. To measure the reform progress, or the lack thereof, we thus employ the expertise of the Organisation for Economic Co-operation and Development. The OECD regularly identifies five priority areas for reform for most of its member countries. In each of these areas, it makes a number of concrete recommendations and subsequently measures whether these were put into action (score 1) or not (score 0) with a full assessment every two years and an interim assessment in between. For our Euro Progress Monitor, we use the data for the two two-year periods of 2013/2014 and 2015/2016 as well as preliminary one-year results for 2017 as the basis of our analysis. The OECD will publish new data for 2018 in mid-2019.

The OECD data reveal some dramatic changes for the five years starting in 2013 relative to the 2010-2014 period that we had used as a reference in some earlier editions of our Euro Plus Monitor. For the five years of the euro crisis and its immediate aftermath – 2010-2014 – the four euro crisis countries covered by the OECD data had attained the top four slots, with Greece ahead of Spain, followed by Portugal and Ireland. For the five-year period starting in 2013, which omits the 2010-2012 data but adds 2015-2017, the four erstwhile top reformers

The final place goes to Malta

on this count

Doing business score holds

Finland up

The Luxembourg exception

24 of 28 countries receive

higher scores from the

World Bank

Focus on pro-growth

reforms for the adjustment

league

Dramatic changes over time

Economics

32

understandably slackened their efforts somewhat. While Greece as number three in the new ranking and Ireland as number six maintained scores well above average, Spain and Portugal did not. Portugal slipped most dramatically from number one to number 19 in the reform ranking. While the leftist government that came to power in late 2015 maintained fiscal prudence, it did turn away from pro-growth structural reforms.

On the positive side, the pace of reforms has quickened significantly in France since 2015, propelling France to number four in the reform league. The change started under then Economy Minister Emmanuel Macron and Labour Minister Myriam El Khomri in the last two years of the Hollande presidency. We note that the OECD results do not yet include 2018, the first full year of the Macron presidency.

To some extent, Italy has lived up to the hopes which Matteo Renzi and Paolo Gentiloni had raised during their stints as prime ministers from 2014 to early 2018. For the five years starting in 2013, Italy has risen to number seven in our reform ranking with a score slightly above the Eurozone average. Whereas Italy heeded merely 21% of the OECD’s reform recommendations in 2013/2014, the share rose to 36% in 2015/16 and an above-average 55% in 2017. Unfortunately, the change in government in 2018 does not bode well for future efforts at pro-growth reforms.

Within the Eurozone, we find significant progress in Austria. Under centre-left chancellor Christian Kern, Austria implemented 71% of the OECD’s recommendation in 2017, according to the OECD’s preliminary assessment. This represents remarkable progress after a lacklustre pace of reforms in 2013/2014 and a modest improvement in 2015/2016. In a less remarkable fashion, Belgium also managed to climb in the rankings for pro-growth structural reforms from a dismal score for 2010-2014 to an average result for the five years starting in 2013.

Having voted in June 2016 to leave the European Union, the UK strengthened its reform drive in 2017. For the overall 2013-2017 period, it attains a score well above the Eurozone average. In this respect, the UK is clearly defending its advantage as one of the best-regulated economies in Europe. Whether this reform drive survives the current Brexit turbulences remains to be seen, however.

Beyond the cases discussed above, countries with a major loss of reform momentum in the 2013-2017 period relative to the pace before include Estonia (number eight), Slovakia (number 11), Finland (number 13), Hungary (number 17), Poland (number 18) and Slovenia (number 22) out of the 22 EU members assessed by the OECD. For Estonia, which had reformed itself thoroughly and successfully in the wake of the Baltic crisis 10 years ago, this may be understandable. For Poland, Slovakia, Slovenia, Hungary and Finland, however, we view this as a sign of complacency. This is especially true for Finland, which is still one of the weaker members of the Eurozone. It ought to do better. Although Finland has made significant progress on other criteria of adjustment in the past 2-3 years, it still needs to step up its structural reform efforts.

Four comparatively healthy core Eurozone countries which can afford a more leisurely pace of reforms than the average EU member feature close to the bottom of the table with Germany at number 15 ahead of Denmark (number 16), Luxembourg (number 20) and Sweden (number 21). Of course, they need to watch the risk of complacency.

The pace of reforms

quickened in France

Progress in Italy after 2013 –

but is it over now?

Significant gains in Austria

Stronger reform drive in the

UK in 2017

Major loss of momentum in

some countries

Some healthy countries may

be becoming a bit

complacent

Economics

33

Fiscal sustainability

Table 8: Fundamental health: fiscal sustainability

Ranks, scores and score changes for fiscal sustainability and sub-indicators in 2018 and in 2007. Values are: (1) general government expenditure in percent

of GDP in 2018, (2) public debt in percent of GDP in 2018, (3) structural primary balance in percent of GDP in 2018, (4) structural balance in percent of GDP

in 2018, (5) productive expenditure, which is public investment in infrastructure and education, in percent of total public expenditure in 2017, and (6) non-

distortionary tax revenue, which is the revenue of consumption and property taxes, in percent of total tax revenues in 2017. The fiscal sustainability score is

a weighted average with all variables given the same weight, except that we first aggregate the sub-scores for the structural primary balance and structural

balance into one score with a weight of one-third for the structural primary balance and two-thirds for the structural balance. For further explanations, see

notes under Table 1 on page 12 and the notes on key components on page 75. Source: Berenberg

Fiscal excesses can impair the growth potential of countries and make them more vulnerable to shocks. Although a high share of public expenditure in GDP can occasionally dampen cyclical fluctuations, an overbearing government sector constrains the capacity of economies to adjust. In a similar vein, an excessive focus on public consumption and welfare spending rather than productive expenditure on education and public investment can constrain an economy’s supply side over time. The same holds for an overly strong emphasis on taxes that reduce the incentive to work and invest relative to less distortionary taxes on consumption.

For our analysis of a country’s fiscal health, we thus go beyond a simple look at its public debt ratio and its structural or primary structural balance. We include the share of public expenditure in GDP as well as the composition of public spending and revenues in our assessment. As richer countries tend to have more extensive social safety nets and spend a higher share of incomes on health, often channelled largely through the public accounts, we adjust the share of public expenditure for per capita GDP to allow for a fairer comparison between the emerging markets and the mature economies within the EU.

Five small countries excel in this ranking, namely Luxembourg (number one), Lithuania (number two), Estonia (number three), Malta (number four) and Ireland (number five). Luxembourg does well on all fiscal counts. Estonia shines partly because its public debt of just 8.4% of GDP in 2018 is by far the lowest within the EU, miles below even that of Luxembourg (21.4%). Against the trend, Malta has reduced its public debt ratio substantially from 62.3% of GDP in 2007 to 46% last year. At 36.3%, its share of public spending in GDP is also comparatively low.

Score Change Score Score Value Score Value Score Value Score Value Score Value Score Value

1 1 Luxembourg 9.0 -0.5 9.5 8.9 43.0 9.2 21.4 6.1 1.4 10.0 1.6 9.2 4.8 9.3 34.2

2 12 Lithuania 8.0 2.1 5.9 9.5 34.0 8.4 34.2 6.7 1.8 8.6 0.9 8.0 5.5 4.6 n.a.

3 3 Estonia 7.5 -0.5 8.1 6.0 39.7 10.0 8.4 3.6 -0.1 6.8 -0.1 8.3 5.6 8.6 43.8

4 22 Malta 7.4 3.3 4.1 9.3 36.3 7.7 46.0 7.1 2.0 7.7 0.4 5.5 3.2 4.6 n.a.

5 4 Ireland 7.3 0.0 7.3 10.0 30.0 5.3 84.2 5.8 1.2 6.1 -0.4 6.6 3.2 9.5 38.4

6 8 Netherlands 7.2 0.6 6.6 7.7 42.1 7.3 52.4 5.8 1.3 7.9 0.5 7.9 4.1 5.8 33.3

7 18 Czech Republic 7.1 1.7 5.4 5.9 40.7 8.5 32.7 6.7 1.8 9.2 1.2 8.3 5.5 2.8 34.4

8 14 Cyprus 6.9 1.1 5.7 10.0 36.4 4.2 102.5 9.1 3.3 9.8 1.5 2.9 2.2 4.6 n.a.

9 6 Latvia 6.6 -0.2 6.9 6.2 38.4 8.3 35.9 3.4 -0.3 4.6 -1.2 7.4 4.8 8.4 45.1

10 16 Slovenia 6.6 0.9 5.7 5.4 42.2 6.2 70.1 7.7 2.4 7.9 0.5 6.0 3.4 8.0 40.7

11 13 United Kingdom 6.3 0.5 5.7 7.9 40.8 5.1 86.8 3.9 0.1 4.2 -1.4 5.9 3.0 10.0 44.5

12 2 Bulgaria 6.2 -1.9 8.1 6.9 34.7 9.1 22.6 n.a. n.a. 7.0 0.1 1.9 2.6 4.6 n.a.

13 15 Germany 5.9 0.2 5.7 6.1 43.8 6.7 60.9 7.0 2.0 9.4 1.3 2.8 2.0 1.5 29.5

14 7 Denmark 5.9 -0.9 6.8 2.3 51.4 8.4 34.1 4.4 0.4 6.9 0.0 5.2 2.5 8.3 36.0

15 10 Sweden 5.7 -0.8 6.5 2.9 49.8 8.1 38.8 4.2 0.3 7.8 0.5 6.8 3.3 3.3 30.3

16 17 Romania 5.4 0.0 5.4 7.3 35.2 8.3 35.0 0.0 -2.4 0.0 -3.8 7.3 5.1 4.6 n.a.

17 19 Poland 5.3 0.3 5.1 3.9 41.5 7.5 48.9 3.6 -0.1 3.8 -1.6 7.7 5.1 4.9 39.3

18 25 Greece 5.3 1.6 3.7 2.5 46.9 0.0 170.0 10.0 6.3 10.0 3.2 7.4 4.2 10.0 47.5

19 11 Slovakia 5.2 -0.9 6.1 5.4 40.6 7.5 48.9 3.7 -0.1 4.5 -1.3 5.4 3.3 2.3 34.6

20 5 Finland 4.8 -2.3 7.1 0.4 53.1 6.9 58.9 2.6 -0.7 5.4 -0.8 7.2 3.6 7.5 36.2

21 23 Austria 4.7 0.9 3.9 3.5 48.3 5.9 73.8 4.7 0.6 5.7 -0.6 6.3 3.1 2.0 29.5

22 20 Portugal 4.7 -0.1 4.8 4.1 44.0 3.0 121.5 8.7 3.0 6.4 -0.3 0.0 1.4 9.4 43.5

23 24 Croatia 4.5 0.8 3.7 0.6 46.5 5.9 74.6 9.0 3.2 9.0 1.1 0.6 2.1 4.6 n.a.

24 9 Spain 4.5 -2.0 6.5 6.8 41.3 4.5 97.1 3.1 -0.4 1.8 -2.7 2.6 2.1 6.5 36.9

25 27 Hungary 3.9 0.6 3.3 0.0 47.4 6.1 70.8 3.0 -0.5 1.4 -2.9 6.3 3.9 8.8 45.2

26 21 Belgium 3.0 -1.5 4.5 0.7 52.4 4.2 102.0 4.4 0.4 3.9 -1.6 2.0 1.9 4.4 32.3

27 26 Italy 3.0 -0.5 3.5 2.5 48.6 2.3 132.2 6.7 1.8 3.6 -1.7 0.0 1.6 5.4 34.6

28 28 France 2.9 -0.4 3.3 0.0 56.1 4.4 98.4 2.5 -0.8 2.1 -2.5 4.6 2.5 5.3 33.9

EZ19 5.2 0.1 5.1 5.7 46.8 5.2 85.1 5.4 1.0 5.6 -0.7 4.0 2.4 4.6 33.3

Public expenditurePublic expenditurePublic expenditurePublic expenditure Public debtPublic debtPublic debtPublic debt Struct. pr. balanceStruct. pr. balanceStruct. pr. balanceStruct. pr. balance Structural balanceStructural balanceStructural balanceStructural balance Productive expend.Productive expend.Productive expend.Productive expend.Non-distort. tax revNon-distort. tax revNon-distort. tax revNon-distort. tax revCountryCountryCountryCountry Fiscal sustainabilityFiscal sustainabilityFiscal sustainabilityFiscal sustainability

% of GDP % of GDP % of GDP

Rank

% of GDP % of public expend. % of tax revenue

2018 2018 20182007 2018 2018 20182018 2007 2018

Fiscal excesses can impair

the growth potential

The quality of a fiscal stance

matters

Four small countries excel

in this ranking

Economics

34

At the bottom of the ranking, France (number 28), Italy (number 27) and Belgium (number 26) face particularly severe fiscal challenges. Despite some recent progress, France still spends a big share of its GDP as public expenditure (56.1% in 2018). Its debt ratio (98.4% of GDP) and especially its structural fiscal deficit (2.5% of GDP in 2018) are high by European standards. The story is similar for Belgium with a score that is only marginally above that for France. For Italy, the better score for its fiscal deficit is almost fully offset by a very poor score for public debt. Also, Italy’s public spending is heavily tilted towards non-productive tasks instead of education and investment.

Despite its high debt burden of 181% of GDP (or c170% if adjusted for the last ESM payment towards a high cash reserve of some €23bn), Greece (number 18) receives a score for fiscal health in line with the Eurozone average. Nudged into the right direction by its official creditors, Greece achieves excellent marks for its structural fiscal surplus and for the growth-friendly composition of its tax structure. However, we need to interpret this result with some caution. While the share of consumption taxes in overall revenues may be high in Greece, its overall tax burden remains excessive. Also, key reasons for the low share of corporate income taxes include the legacy of heavy corporate losses during the Greek crisis as well as the overly complex structure of these taxes and the resulting difficulties to collect the revenues. Greece could make its income and business taxes simpler and fairer by moving closer to an easy-to-administer flat tax regime. This would also improve the incentive structure and the outlook for trend growth.

Fiscal adjustment since 2013

Table 9: Adjustment progress: fiscal adjustment

Ranks, scores and score changes for cumulative fiscal adjustment and sub-indicators during 2013 to 2018. The 2016 column gives the score countries would

have attained for their cumulative adjustment during the shorter 2013-2016 period. Values given are: (1) change in general government expenditure relative

to GDP in ppt during 2013-2018, (2) change in public debt in percentage points (ppt) of GDP from 2013 to 2018, (3) change in structural primary balance in

ppt of GDP 2013-2018, (4) change in structural balance in ppt of GDP 2013-2018, and (5) government spending and tax cuts in ppt of GDP for 2012/2013-

2017/2018. The fiscal adjustment score is a weighted average of the sub-scores with all variables given the same weight, except that we first aggregate the

sub-scores for the structural primary balance and structural balance into one score with a weight of one-third for the structural primary balance and two-

thirds for the structural balance. For further explanations, see notes under Table 2 on page 15 and the notes on key components on page 75. Source:

Berenberg

2013 2013 2013 2013

-2018 -2016 -2018 -2016

Score Change Score Score Value Score Value Score Value Score Value Score Value

1 1 Ireland 9.9 0.1 9.8 10.0 -10.4 10.0 -35.5 9.3 2.4 10.0 4.2 10.0 13.1

2 2 Malta 8.1 0.2 7.9 6.9 -5.7 10.0 -22.4 6.3 0.6 7.2 1.8 8.6 3.9

3 3 Denmark 7.1 0.7 6.4 5.3 -4.4 6.3 -9.9 8.8 2.1 7.6 2.1 8.8 4.0

4 4 Netherlands 6.7 0.6 6.1 5.7 -4.4 8.1 -15.3 6.9 1.0 6.8 1.6 6.1 1.9

5 6 Portugal 6.2 0.7 5.5 6.5 -6.0 5.5 -7.5 6.8 0.9 6.8 1.6 6.1 1.8

6 13 Slovenia 5.9 1.5 4.4 6.1 -7.1 3.1 -0.3 8.2 1.7 7.4 1.9 6.8 2.4

7 9 United Kingdom 5.4 0.5 5.0 5.0 -3.1 2.5 1.6 9.9 2.7 8.4 2.5 5.4 1.4

8 7 Belgium 5.4 0.4 5.0 4.8 -3.4 4.2 -3.5 6.1 0.5 6.6 1.4 6.4 2.1

9 16 Austria 5.4 1.2 4.2 4.8 -3.3 5.5 -7.5 5.6 0.2 6.0 1.1 5.4 1.3

10 5 Czech Republic 5.3 -0.4 5.6 4.2 -1.9 7.1 -12.2 5.8 0.3 5.5 0.8 4.2 0.3

11 11 Germany 4.9 0.3 4.6 3.5 -0.8 8.8 -17.3 5.6 0.2 6.1 1.1 1.5 -1.8

12 8 Cyprus 4.8 -0.2 5.0 6.8 -5.5 3.2 -0.6 9.5 2.5 9.3 3.1 0.0 -3.2

13 18 Finland 4.8 0.8 4.0 5.2 -4.4 2.2 2.4 5.8 0.4 4.8 0.4 6.9 2.5

14 21 Croatia 4.7 0.8 3.8 3.7 -1.2 4.9 -5.8 10.0 3.3 10.0 4.1 0.0 -5.3

15 15 Lithuania 4.4 0.1 4.2 4.2 -1.5 4.5 -4.6 8.0 1.7 8.3 2.5 0.6 -2.5

16 12 Sweden 4.3 -0.1 4.5 4.1 -2.1 3.6 -1.9 6.6 0.9 6.1 1.2 3.3 -0.4

17 10 Poland 4.2 -0.4 4.6 3.7 -1.1 5.3 -6.8 6.8 0.9 7.3 1.9 0.7 -2.4

18 19 Bulgaria 4.0 0.1 4.0 5.4 -3.1 1.2 5.5 n.a. n.a. 6.1 1.2 3.5 -0.2

19 17 Greece 3.9 -0.2 4.1 7.1 -7.9 5.5 -7.4 2.0 -1.8 1.5 -1.6 1.3 -1.9

20 22 Italy 3.4 -0.3 3.7 4.4 -2.5 1.9 3.2 1.5 -2.1 2.2 -1.2 5.2 1.2

21 28 Slovakia 3.3 1.0 2.3 3.6 -0.9 4.9 -5.8 5.0 -0.1 4.6 0.3 0.0 -3.9

22 23 Romania 3.3 -0.4 3.7 3.2 -0.3 3.9 -2.6 0.4 -2.8 0.0 -2.6 5.8 1.7

23 25 France 3.2 -0.1 3.2 3.5 -1.1 1.3 5.0 6.0 0.5 5.7 0.9 2.0 -1.4

24 14 Luxembourg 3.2 -1.1 4.3 3.2 -0.4 3.8 -2.3 5.5 0.2 4.5 0.2 0.8 -2.3

25 24 Spain 3.1 -0.4 3.6 5.7 -4.2 2.5 1.6 3.7 -0.9 3.5 -0.4 0.9 -2.3

26 26 Hungary 2.8 -0.1 2.9 4.1 -2.0 5.1 -6.4 0.0 -4.1 0.1 -2.4 2.0 -1.4

27 20 Latvia 2.8 -1.1 3.9 2.4 0.7 4.2 -3.5 4.7 -0.3 4.5 0.2 0.0 -3.5

28 27 Estonia 2.5 -0.2 2.7 2.1 1.2 3.6 -1.8 3.9 -0.7 2.9 -0.8 0.9 -2.3

EZ19 4.8 0.2 4.6 4.7 -3.0 5.2 -6.7 5.0 -0.1 5.2 0.6 4.1 0.3

2013-2018

Spending & tax cutsSpending & tax cutsSpending & tax cutsSpending & tax cutsPublic debtPublic debtPublic debtPublic debt

change ppt of GDP ppt of GDP

2013-2018 2013-2018 2013-2018 2013-2018

change ppt of GDP

Struc. pr. balanceStruc. pr. balanceStruc. pr. balanceStruc. pr. balance Structural balanceStructural balanceStructural balanceStructural balance

Rank

CountryCountryCountryCountry Fiscal adjustmentFiscal adjustmentFiscal adjustmentFiscal adjustmentchange ppt of GDP change ppt of GDP

Public expenditurePublic expenditurePublic expenditurePublic expenditure

France, Italy and Belgium

face severe fiscal challenges

A very mixed picture in

Greece

Economics

35

Countries that have lived beyond their means need to tighten their belts. Since 2011, we have tracked the fiscal adjustment of EU member countries in our regular Euro Plus Monitor publications. The results have consistently shown that: 1) the countries most in need of fiscal repair did impose serious austerity on their economies from 2010 onwards, and 2) that these adjustment efforts slackened significantly after 2013.

In our new European Progress Monitor, we focus on the years since 2013 rather than the immediate reaction to the two big crises before assessing the ongoing fiscal adjustment efforts. We also broaden our analysis by including the changes in public debt ratios and in the share of government spending in GDP in our assessment of adjustment progress on top of our previous look at the size of any fiscal rebalancing. The results are mostly encouraging despite some slippage in a number of countries.

The Eurozone as a whole improved its fiscal position between 2013 and 2018 modestly on all four counts: helped by fiscal prudence and a return to economic growth, the region managed to reduce the share of government spending in GDP (from 49.8% to 46.8%) as well as the public debt burden (from 91.8% to 85.1%). It also narrowed its structural fiscal deficit further from 1.3% to 0.7% of GDP (see Chart 20 on page 35). Fortunately, it did so more by reining in the growth in expenditure rather than hiking taxes.

Chart 20: Structural deficits falling in most countries

Structural fiscal balance in percent of GDP. Source: IMF

Among the 28 EU members, Ireland is the clear frontrunner in our league table for overall fiscal adjustment since 2013. The emerald isle excels on all fiscal counts. Beyond slashing its debt burden, it also cut the ratio of government expenditures to GDP and reduced its structural deficit substantially. Ireland is followed by Malta, which also did well across the board. With scores substantially lower than those for the two frontrunners, Denmark, the Netherlands, Portugal and Slovenia still did substantially better than the average.

Estonia, Latvia, Hungary, Spain, Luxembourg, France, Romania, Slovakia and Italy feature at the bottom of the fiscal adjustment league. For France, Spain and Italy, this is largely because of an increase in the ratio of public debt to GDP. The score for France is also held back significantly by a comparatively slow pace of reducing the share of government spending in GDP.

Debt ratioDebt ratioDebt ratioDebt ratio

The significant fall in the Eurozone’s debt ratio is largely driven by its most weighty member country, Germany, which cut its debt burden from 78.2% to 60.9% of its GDP. However, Ireland (debt ratio down from 119.7% to 84.2%),

6 Malta (from 68.4% to 46.0%) and the

Netherlands (from 67.7% to 52.4%) also lightened their debt burdens substantially. Outside the Eurozone, they were joined by the Czech Republic (from 44.9% to 32.7%). If we exclude the €23bn of European support to Greece, which the country used to build up a cash buffer

6 For a fair comparison, we have adjusted the Irish data for GDP, exports and imports for the one-off

surge in exports, imports and GDP in 2015 caused by a change in the statistical treatment of some transactions of big technology companies whose European headquarters are often based in Ireland. Eurostat puts the country’s ratio of public debt to its unadjusted GDP at a mere 64.8% for 2018.

Tracking the fiscal

adjustment…

… in the years since 2013

Gains for the Eurozone as a

whole

Ireland is the frontrunner

for fiscal adjustment

High government spending

holds back the score for

France

Germany drives the

Eurozone’s fall in the debt

ratio

Economics

36

instead of spending it, even Greece could record a decline in its debt burden as a share of its GDP (see Chart 21 on page 36).

All in all, 22 out of 28 member countries of the EU used the good years after 2013 to lower their public debt burden at least somewhat. Unfortunately, the negative outliers include four weighty countries, namely France (debt burden up from 93.4% to 98.4%), Italy (from 129% to 132.2%), Spain (from 95.5% to 97.1%) and the UK (from 85.2% to 86.8%). The worst performer on this count has been small Bulgaria with an increase in its debt ratio by 5.5ppt. However, as Bulgaria’s debt burden remains low at 22.6% of GDP in 2018, it can arguably afford this. Finland with an increase in its debt burden from 56.5% in 2013 to 58.9% in 2018 is also nowhere near a danger zone. After pronounced fiscal problems until 2015, which show up in our ranking, Finland seems to have turned the fiscal tide more recently, reducing its debt burden from a peak of 63.4% in 2015 to below the Maastricht threshold of 60% again last year.

Chart 21: Public debt ratios falling or at least stabilising

Public debt in percent of GDP. Source: Eurostat

Government Government Government Government expenditureexpenditureexpenditureexpenditure

Reining in government expenditure is an essential part of any sustained fiscal repair; 26 EU members reduced the share of government spending in GDP from 2013 to 2018 helped by an ongoing economic recovery and the correspondent decline in unemployment (see Charts 22 and 23 on page 37). The two exceptions are two small Baltic countries, Estonia and Latvia. In a front-loaded reaction to the Baltic financial crisis that had started in 2007 and thus ahead of the great financial crisis, both of them had already brought down government expenditure sharply until 2013 from peaks in 2009/2010. Arguably, they could thus afford to relax the reins after 2013 and raise spending modestly again. While this weighs on their position in our adjustment ranking for the 2013-2018 period, both countries still receive scores slightly above the Eurozone average in our fundamental health ranking for their prudence. Even after the post-2013 slippage, the share of government spending in their GDP remains comparatively low.

Small Ireland did an outstanding job in reducing the share of government spending in its GDP in the five years to 2018. Greece, Malta, Cyprus, Portugal, Slovenia, the Netherlands and Spain also shine with scores well above average. Beyond the cases of Estonia and Latvia discussed above, Romania, Luxembourg, France and Germany come in at the bottom of the league as they reduced their share of government spending in GDP only very slightly despite the tailwind of satisfactory economy growth. For Germany, this makes sense. Many observers would argue that, with its fiscal surplus and a need to upgrade its infrastructure and military capabilities, Germany should spend more rather than less. For France, however, this result is particularly disappointing. With its record share of government spending in GDP, France should be curtailing the growth in government spending more rather than less forcefully than the EU or Eurozone average.

22 of 28 countries used the

good years to reduce their

debt burden

Reining in expenditure is a

key aspect of fiscal repair

What makes sense for

Germany need not make

sense for France

Economics

37

Chart 22: Public expenditure in Eurozone, Germany and France ... Chart 23: ... versus the UK, Sweden, Denmark and Finland

Government expenditure in percent of GDP. Source: Eurostat Government expenditure in percent of GDP. Source: Eurostat

Structural fiscal balanceStructural fiscal balanceStructural fiscal balanceStructural fiscal balance

All in all, Europe has made further fiscal progress since 2013: 22 out of 28 EU member countries improved their structural fiscal balance. The major exceptions are Romania and Hungary which raised their structural deficit by 2.6ppt and 2.4ppt of GDP respectively. As a result, the two now have the worst structural deficits in the EU, with fiscal shortfalls adjusted for cyclical factors of 3.8% and 2.9% of their GDP for Romania and Hungary respectively.

The news is not much better for Italy. Although Rome allowed itself less fiscal slippage in the past five years than Romania and Hungary, with a deterioration in its structural balance by 1.2ppt it maintains an above-average structural deficit of 1.7% of its GDP. Put differently, Italy has not used the tailwind from lower interest rates as well as it should have. While Greece also relaxed the fiscal reins on balance in the five years since 2013, its overall structural surplus of 3.2% of GDP in 2018 remains healthy.

At the top of the league, Ireland, Croatia and Cyprus improved their structural fiscal balance most impressively from 2013 to 2018, followed by clear gains in the UK, Lithuania, Denmark, Slovenia and Poland.

Admittedly, much of the progress visible in the structural fiscal balances of EU member countries since 2013 reflects lower interest rates rather than a further adjustment of the underlying fiscal stance. For the Eurozone as a whole, the structural primary balance stayed largely constant with a primary surplus of 1% of GDP in 2018 after 1.1% in 2013 according to IMF data. Seen from this angle, the Eurozone largely held the line after massive fiscal tightening had turned a structural primary deficit of 2.4% of GDP in 2009 into a surplus of 1.1% in 2013. While the initial fiscal adjustment in the wake of the great financial crisis and the euro crisis was led by the most afflicted countries at the euro periphery, some major core countries such as Germany and France have both tightened the fiscal reins slightly in the past five years as measured by their structural primary balances.

Following major fiscal progress until 2013 in the case of Italy and until 2014 in the case of Spain, both countries granted themselves some fiscal stimulus thereafter. While Spain’s turn from a structural primary surplus of 0.4% of its GDP in 2013 to a deficit of 0.4% in 2018 looks affordable in the short term, Italy’s bigger shift from a surplus of 3.9% to a surplus of 1.8% looks scarier. Because of its higher debt burden and its elevated yield spread over Spain, Italy needs a significantly stronger primary fiscal position than Spain to keep its fiscal position sustainable.

For our ranking on the size of fiscal adjustment since 2013, we look at the primary structural balance as well as the structural fiscal balance discussed above. The results are somewhat similar. We combine the scores for both aspects of the underlying improvement in the current fiscal position into one joint score for this aspect of fiscal adjustment with double the weight for structural balance.

Further fiscal progress since

2013

Rome allowed itself some

fiscal slippage, however

The top of the league

Lower interest rates helped

Key differences between

Italy and Spain

Structural and structural

primary balance combined

Economics

38

Quality of fiscal Quality of fiscal Quality of fiscal Quality of fiscal adjustmentadjustmentadjustmentadjustment

Size matters. But it is not the only criterion. A sizeable fiscal adjustment can cause excessive short-term pain and damage a country’s long-term growth potential if it is largely achieved through tax hikes that may stifle business activity rather than through cuts in government expenditures. To assess the quality of shifts in the fiscal stance, we thus look at the key factors behind the changes in the structural fiscal balance. The more they were achieved through expenditure cuts rather than tax increases, the higher the score for the country concerned.

Ireland, Denmark and Finland receive the best grades for the composition of their fiscal changes, followed by Malta, Slovenia and Belgium. Even Romania and the UK attain scores that are well above average because they have focused their otherwise mostly modest fiscal adjustment on containing expenditure growth rather than hiking taxes. For Finland, Romania and the UK, which otherwise see mostly weak results for their overall adjustment efforts since 2013, this is one of the brighter spots. Otherwise, they would have fared noticeably worse in our league for adjustment progress.

Size matters – but so does

quality

Ireland, Denmark and

Finland receive good grades

for quality

Economics

39

Financial resilience

Table 10: Fundamental health: financial resilience

Ranks, scores and score changes for financial resilience and sub-indicators in 2018. The 2007 column gives the scores countries would have attained based

on their 2007 data. Values given are: (1) public debt redemptions in the next three years in percent of 2018 GDP, (2) public debt held abroad by foreigners in

percent of 2018 GDP, (3) (gross) household savings rate in percent of disposable income in 2018, (4) private sector debt in percent of 2018 GDP, (5) bank

assets in percent of 2018 GDP, and (6) non-performing loans (NPLs) in percent of 2017 or 2018 GDP using the latest available data. We exclude savings rate

data for Bulgaria and Croatia for volatility. For further explanations, see notes under Table 1 on page 15 and the notes on key components on page 75.

Source: Berenberg

To analyse the vulnerability to sudden shifts in market sentiment, we look at six separate sub-indicators: 1) debt redemptions over the next three years as a share of GDP, 2) public debt held abroad as a share of GDP, 3) the household savings rate, 4) the size of the banking system as a multiple of GDP, 5) the debt of households and non-financial corporations (private debt), and 6) the ratio of non-performing loans in the loan books of banks. Below, we first present the overall results before we discuss the six components in more detail.

In this report, we derive our conclusions from economic data. We do not explicitly analyse the institutional changes that have given the Eurozone as well as the UK and other EU members new tools to prevent or fight financial panics, nor do we look at new regulations designed to make financial systems more stable. We suspect that these changes have made it easier to prevent financial shocks and have strengthened the resilience to such shocks in a way not captured in the economic data. Put differently, our results probably underestimate the positive changes since 2007.

As for the other pillars of our analysis, we conduct the exercise in two separate steps. First, we assign scores based on the data for 2018 and compare them to the scores countries would have attained on their 2007 data, which is just ahead of the outbreak of the great financial crisis. Second, we look at the more recent changes between the 2018 and the 2013 data to gauge whether countries have moved in the right direction since the end of the euro crisis (adjustment).

The results differ starkly between these two exercises. Because of the deep wounds inflicted by the post-Lehman and euro crises, the overall score for the Eurozone in 2018 is similar to that for 2007. The UK even looks slightly more fragile than in 2007. However, if we examine

Score Change Score Score Value Score Value Score Value Score Value Score Value Score Value

1 6 Estonia 8.3 1.4 7.0 10.0 0.0 9.5 6.4 6.2 11.3 7.7 106 7.1 102 9.5 1.9

2 5 Germany 8.1 1.1 7.0 7.0 12.2 7.3 32.8 9.1 17.9 8.0 100 7.2 229 9.9 1.6

3 4 Sweden 7.8 0.2 7.6 7.7 9.2 8.8 14.7 9.8 19.5 4.1 197 6.6 275 10.0 0.5

4 2 Slovenia 7.6 -0.2 7.8 6.1 15.7 3.1 50.9 7.9 15.1 9.0 76 10.0 88 9.6 1.9

5 1 Czech Republic 7.5 -0.9 8.4 7.3 10.8 8.5 16.5 6.0 10.9 9.3 67 6.5 138 7.2 3.7

6 3 Slovakia 7.2 -0.6 7.8 8.1 7.5 6.0 32.9 5.0 8.4 8.2 96 8.3 91 7.7 3.3

7 23 Malta 6.9 1.7 5.2 6.5 13.9 9.6 5.5 n.a. n.a. 7.3 118 1.7 361 9.4 2.0

8 15 Denmark 6.8 0.9 6.0 7.5 10.1 9.0 12.9 6.8 12.6 4.0 201 5.1 355 8.7 2.6

9 21 Netherlands 6.6 1.3 5.4 6.9 12.4 7.7 25.1 8.0 15.4 1.9 252 5.7 300 9.5 1.9

10 12 Lithuania 6.6 0.3 6.2 7.0 12.0 5.9 31.5 0.8 -1.2 9.8 56 8.1 67 8.1 3.1

11 8 Austria 6.5 0.0 6.6 5.7 17.0 3.4 59.7 6.6 12.1 7.1 123 8.1 219 8.2 3.0

12 16 Luxembourg 6.4 0.6 5.8 9.1 3.8 9.0 10.5 10.0 21.5 0.0 316 0.0 1830 10.0 0.9

13 7 Finland 6.3 -0.5 6.8 6.3 14.9 4.6 47.6 4.5 7.3 6.3 143 6.2 269 10.0 1.1

14 20 Latvia 6.2 0.7 5.4 7.1 11.6 5.6 31.5 3.5 5.0 8.7 84 6.1 77 6.0 4.7

15 26 Belgium 6.0 1.0 5.0 5.2 19.3 3.0 64.9 6.5 12.0 4.5 189 7.7 222 9.1 2.3

16 22 Hungary 5.9 0.5 5.3 1.4 34.3 6.5 31.0 7.4 14.1 9.2 71 5.7 96 4.9 5.6

17 11 United Kingdom 5.8 -0.4 6.2 5.7 17.1 7.3 32.1 3.3 4.5 5.2 171 3.5 377 10.0 1.3

18 9 Poland 5.8 -0.7 6.5 6.2 15.3 7.4 27.0 1.6 0.7 8.9 76 4.7 93 6.0 4.7

19 17 France 5.6 0.0 5.7 4.0 23.8 4.4 60.1 7.3 13.7 6.1 148 3.6 375 8.4 2.8

20 14 Romania 5.2 -0.8 6.0 6.5 14.0 8.2 18.2 0.0 -6.0 10.0 51 1.1 52 5.5 5.1

21 19 Spain 5.2 -0.3 5.5 3.3 26.7 5.1 50.9 3.4 4.9 6.4 139 5.9 219 7.1 3.8

22 13 Croatia 4.6 -1.6 6.2 4.2 23.2 6.3 30.0 n.a. n.a. 8.1 98 4.5 117 0.0 9.7

23 10 Bulgaria 4.5 -1.9 6.4 9.3 2.8 n.a. n.a. n.a. n.a. 8.0 100 0.0 104 0.7 9.0

24 18 Italy 4.3 -1.2 5.5 0.1 39.8 5.5 48.9 5.6 9.9 7.6 110 7.1 209 0.1 9.5

25 25 Greece 4.0 -1.0 5.0 5.3 18.8 n.a. n.a. 0.0 -6.2 7.3 116 7.4 159 0.0 41.3

26 24 Ireland 3.8 -1.3 5.1 6.5 14.1 3.2 59.2 6.4 11.8 2.3 244 4.2 388 0.0 11.5

27 27 Portugal 3.1 -1.3 4.4 3.5 26.2 1.2 75.1 3.3 4.6 5.8 156 4.8 194 0.0 11.0

28 28 Cyprus 1.5 -2.7 4.2 6.0 15.9 0.0 90.5 0.0 -6.4 0.0 315 3.0 337 0.0 28.9

EZ19 6.1 0.0 6.1 4.7 21.1 6.3 46.1 6.5 12.0 6.5 137 5.4 266 6.9 4.0

NPLNPLNPLNPL

% of disp. income % of GDP % of GDP

Rank

% of total loans

2018 2007 2018 2007 2018 2018 2018 2018 2018 2017/2018

CountryCountryCountryCountry Financial resilienceFinancial resilienceFinancial resilienceFinancial resilience% of GDP % of GDP

Redemp. in next 3yRedemp. in next 3yRedemp. in next 3yRedemp. in next 3y Debt held abroadDebt held abroadDebt held abroadDebt held abroad Savings rateSavings rateSavings rateSavings rate Private debtPrivate debtPrivate debtPrivate debt Bank assetsBank assetsBank assetsBank assets

Six sub-indicators of

financial resilience

Looking at economic data –

not at rules and institutions

Two steps: comparing 2018

to 2007 – and to 2013

The results differ between

the two time horizons

Economics

40

the changes since 2013, we find that most countries are now on the right track. They are improving their resilience to financial shocks. Held back by its low household savings rate and, to a lesser extent, the sheer size of its financial system, the UK is the only major exception on this count. Only Romania also shows a little slippage. For both countries, this largely reflects a low household savings rate.

At first glance, it may surprise that our way to aggregate economic and financial data does not indicate a stronger resilience to financial shocks than in 2007. The reason is simple. Modest improvements in most other areas relative to 2007 have been overshadowed by the rise in non-performing loans.

7 At the peak of the financial boom in 2007, non-performing

loans were no major concern for banks. In the wake of the crises, they turned into a major issue. This also explains why erstwhile crisis countries such as Cyprus (number 28 on financial health in 2018), Portugal (number 27), Ireland (number 26) and Greece (number 25) grace the bottom of this league table – see Table 10 on page 39). Italy (number 24) does not look much better on this count. The exception among former euro crisis countries is Spain which has managed to bring non-performing loans down significantly to a level close to the Eurozone average. All in all, further efforts to clean up bank balance sheets are probably one of the most urgent political task to strengthen the Eurozone’s resilience to shocks.

Best placed to weather potential future shocks would be Estonia (number one for resilience) ahead of Germany (number two), Sweden (number three), Slovenia (number four), the Czech Republic (number five) and Slovakia (number six). Its resilience allowed Slovenia to master its serious financial crisis in 2013-2014 without having to call in the troika. The top 10 also include Malta (number seven) as well as Denmark (number eight), the Netherlands (number nine), and Austria (number 10). Relative to their 2007 scores, Malta, Estonia and the Netherlands have improved their financial health most strongly, followed by significant gains in Belgium, Germany, Denmark and Latvia. The problems of the German banking system often make headlines. The issues largely reflect the fierce competition between banks in an overbanked country. This constrains profit margins for the major banks. However, non-performing loans, which afflict many other countries in Europe, are not a key issue for Germany.

7 As the ECB has not yet published full 2018 data on non-performing loans for many EU member

countries, we use the 2017 data for these countries instead. We suspect that the 2018 data will show a further improvement in most cases. The situation may thus be a bit better than our analysis suggests on this count.

Rise in non-performing

loans overshadows gains on

other counts

Estonia, Germany and

Sweden look best placed to

weather future shocks

Economics

41

Table 11: Adjustment progress: financial adjustment

Ranks, scores and score changes for cumulative financial adjustment and its sub-indicators for 2013 to 2018. The 2016 column gives the scores countries

would have attained for the shorter 2013-2016 period. Values give the changes from 2013 to 2018: (1) in public debt redemptions in the next three years in

percentage points (ppt) of GDP, (2) public debt held abroad by foreigners in percentage points of GDP, (3) (gross) household savings rate in ppt of

disposable income, (4) change in private sector debt in ppt of GDP, (5) bank assets in ppt of GDP, and (6) non-performing loans (NPLs) in ppt of total loans.

We exclude savings rate data for Bulgaria and Croatia for volatility. For further explanations, see notes under Table 10 on page 39 and the notes on key

components on page 75. Source: Berenberg

Financial adjustment since 2013Financial adjustment since 2013Financial adjustment since 2013Financial adjustment since 2013

Turning from the analysis of the current situation relative to 2007 to the adjustment progress since 2013, the results are more encouraging. The Eurozone and most of its member countries have become more resilient to financial shocks since 2013. However, the rise in the score for the region by 0.6ppt hides two divergent trends (see Table 11 above).

First, the good news stems mostly from a significant decline in private debt and in bank assets relative to GDP. While the private sector is repairing its balance sheet, banks have reduced their leverage. In addition, the share of public debt held abroad has declined. Part of this can be traced to the bond purchase programme of the ECB, which – mostly through the national central banks of member states – continues to buy bonds on the secondary market from domestic and foreign sellers alike. As the ECB would certainly not join any panic selling of bonds in a new crisis, this makes Eurozone members less prone to fall victim to financial shocks. In addition, the bond redemption schedule for most Eurozone countries looks easier now than it did in 2013.

Second, partly mitigating these positive trends, the savings rate of Eurozone households has fallen slightly to 12.0% in 2018, down from 12.4% in 2013. Of course, the savings rate, while less stellar than before, remains healthy. Arguably, the modest decline in both can be seen as part and parcel of a welcome return to normal after a need for exceptional prudence in the wake of the euro crisis (see Table 11 above).

More importantly, the decline in non-performing loans from a peak of 5.9% in 2013 to 4.0% in 2017 has been too slow to inspire confidence that the financial system has become sufficiently resilient to a major new shock. Relative to the 2.7% of 2008, banks in the Eurozone remain burdened by too many non-performing loans. As these bad loans are concentrated in a number of countries, especially Italy with 9.5%, Greece with 41.3%, and Cyprus with 28.9%, they are a significant obstacle to a fuller integration of banking systems and capital markets in the Eurozone.

2013 2013 2013 2013

-2018 -2016 -2018 -2016

Score Change Score Score Value Score Value Score Value Score Value Score Value Score Value

1 9 Ireland 7.2 1.8 5.4 0.9 4.8 8.4 -18.9 7.0 2.4 8.1 -24.1 9.1 -178 9.4 -14.2

2 11 Cyprus 7.1 1.9 5.2 9.6 -11.3 n.a. n.a. 1.1 -4.7 8.2 -25.0 9.3 -161 7.3 -8.1

3 1 Romania 7.0 0.2 6.8 8.1 -8.5 5.8 -2.1 6.2 1.4 6.6 -15.8 6.4 -12 8.9 -12.8

4 2 Malta 6.9 0.2 6.7 4.9 -2.6 n.a. n.a. n.a. n.a. 8.3 -25.4 10.0 -297 4.5 0.0

5 5 Denmark 6.7 0.8 5.9 6.0 -4.6 9.9 -6.1 8.1 3.8 6.6 -15.4 4.9 -50 4.9 -1.3

6 3 Hungary 6.6 0.6 6.1 2.1 2.6 9.8 -14.3 6.6 1.9 8.1 -24.4 5.7 -18 7.4 -8.4

7 6 Slovenia 6.6 0.8 5.8 5.9 -4.4 0.0 15.8 7.0 2.4 9.4 -31.6 9.0 -39 8.4 -11.5

8 7 Bulgaria 6.4 0.7 5.7 4.4 -1.6 n.a. n.a. n.a. n.a. 9.5 -32.2 4.1 -10 7.8 -9.6

9 12 Latvia 6.1 1.1 5.0 0.0 6.8 6.5 -5.1 10.0 8.8 5.5 -9.1 10.0 -51 4.8 -0.9

10 16 Netherlands 6.1 1.8 4.2 7.9 -8.1 10.0 -12.7 5.1 0.1 4.4 -2.8 4.4 -33 4.8 -0.8

11 4 Portugal 6.0 0.0 6.0 4.9 -2.6 5.4 -6.9 2.3 -3.2 10.0 -46.4 10.0 -109 3.4 3.2

12 8 Germany 6.0 0.3 5.7 5.7 -4.1 9.8 -14.9 6.4 1.7 4.3 -2.6 5.2 -37 4.6 -0.3

13 10 Spain 5.3 0.1 5.2 6.3 -5.2 0.0 12.7 1.0 -4.8 10.0 -38.1 8.5 -88 5.9 -4.1

14 13 Austria 5.3 0.5 4.7 3.4 0.1 6.8 -11.3 4.5 -0.6 4.7 -4.6 7.1 -63 4.9 -1.3

15 14 Sweden 5.2 0.7 4.5 5.6 -3.9 8.3 -4.5 6.7 2.0 3.6 1.3 2.5 -3 4.5 -0.1

16 17 Croatia 5.0 0.8 4.2 1.4 3.9 n.a. n.a. n.a. n.a. 7.3 -19.5 4.7 -15 6.5 -5.7

17 15 Italy 5.0 0.6 4.4 5.1 -3.0 3.2 1.5 4.0 -1.2 5.8 -11.3 6.0 -43 5.7 -3.5

18 18 Estonia 4.9 1.1 3.7 3.5 0.0 6.1 -0.9 6.8 2.1 5.5 -9.5 2.9 -3 4.5 0.0

19 21 Greece 4.9 1.4 3.5 5.6 -3.9 n.a. n.a. 3.7 -1.5 6.3 -13.9 8.7 -67 0.0 17.1

20 27 Belgium 4.6 1.7 3.0 7.8 -7.9 4.1 -1.2 4.6 -0.5 0.4 19.5 5.4 -38 5.5 -3.0

21 28 Luxembourg 3.8 1.0 2.8 1.5 3.8 n.a. n.a. 6.3 1.6 3.3 3.1 3.7 -138 4.2 0.7

22 20 Poland 3.8 0.3 3.5 4.1 -1.2 4.5 -1.1 3.5 -1.8 3.7 1.0 1.8 1 4.9 -1.3

23 23 Slovakia 3.7 0.5 3.2 8.5 -9.2 1.7 3.3 7.1 2.5 0.5 19.2 0.0 9 4.6 -0.4

24 22 France 3.7 0.3 3.4 4.7 -2.1 3.6 0.6 4.9 -0.2 2.0 10.8 2.0 3 5.1 -1.9

25 24 Lithuania 3.5 0.3 3.2 3.2 0.6 2.6 1.9 2.0 -3.6 3.9 -0.2 2.9 -2 6.4 -5.5

26 25 Finland 3.4 0.4 3.0 2.8 1.4 3.7 0.4 3.9 -1.3 4.7 -4.6 1.3 11 4.3 0.4

27 26 Czech Republic 3.4 0.4 3.0 5.0 -2.7 0.2 2.6 5.0 0.0 5.0 -6.3 0.0 17 5.0 -1.5

28 19 United Kingdom 2.9 -0.6 3.6 2.4 2.0 0.0 6.8 1.6 -4.1 4.2 -1.9 4.8 -51 4.6 -0.4

EZ19 5.2 0.6 4.6 5.6 -3.9 6.0 -6.1 4.7 -0.4 4.8 -5.5 5.0 -39 5.1 -1.9

Bank assetsBank assetsBank assetsBank assets NPLNPLNPLNPLRedemp. in next 3yRedemp. in next 3yRedemp. in next 3yRedemp. in next 3y Debt held abroadDebt held abroadDebt held abroadDebt held abroad Savings rateSavings rateSavings rateSavings rate Private debtPrivate debtPrivate debtPrivate debt

Rank

change ppt of GDP chg. ppt of tot. loans

2013-2018 2013-2018 2013-2018 2013-2018 2013-2018 2013-2017/2018

CountryCountryCountryCountry Financial adjustmentFinancial adjustmentFinancial adjustmentFinancial adjustmentchange ppt of GDP change ppt of GDP chg. ppt of income change ppt of GDP

Encouraging results for the

changes since 2017

Good news: less private

debt, less overextended

banking system

However, the savings rate

has fallen slightly

NPLs are coming down –

but more progress is needed

Economics

42

To some degree, the adjustment efforts made by the euro periphery in the wake of the euro crisis continue to shine through. For the years after 2013, Ireland (number one), Cyprus (number two) and Portugal (number 11) are in the top half of the league for improving their financial resilience since 2013 with scores that are well above the Eurozone average. The exception are Spain (number 13) with a score almost identical to that of the Eurozone average and Greece (number 19). Although Greece has made significant progress on some other counts, visible especially in a reduction of the ratio of bank assets to GDP from 226% in 2013 to 159% of GDP in 2018, its negative household savings rate (down from -4.7% of disposable income in 2013 to -6.2% in 2018) and the sharp rise in non-performing loans from 24.2% in 2013 to 41.3% in 2017 (latest available data) result in a below-average score in terms of its efforts to become more resilient to financial shocks. Fortunately, the cash buffer of some €24bn which Greece had built up with the help of the European Stability Mechanism (ESM) upon concluding its official support programme in August 2018 mitigates the resulting risks substantially.

The UK (number 28) has fallen to the bottom of the league for changes in its financial resilience largely because of a further drop in its household savings rate from 8.6% in 2013 to 4.5% in 2018 and because of a significant rise in the share of its public debt held abroad. In line with the overall rise in the country’s debt burden, debt redemptions for the three years ahead are also higher than they were five years ago. Although the UK has reduced the ratio of bank assets to GDP by 51ppt of its GDP in the five years to 2018, the ratio remains significantly higher than that for other major economies in the EU, with 377% in the UK versus 229% for Germany and 266% for the Eurozone average. France (375%) comes close, however. While Ireland still exceeds the UK’s share slightly with 388%, it has reduced the leverage in its banking system as measured by this criterion by a whopping 178ppt of its GDP since 2013.

As the UK is not part of the Eurozone, economic and financial shocks would likely show up more in a serious plunge in the exchange rate than in protracted financial turbulence. After all, an aggressive central bank can defuse any domestic financial turbulence by buying assets in exchange for the money it can print itself. In a way, the Bank of England proved this point in its swift reaction to the Brexit vote in mid-2016.

Profile of public debtProfile of public debtProfile of public debtProfile of public debt

Having a comparatively low fiscal deficit does not suffice to maintain market confidence when investors are nervous. At times when investors want to reduce exposure to countries that have come under suspicion, the sheer need to roll over maturing debt can pose a major challenge. Also, confidence among foreign investors can be more fickle than that of domestic savers and institutions. Financial market contagion often seems to be driven by investors from abroad who do not bother to study carefully all the differences between countries which they may summarily lump into one category.

We look at two aspects of a country’s debt profile as a share of GDP.

1. How much public debt has to be redeemed in the three years ahead?

2. How much public debt is held abroad?

Unsurprisingly, highly indebted countries such as Portugal, Greece and Italy end up at the bottom of this league table. As discussed above, the share of public debt held abroad has recently declined for most Eurozone members partly because of the bond purchase programme of the ECB. For Greece, the ratio of public debt held abroad to its GDP, at 146% in 2017, remains exceptionally high. However, as almost all the debt is held by official creditors that have granted the country exceptionally generous conditions for servicing and repaying the debt, the profile and costs of servicing its public debt is one of Greece’s lesser worries for the time being. Because of the generous debt service conditions granted by its official external creditors, the debt redemption schedule for the next three years is less challenging for Greece (equivalent to 18.8% of its 2018 GDP) than it is for the Eurozone average (21.1%).

Some countries with little public debt (Luxembourg, Estonia and the Czech Republic) excel on this sub-criterion of our ranking for financial health. Unsurprisingly, they show little adjustment between 2013 and 2018. They have no need to worry about their debt profile in the first place.

Adjustment efforts of

periphery continue to shine

through

UK score falls back to a

much lower savings rate

For the UK, shocks would

likely show up mostly in the

exchange rate

Foreign investors can be

more fickle than domestic

institutions

Highly indebted countries

end up at the bottom for the

profile of their debt…

…whereas countries with

little debt do well

Economics

43

Private Private Private Private debtdebtdebtdebt

Four small to medium-sized economies with comparatively big financial centres, namely Luxembourg, Cyprus, the Netherlands and Ireland, carry the biggest burden of private debt (ie from households and non-financial corporates). On the opposite end of the scale, private debt is not yet much of an issue in the less mature economies of Romania, Lithuania, the Czech Republic, Slovenia and Hungary. The UK and France have significantly higher ratios of private debt to GDP than Italy and Germany. This partly reflects the characteristics of the domestic mortgage market (UK) and the propensity of major companies to finance much of their global activities on the domestic market (France).

In terms of the change in private debt since 2013, the picture is very mixed. For the Eurozone as a whole, the private debt ratio came down by 5.5ppt of GDP. While Portugal, Spain and Slovenia as well as Bulgaria outside the Eurozone reduced their private debt ratios by more than 30ppt of GDP, the private debt ratio rose by almost 20ppt of GDP in Belgium and Slovakia and by close to 11ppt in France (see Chart 24 on page 43).

Chart 24: Private debt Chart 25: Household savings rate

Private debt in percent of GDP. Source: Eurostat Households’ gross savings in percent of disposable income. Source: European

Commission

Household savings Household savings Household savings Household savings raterateraterate

Having a high level of private-sector debt can be mitigated by thrift – that is, by a high propensity to save money out of current income. For the Eurozone as a whole, the savings rate has not moved much over the past 12 years. After 12.5% in 2007, it briefly moved up to 14.1% in 2009 as households, scared by the great financial crisis, tried to build up additional cushions. The rate then declined again to 12.4% in 2013, 12.3% in 2016 and 12.0% in 2018.

With negative savings rates of -6.0% in Romania, -6.2% in Greece and -6.4% in Cyprus in 2018, these three countries remain the negative outliers, well below Lithuania (-1.2%). All other countries in the sample had a positive gross household savings rate in 2018, according to the May 2019 European Commission estimates.

The thriftiest households in the EU can be found in Luxembourg with a savings rate of 21.5% of gross income, Sweden (19.5%), Germany (17.9%), the Netherlands (15.4%), and France (13.7%).

Once again, the UK seems to be the odd one out among the more advanced economies in Europe as British households reduced their savings rate further to 4.5% in 2018, down from 8.6% in 2013 and 8.5% in 2017. A low savings rate contributes to the UK’s macroeconomic vulnerability (see Chart 25 on page 43).

Size of the banking sectorSize of the banking sectorSize of the banking sectorSize of the banking sector

An oversized banking sector makes countries more vulnerable to shocks of confidence – the more the financial system has outgrown the country’s potential safety net, which corresponds to the country’s economic power, the more crisis prone this country is. The ratio of bank assets to GDP thus features on our list of criteria to assess the resilience of a country to shocks.

8 Our scores take account of the fact that countries with low per capita GDP

8 European Central Bank: Total assets/liabilities of monetary financial institutions.

Private debt is not yet much

of an issue in some of the

less mature economies

Picture very mixed by

country

Thrift can mitigate risks

from debt

Highly negative savings

rates in Romania, Greece

and Cyprus

Thrifty households at the

core

UK: the odd country out

An oversized banking sector

can hurt in a crisis

Economics

44

tend to have less developed financial systems. They may nonetheless be prone to financial crises as investors know that – in times of stress – these countries could mobilise fewer domestic resources to bolster their financial systems than richer countries. We thus adjust the ratio of bank assets to GDP for differences in per capita GDP. As a result, the eastern European countries with relatively undeveloped banking systems now less stellar scores in the ranking than they would have done otherwise.

The most vulnerable countries on the bank asset criterion are Luxembourg and Bulgaria, followed by Romania and Malta (see Table 10 on page 39). Looking at the change in the years since 2013 rather than at the level in 2018, Malta, Ireland, Cyprus, Luxembourg and Portugal have reduced the size of their banking sectors most determinedly (see Table 11 on page 41 – financial adjustment).

NonNonNonNon----performing loansperforming loansperforming loansperforming loans

Non-performing loans are a serious hindrance to a country’s economic performance. They make the banking system vulnerable to shocks and may even impair the transmission of the central bank’s monetary stimulus into the economy if the banks need to focus on repairing their balance sheets instead of financing investment and growth. Regarding the share of non-performing loans in overall bank loans, the member countries of the EU can be largely grouped into two categories: those with serious problems and those without. On no other sub-criterion of our analysis do we have such a clear split into countries with excellent and countries with dismal scores, with only a few countries perching in the middle.

The problem countries still suffering from highly elevated ratios of non-performing loans are Greece, Cyprus, Portugal, Italy and Croatia. On the other end of the spectrum, Sweden, Luxembourg, Finland and the UK attain near-perfect scores, followed closely by Germany, Slovenia, Estonia, the Netherlands, Malta, Belgium, Denmark, France and Austria (see Charts 26 and 27 on page 44 and Table 10 on page 39, financial health).

As discussed above, comparing the 2017 data to those of 2013 and 2007 brings out two separate conclusions. On average, the burden of non-performing loans is roughly as high as it was in 2007. However, after a significant surge in the immediate wake of the great financial and euro crises, the burden has come down noticeably again since 2013. By and large, most countries are on the right track. Still, reducing this burden further seems to be one of the major tasks for economic policy in Europe.

From 2013 to 2017, 21 of the 28 members of the EU have managed to reduce the share of non-performing loans in overall bank loans. Ireland, Romania, Slovenia, Bulgaria, Hungary and – from a very high starting level – also Cyprus have made the greatest strides on this count.

Chart 26: Non-performing loan ratios have come down ... Chart 27: ... but not (yet) in Greece

Non-performing loans in percent of total loans. Sources: Eurostat, IMF Non-performing loans in percent of total loans. Sources: Eurostat, IMF

Greece is the negative outlier with a 17.1ppt rise in non-performing loans from 2013 to 2017 despite some serious recent efforts to tackle the issue. In this respect, Greece is still suffering from the consequences of its futile confrontation with creditors in the first half of 2015 which have set back Greece’s economic recovery and hence the ability of borrowers to pay up, and of banks to deal with the issue by roughly two years. We expect the data to improve

Many countries have

reduced the size of their

banking sector

NPLs can impair the

transmission of monetary

policy

Very diverse scores

By and large, most countries

are on the right track

The NPL burden is mostly

coming down

Greek data likely to improve

shortly

Economics

45

significantly shortly. We expect this to show up in the 2018 data already which were not yet available for Greece at the cut-off date for this report.

Outside Greece, the only other country where non-performing loans are still a significantly bigger issue than they were in 2013 is Portugal. But with an NPL ratio of 11% in 2017 versus 41.3% for Greece, Portugal is in a much less precarious position than the former. For both countries, 2018 data may show an improvement, as they are doing for Ireland.

Still a big issue for Portugal

Economics

46

V. Results by country

To read the country tables at the back, see notes at the bottom of the tables in the text sections in the main body of the document. For example, “values” for current account refer to the current account balance in 2018 in the health ranking and to the change in the current account balance from 2013 to 2018 in ppt of GDP in the adjustment ranking.

Austria EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

ATATATAT ATATATAT EZEZEZEZ ATATATAT ATATATAT ATATATAT ATATATAT EZEZEZEZ ATATATAT

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 13131313 6.2 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 5555 5.8 5.3

1. External position1. External position1. External position1. External position 12121212 5.8 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 11111111 5.2 5.5

1.1 Current account % of GDP 11111111 6.2 6.4 2.3 3.8 1.1 Change in current account ppt of GDP 15151515 4.9 5.1 0.4

1.2 Net exports % of GDP 11111111 6.4 6.1 4.4 4.0 1.2 Change in net exports ppt of GDP 5555 6.0 5.3 0.6

1.3 Exports % of GDP 16161616 4.9 6.3 58.4 51.5 1.3 Change in export ratio ppt of GDP 17171717 4.9 6.1 4.9

2. Labour market2. Labour market2. Labour market2. Labour market 12121212 6.8 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 24242424 4.6 5.9

2.1 Change in RULC % since 2005 15151515 4.9 5.4 101.8 98.4 2.1 Change in RULC % since 2013 13131313 6.5 6.6 -1.3

2.2 Change in NULC % since 2005 17171717 6.2 7.1 127.8 102.5 2.2 Change in NULC % since 2013 15151515 5.6 6.6 7.5

2.3 Employment rate % 8888 8.2 5.6 73.0 69.9 2.3 Change in employment rate ppt 27272727 3.0 5.2 1.6

3. Regulations3. Regulations3. Regulations3. Regulations 9999 7.1 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 2222 8.5 4.8

3.1 Ease of doing business 0-100 index 9999 7.1 6.0 77.6 75.3 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 2222 8.5 4.8 0.50

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 21212121 4.7 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 9999 5.4 4.8

4.1 Government expenditure % of GDP 19191919 3.5 5.7 48.3 49.2 4.1 Change in government expenditure ppt of GDP 13131313 4.8 4.7 -3.3

4.2 Public debt % of GDP 18181818 5.9 5.2 73.8 65.0 4.2 Change in public debt ppt of GDP 7777 5.5 5.2 -7.5

4.3 Structural primary balance % of GDP 14141414 4.7 5.4 0.6 -0.6 4.3 Change in structural primary balance ppt of GDP 18181818 5.6 5.0 0.2

4.4 Structural balance % of GDP 17171717 5.7 5.6 -0.6 -2.9 4.4 Change in structural balance ppt of GDP 16161616 6.0 5.2 1.1

4.5 Education/infrastruct. investment % of public expendit. 13131313 6.3 4.0 3.1 3.1 4.5 ---

4.6 Consumption/property taxes % of tax revenue 27272727 2.0 4.6 29.5 29.7 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 11111111 5.4 4.1 1.3

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 11111111 6.5 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 14141414 5.3 5.2

5.1 Debt redempt. in next three years % of GDP 19191919 5.7 4.7 17.0 14.1 5.1 Change in redempt. in next three years ppt of GDP 20202020 3.4 5.6 0.1

5.2 Public debt held by foreigners % of GDP 21212121 3.4 6.3 59.7 67.4 5.2 Change in debt held by foreigners ppt of GDP 7777 6.8 6.0 -11.3

5.3 Household savings rate % of disp. income 9999 6.6 6.5 12.1 17.2 5.3 Change in household savings rate ppt of disp. income 16161616 4.5 4.7 -0.6

5.4 Private debt % of GDP 16161616 7.1 6.5 123 124 5.4 Change in private debt ppt of GDP 17171717 4.7 5 -5

5.5 Bank assets % of GDP 3333 8.1 5.4 219 311 5.5 Change in bank assets ppt of GDP 9999 7.1 5 -63

5.6 NPL % of total loans 13131313 8.2 6.9 3.0 2.0 5.6 Change in NPL ppt of total loans 16161616 4.9 5.1 -1.3

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

2018201820182018 2013-20182013-20182013-20182013-2018

• Above-average business friendliness • Relatively high public expenditure

• Relatively high savings rate • Export ratio still below average

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Low bank assets • Taxation not growth-friendly enough

• Growth-friendly mix of public spending • Depends on foreign creditors

The small Alpine republic deserves some special praise. No other mature core European economy has

adjusted better in the past five years than Austria. Austria benefits from significant pro-growth

reforms and a strong improvement in its fiscal position. Judging by the envisaged tax reform and other

plans, Austria’s progress, which started under the previous government, looks set to continue.

Making good progress

• Strong reform drive

• Gains in external position and fiscal sustainability

But rise in employment rate below average

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

47

Belgium EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

BEBEBEBE BEBEBEBE EZEZEZEZ BEBEBEBE BEBEBEBE BEBEBEBE BEBEBEBE EZEZEZEZ BEBEBEBE

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 20202020 5.2 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 11111111 5.2 5.3

1. External position1. External position1. External position1. External position 10101010 6.4 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 7777 5.7 5.5

1.1 Current account % of GDP 22222222 4.3 6.4 -1.3 2.0 1.1 Change in current account ppt of GDP 21212121 3.6 5.1 -1.0

1.2 Net exports % of GDP 16161616 4.9 6.1 1.9 2.9 1.2 Change in net exports ppt of GDP 9999 5.3 5.3 -0.2

1.3 Exports % of GDP 2222 9.9 6.3 95.4 76.1 1.3 Change in export ratio ppt of GDP 5555 8.3 6.1 14.6

2. Labour market2. Labour market2. Labour market2. Labour market 22222222 4.9 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 17171717 5.6 5.9

2.1 Change in RULC % since 2005 16161616 4.9 5.4 101.9 99.6 2.1 Change in RULC % since 2013 6666 7.3 6.6 -3.2

2.2 Change in NULC % since 2005 11111111 6.5 7.1 124.5 104.0 2.2 Change in NULC % since 2013 11111111 7.0 6.6 3.1

2.3 Employment rate % 24242424 4.3 5.6 64.5 62.1 2.3 Change in employment rate ppt 24242424 4.0 5.2 2.7

3. Regulations3. Regulations3. Regulations3. Regulations 16161616 5.6 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 9999 4.8 4.8

3.1 Ease of doing business 0-100 index 16161616 5.6 6.0 74.7 72.5 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 9999 4.8 4.8 0.35

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 26262626 3.0 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 8888 5.4 4.8

4.1 Government expenditure % of GDP 24242424 0.7 5.7 52.4 48.2 4.1 Change in government expenditure ppt of GDP 14141414 4.8 4.7 -3.4

4.2 Public debt % of GDP 24242424 4.2 5.2 102.0 87.0 4.2 Change in public debt ppt of GDP 15151515 4.2 5.2 -3.5

4.3 Structural primary balance % of GDP 16161616 4.4 5.4 0.4 3.0 4.3 Change in structural primary balance ppt of GDP 13131313 6.1 5.0 0.5

4.4 Structural balance % of GDP 22222222 3.9 5.6 -1.6 -0.7 4.4 Change in structural balance ppt of GDP 12121212 6.6 5.2 1.4

4.5 Education/infrastruct. investment % of public expendit. 24242424 2.0 4.0 1.9 1.8 4.5 ---

4.6 Consumption/property taxes % of tax revenue 23232323 4.4 4.6 32.3 32.2 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 6666 6.4 4.1 2.1

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 15151515 6.0 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 20202020 4.6 5.2

5.1 Debt redempt. in next three years % of GDP 22222222 5.2 4.7 19.3 35.0 5.1 Change in redempt. in next three years ppt of GDP 5555 7.8 5.6 -7.9

5.2 Public debt held by foreigners % of GDP 24242424 3.0 6.3 64.9 63.3 5.2 Change in debt held by foreigners ppt of GDP 13131313 4.1 6.0 -1.2

5.3 Household savings rate % of disp. income 10101010 6.5 6.5 12.0 15.7 5.3 Change in household savings rate ppt of disp. income 15151515 4.6 4.7 -0.5

5.4 Private debt % of GDP 22222222 4.5 6.5 189 135 5.4 Change in private debt ppt of GDP 28282828 0.4 5 20

5.5 Bank assets % of GDP 5555 7.7 5.4 222 378 5.5 Change in bank assets ppt of GDP 13131313 5.4 5 -38

5.6 NPL % of total loans 10101010 9.1 6.9 2.3 3.9 5.6 Change in NPL ppt of total loans 11111111 5.5 5.1 -3.0

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

2018201820182018 2013-20182013-20182013-20182013-2018

• Above-average savings rate • High government expenditure

• Moderate labour cost changes • Low productive public investment

• High private debt

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• 2nd highest export ratio • Low employment rate

• Low bank assets as share of GDP • High public debt and redemptions

Occasional political paralysis in the past 10 years has left it lagging behind most other countries in

terms of adjustment effort and fiscal sustainability. The fundamental health score of this mature export-

orientated economy has dropped below the Eurozone average. Belgium needs to watch out.

Fortunately, it has started to shape up by more than any other country in the EU in the past two years.

Strong recent adjustment progress

• Above-average reform drive

• Better external position

• Fiscal adjustment efforts show results; pro-growth mix of expenditure and tax cuts

Debt dynamics provide room for improvement (public debt still high, big increase in private debt)

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

48

Bulgaria EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

BGBGBGBG BGBGBGBG EZEZEZEZ BGBGBGBG BGBGBGBG BGBGBGBG BGBGBGBG EZEZEZEZ BGBGBGBG

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 24242424 4.7 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 12121212 5.2 5.3

1. External position1. External position1. External position1. External position 18181818 4.9 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 17171717 4.6 5.5

1.1 Current account % of GDP 8888 7.3 6.4 4.6 -23.9 1.1 Change in current account ppt of GDP 3333 7.6 5.1 3.3

1.2 Net exports % of GDP 26262626 1.7 6.1 -4.0 -15.7 1.2 Change in net exports ppt of GDP 25252525 2.8 5.3 -2.9

1.3 Exports % of GDP 13131313 5.7 6.3 65.0 51.6 1.3 Change in export ratio ppt of GDP 22222222 3.4 6.1 3.2

2. Labour market2. Labour market2. Labour market2. Labour market 28282828 2.9 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 15151515 5.9 5.9

2.1 Change in RULC % since 2005 28282828 0.0 5.4 124.8 93.9 2.1 Change in RULC % since 2013 23232323 3.0 6.6 7.6

2.2 Change in NULC % since 2005 26262626 0.0 7.1 202.4 111.3 2.2 Change in NULC % since 2013 24242424 1.5 6.6 21.0

2.3 Employment rate % 18181818 5.8 5.6 67.8 61.8 2.3 Change in employment rate ppt 5555 9.3 5.2 8.3

3. Regulations3. Regulations3. Regulations3. Regulations 22222222 4.8 6.0 3. Reforms3. Reforms3. Reforms3. Reforms n.a.n.a.n.a.n.a. n.a. 4.8

3.1 Ease of doing business 0-100 index 22222222 4.8 6.0 73.1 64.3 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index n.a.n.a.n.a.n.a. n.a. 4.8 n.a.

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 12121212 6.2 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 18181818 4.0 4.8

4.1 Government expenditure % of GDP 9999 6.9 5.7 34.7 36.8 4.1 Change in government expenditure ppt of GDP 9999 5.4 4.7 -3.1

4.2 Public debt % of GDP 3333 9.1 5.2 22.6 16.3 4.2 Change in public debt ppt of GDP 28282828 1.2 5.2 5.5

4.3 Structural primary balance % of GDP n.a.n.a.n.a.n.a. n.a. 5.4 n.a. n.a. 4.3 Change in structural primary balance ppt of GDP n.a.n.a.n.a.n.a. n.a. 5.0 n.a.

4.4 Structural balance % of GDP 12121212 7.0 5.6 0.1 1.9 4.4 Change in structural balance ppt of GDP 14141414 6.1 5.2 1.2

4.5 Education/infrastruct. investment % of public expendit. 25252525 1.9 4.0 2.6 5.8 4.5 ---

4.6 Consumption/property taxes % of tax revenue 17171717 4.6 4.6 n.a. n.a. 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 14141414 3.5 4.1 -0.2

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 23232323 4.5 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 8888 6.4 5.2

5.1 Debt redempt. in next three years % of GDP 2222 9.3 4.7 2.8 1.7 5.1 Change in redempt. in next three years ppt of GDP 17171717 4.4 5.6 -1.6

5.2 Public debt held by foreigners % of GDP n.a.n.a.n.a.n.a. n.a. 6.3 n.a. 7.1 5.2 Change in debt held by foreigners ppt of GDP n.a.n.a.n.a.n.a. n.a. 6.0 n.a.

5.3 Household savings rate % of disp. income n.a.n.a.n.a.n.a. n.a. 6.5 n.a. n.a. 5.3 Change in household savings rate ppt of disp. income n.a.n.a.n.a.n.a. n.a. 4.7 n.a.

5.4 Private debt % of GDP 10101010 8.0 6.5 100 123 5.4 Change in private debt ppt of GDP 3333 9.5 5 -32

5.5 Bank assets % of GDP 27272727 0.0 5.4 104 97 5.5 Change in bank assets ppt of GDP 19191919 4.1 5 -10

5.6 NPL % of total loans 22222222 0.7 6.9 9.0 4.8 5.6 Change in NPL ppt of total loans 4444 7.8 5.1 -9.6

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

2018201820182018 2013-20182013-20182013-20182013-2018

• Very low public debt • Strong increase in labour costs

• Very low debt redemptions • Banking sector comparatively big

• Below average public expenditure • Low productive public investment

• High current account surplus • Export ratio no longer rising fast

• Low public debt

One of the poorest EU countries, it benefits from strong EU support, low tax rates and growth in its

export markets. Substantial labour cost rises are mostly part of healthy catching-up process. As its

debt burden remains low, it could arguably afford a strong increase in the public debt ratio. It needs a

lot of reforms to fight corruption, improve corporate governance and raise education levels.

Adjustment progress slightly below Eurozone average

• Employment rate surges despite strong labour cost incerases

• Private debt and NPL falling quickly, but financial system not sound yet

• Fiscal adjustment mostly over

• Strong current account surplus

Fundamental health remains at low end of sample

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

49

Croatia EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

HRHRHRHR HRHRHRHR EZEZEZEZ HRHRHRHR HRHRHRHR HRHRHRHR HRHRHRHR EZEZEZEZ HRHRHRHR

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 25252525 4.4 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 3333 6.4 5.3

1. External position1. External position1. External position1. External position 21212121 3.5 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 3333 6.8 5.5

1.1 Current account % of GDP 9999 6.3 6.4 2.6 -7.3 1.1 Change in current account ppt of GDP 6666 6.1 5.1 1.7

1.2 Net exports % of GDP 19191919 3.8 6.1 -0.2 -5.9 1.2 Change in net exports ppt of GDP 14141414 5.0 5.3 -0.5

1.3 Exports % of GDP 25252525 0.5 6.3 48.9 38.0 1.3 Change in export ratio ppt of GDP 3333 9.2 6.1 8.3

2. Labour market2. Labour market2. Labour market2. Labour market 15151515 6.0 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 2222 9.1 5.9

2.1 Change in RULC % since 2005 1111 10.0 5.4 83.7 96.5 2.1 Change in RULC % since 2013 2222 9.1 6.6 -7.8

2.2 Change in NULC % since 2005 4444 8.4 7.1 106.2 104.5 2.2 Change in NULC % since 2013 2222 9.5 6.6 -5.2

2.3 Employment rate % 26262626 2.6 5.6 60.7 59.0 2.3 Change in employment rate ppt 6666 9.0 5.2 8.0

3. Regulations3. Regulations3. Regulations3. Regulations 25252525 3.4 6.0 3. Reforms3. Reforms3. Reforms3. Reforms n.a.n.a.n.a.n.a. n.a. 4.8

3.1 Ease of doing business 0-100 index 25252525 3.4 6.0 70.4 54.1 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index n.a.n.a.n.a.n.a. n.a. 4.8 n.a.

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 23232323 4.5 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 14141414 4.7 4.8

4.1 Government expenditure % of GDP 25252525 0.6 5.7 46.5 45.5 4.1 Change in government expenditure ppt of GDP 21212121 3.7 4.7 -1.2

4.2 Public debt % of GDP 19191919 5.9 5.2 74.6 37.3 4.2 Change in public debt ppt of GDP 12121212 4.9 5.2 -5.8

4.3 Structural primary balance % of GDP 3333 9.0 5.4 3.2 -3.3 4.3 Change in structural primary balance ppt of GDP 1111 10.0 5.0 3.3

4.4 Structural balance % of GDP 6666 9.0 5.6 1.1 -4.8 4.4 Change in structural balance ppt of GDP 1111 10.0 5.2 4.1

4.5 Education/infrastruct. investment % of public expendit. 26262626 0.6 4.0 2.1 4.9 4.5 ---

4.6 Consumption/property taxes % of tax revenue 17171717 4.6 4.6 n.a. n.a. 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 25252525 0.0 4.1 -5.3

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 22222222 4.6 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 16161616 5.0 5.2

5.1 Debt redempt. in next three years % of GDP 23232323 4.2 4.7 23.2 11.6 5.1 Change in redempt. in next three years ppt of GDP 26262626 1.4 5.6 3.9

5.2 Public debt held by foreigners % of GDP 13131313 6.3 6.3 30.0 n.a. 5.2 Change in debt held by foreigners ppt of GDP n.a.n.a.n.a.n.a. n.a. 6.0 n.a.

5.3 Household savings rate % of disp. income n.a.n.a.n.a.n.a. n.a. 6.5 n.a. n.a. 5.3 Change in household savings rate ppt of disp. income n.a.n.a.n.a.n.a. n.a. 4.7 n.a.

5.4 Private debt % of GDP 9999 8.1 6.5 98 101 5.4 Change in private debt ppt of GDP 9999 7.3 5 -20

5.5 Bank assets % of GDP 20202020 4.5 5.4 117 125 5.5 Change in bank assets ppt of GDP 17171717 4.7 5 -15

5.6 NPL % of total loans 24242424 0.0 6.9 9.7 4.9 5.6 Change in NPL ppt of total loans 7777 6.5 5.1 -5.7

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

• High debt redemptions

2018201820182018 2013-20182013-20182013-20182013-2018

• Labour cost adjustment • Low productive public investment

• High structural primary surplus • Employment rate up but still very low

• Low private debt • Not very business friendly yet

• Current account surplus • High government expenditure

• High NPL ratios

Croatia faces serious challenges with low score for fundamental health. It is trying to live up to the

challenge – it is No.3 in the adjustment progress ranking. Labour cost falls and a more business

friendly environment have boosted competitiveness, external position and employment. Due to very

weak starting situation, it remains close to the bottom of the league for fundamental health.

Strong adjustment progress

• Big structural surplus is putting public finances slowly into order, but bad expenditure-tax cut mix

• Labour costs have evolved more slowly than in the rest of the EU

• Still low in ease of doing business ranking, but improving

Due to very weak starting situation, still close to the bottom of the league for fundamental health

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

50

Cyprus EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

• Only very small external adjustment means still long way to go

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

CYCYCYCY CYCYCYCY EZEZEZEZ CYCYCYCY CYCYCYCY CYCYCYCY CYCYCYCY EZEZEZEZ CYCYCYCY

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 26262626 4.2 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 6666 5.8 5.3

1. External position1. External position1. External position1. External position 28282828 1.3 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 28282828 2.8 5.5

1.1 Current account % of GDP 28282828 1.5 6.4 -7.0 -15.5 1.1 Change in current account ppt of GDP 23232323 2.6 5.1 -2.1

1.2 Net exports % of GDP 25252525 2.0 6.1 -3.3 -5.2 1.2 Change in net exports ppt of GDP 28282828 0.6 5.3 -5.3

1.3 Exports % of GDP 26262626 0.5 6.3 63.0 52.2 1.3 Change in export ratio ppt of GDP 15151515 5.1 6.1 5.6

2. Labour market2. Labour market2. Labour market2. Labour market 4444 7.5 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 5555 8.4 5.9

2.1 Change in RULC % since 2005 3333 8.9 5.4 88.8 95.6 2.1 Change in RULC % since 2013 5555 8.4 6.6 -6.0

2.2 Change in NULC % since 2005 3333 8.6 7.1 104.3 102.6 2.2 Change in NULC % since 2013 1111 9.7 6.6 -6.1

2.3 Employment rate % 17171717 6.2 5.6 68.6 71.0 2.3 Change in employment rate ppt 13131313 7.9 5.2 6.8

3. Regulations3. Regulations3. Regulations3. Regulations 24242424 3.7 6.0 3. Reforms3. Reforms3. Reforms3. Reforms n.a.n.a.n.a.n.a. n.a. 4.8

3.1 Ease of doing business 0-100 index 24242424 3.7 6.0 71.0 66.7 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index n.a.n.a.n.a.n.a. n.a. 4.8 n.a.

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 8888 6.9 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 12121212 4.8 4.8

4.1 Government expenditure % of GDP 1111 10.0 5.7 36.4 37.6 4.1 Change in government expenditure ppt of GDP 4444 6.8 4.7 -5.5

4.2 Public debt % of GDP 25252525 4.2 5.2 102.5 54.0 4.2 Change in public debt ppt of GDP 21212121 3.2 5.2 -0.6

4.3 Structural primary balance % of GDP 2222 9.1 5.4 3.3 -1.0 4.3 Change in structural primary balance ppt of GDP 3333 9.5 5.0 2.5

4.4 Structural balance % of GDP 3333 9.8 5.6 1.5 -2.7 4.4 Change in structural balance ppt of GDP 3333 9.3 5.2 3.1

4.5 Education/infrastruct. investment % of public expendit. 21212121 2.9 4.0 2.2 3.4 4.5 ---

4.6 Consumption/property taxes % of tax revenue 17171717 4.6 4.6 n.a. n.a. 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 25252525 0.0 4.1 -3.2

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 28282828 1.5 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 2222 7.1 5.2

5.1 Debt redempt. in next three years % of GDP 18181818 6.0 4.7 15.9 10.0 5.1 Change in redempt. in next three years ppt of GDP 1111 9.6 5.6 -11.3

5.2 Public debt held by foreigners % of GDP 26262626 0.0 6.3 90.5 n.a. 5.2 Change in debt held by foreigners ppt of GDP n.a.n.a.n.a.n.a. n.a. 6.0 n.a.

5.3 Household savings rate % of disp. income 23232323 0.0 6.5 -6.4 6.2 5.3 Change in household savings rate ppt of disp. income 24242424 1.1 4.7 -4.7

5.4 Private debt % of GDP 27272727 0.0 6.5 315 266 5.4 Change in private debt ppt of GDP 6666 8.2 5 -25

5.5 Bank assets % of GDP 24242424 3.0 5.4 337 528 5.5 Change in bank assets ppt of GDP 4444 9.3 5 -161

5.6 NPL % of total loans 24242424 0.0 6.9 28.9 4.2 5.6 Change in NPL ppt of total loans 6666 7.3 5.1 -8.1

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

• Very negative household savings rate

2018201820182018 2013-20182013-20182013-20182013-2018

• Serious labour cost adjustment • Elevated public and private debt level

• Low score for business friendliness

• Low productive public investment

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Lowest government expenditure • Weak export position

• High structural (primary) surplus • Still highest current account deficit

The last Eurozone country to receive a bail-out (so far). EU/IMF programme accelerated the fiscal,

financial and labour cost adjustment efforts markedly. However, external adjustment remains limited.

As other countries had a head start on adjustment, Cyprus stays near the bottom of the fundamental

health table.

Strong adjustment progress, but fundamental health still close to bottom of all countries

• Strong internal devaluation effort as labour costs have dropped

• After belt-tightening, a structural surplus was achieved and debt redemptions are low

• Financial resilience has improved significantly, but remains lowest in EU

• But still high public debt ratio

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

51

Czech Republic EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

CZCZCZCZ CZCZCZCZ EZEZEZEZ CZCZCZCZ CZCZCZCZ CZCZCZCZ CZCZCZCZ EZEZEZEZ CZCZCZCZ

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 9999 6.7 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 17171717 4.8 5.3

1. External position1. External position1. External position1. External position 8888 7.1 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 8888 5.7 5.5

1.1 Current account % of GDP 17171717 5.2 6.4 0.3 -4.6 1.1 Change in current account ppt of GDP 11111111 5.3 5.1 0.8

1.2 Net exports % of GDP 8888 7.4 6.1 6.2 1.6 1.2 Change in net exports ppt of GDP 7777 5.4 5.3 -0.1

1.3 Exports % of GDP 9999 8.9 6.3 84.6 61.3 1.3 Change in export ratio ppt of GDP 8888 6.3 6.1 9.7

2. Labour market2. Labour market2. Labour market2. Labour market 13131313 6.6 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 12121212 6.2 5.9

2.1 Change in RULC % since 2005 24242424 3.3 5.4 107.2 98.9 2.1 Change in RULC % since 2013 22222222 4.5 6.6 3.8

2.2 Change in NULC % since 2005 19191919 6.1 7.1 129.1 103.1 2.2 Change in NULC % since 2013 22222222 4.0 6.6 13.0

2.3 Employment rate % 5555 9.0 5.6 74.8 66.1 2.3 Change in employment rate ppt 11111111 8.2 5.2 7.1

3. Regulations3. Regulations3. Regulations3. Regulations 20202020 5.2 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 14141414 3.6 4.8

3.1 Ease of doing business 0-100 index 20202020 5.2 6.0 74.0 59.6 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 14141414 3.6 4.8 0.29

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 7777 7.1 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 10101010 5.3 4.8

4.1 Government expenditure % of GDP 14141414 5.9 5.7 40.7 40.4 4.1 Change in government expenditure ppt of GDP 16161616 4.2 4.7 -1.9

4.2 Public debt % of GDP 4444 8.5 5.2 32.7 27.5 4.2 Change in public debt ppt of GDP 5555 7.1 5.2 -12.2

4.3 Structural primary balance % of GDP 8888 6.7 5.4 1.8 -3.0 4.3 Change in structural primary balance ppt of GDP 16161616 5.8 5.0 0.3

4.4 Structural balance % of GDP 5555 9.2 5.6 1.2 -3.7 4.4 Change in structural balance ppt of GDP 18181818 5.5 5.2 0.8

4.5 Education/infrastruct. investment % of public expendit. 2222 8.3 4.0 5.5 8.9 4.5 ---

4.6 Consumption/property taxes % of tax revenue 25252525 2.8 4.6 34.4 34.4 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 13131313 4.2 4.1 0.3

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 5555 7.5 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 27272727 3.4 5.2

5.1 Debt redempt. in next three years % of GDP 7777 7.3 4.7 10.8 10.7 5.1 Change in redempt. in next three years ppt of GDP 13131313 5.0 5.6 -2.7

5.2 Public debt held by foreigners % of GDP 6666 8.5 6.3 16.5 12.5 5.2 Change in debt held by foreigners ppt of GDP 19191919 0.2 6.0 2.6

5.3 Household savings rate % of disp. income 13131313 6.0 6.5 10.9 12.0 5.3 Change in household savings rate ppt of disp. income 13131313 5.0 4.7 0.0

5.4 Private debt % of GDP 3333 9.3 6.5 67 57 5.4 Change in private debt ppt of GDP 16161616 5.0 5 -6

5.5 Bank assets % of GDP 11111111 6.5 5.4 138 103 5.5 Change in bank assets ppt of GDP 27272727 0.0 5 17

5.6 NPL % of total loans 16161616 7.2 6.9 3.7 2.8 5.6 Change in NPL ppt of total loans 13131313 5.0 5.1 -1.5

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

The Switzerland of central eastern Europe as government, households and corporates are very

conservative regarding their finances. It is No. 9 on fundamental health. The economy is very open,

profiting from growth in export markets. It should become more business-friendly, however.

Adjustment progress slipping and below average

• Financial system not improving by much, but remains resilient

• Employment rate jumps despite strong labour costs gains

• External and fiscal adjustment scores positive

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• 2nd highest productive investment • Strongly rising nominal labour costs

• Low private and public indebtedness • Too much focus on distortionary taxes

• High employment rate • Business friendliness can improve

• High structural (primary) surplus

• High export ratio

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

52

Denmark EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

DKDKDKDK DKDKDKDK EZEZEZEZ DKDKDKDK DKDKDKDK DKDKDKDK DKDKDKDK EZEZEZEZ DKDKDKDK

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 4444 7.2 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 14141414 5.0 5.3

1. External position1. External position1. External position1. External position 11111111 6.0 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 26262626 3.3 5.5

1.1 Current account % of GDP 6666 7.9 6.4 5.9 1.4 1.1 Change in current account ppt of GDP 22222222 2.9 5.1 -1.9

1.2 Net exports % of GDP 10101010 6.6 6.1 4.9 4.9 1.2 Change in net exports ppt of GDP 21212121 3.8 5.3 -1.8

1.3 Exports % of GDP 19191919 3.5 6.3 56.8 50.2 1.3 Change in export ratio ppt of GDP 24242424 3.1 6.1 2.5

2. Labour market2. Labour market2. Labour market2. Labour market 8888 7.2 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 21212121 4.9 5.9

2.1 Change in RULC % since 2005 20202020 4.6 5.4 103.0 102.5 2.1 Change in RULC % since 2013 19191919 5.4 6.6 1.5

2.2 Change in NULC % since 2005 13131313 6.4 7.1 125.9 107.2 2.2 Change in NULC % since 2013 14141414 6.2 6.6 5.7

2.3 Employment rate % 4444 9.3 5.6 75.4 77.0 2.3 Change in employment rate ppt 23232323 4.1 5.2 2.8

3. Regulations3. Regulations3. Regulations3. Regulations 1111 10.0 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 16161616 3.0 4.8

3.1 Ease of doing business 0-100 index 1111 10.0 6.0 84.0 83.3 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 16161616 3.0 4.8 0.27

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 14141414 5.9 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 3333 7.1 4.8

4.1 Government expenditure % of GDP 23232323 2.3 5.7 51.4 49.6 4.1 Change in government expenditure ppt of GDP 10101010 5.3 4.7 -4.4

4.2 Public debt % of GDP 5555 8.4 5.2 34.1 27.3 4.2 Change in public debt ppt of GDP 6666 6.3 5.2 -9.9

4.3 Structural primary balance % of GDP 15151515 4.4 5.4 0.4 2.4 4.3 Change in structural primary balance ppt of GDP 5555 8.8 5.0 2.1

4.4 Structural balance % of GDP 13131313 6.9 5.6 0.0 1.9 4.4 Change in structural balance ppt of GDP 6666 7.6 5.2 2.1

4.5 Education/infrastruct. investment % of public expendit. 19191919 5.2 4.0 2.5 1.8 4.5 ---

4.6 Consumption/property taxes % of tax revenue 9999 8.3 4.6 36.0 37.5 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 2222 8.8 4.1 4.0

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 8888 6.8 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 5555 6.7 5.2

5.1 Debt redempt. in next three years % of GDP 6666 7.5 4.7 10.1 14.3 5.1 Change in redempt. in next three years ppt of GDP 7777 6.0 5.6 -4.6

5.2 Public debt held by foreigners % of GDP 4444 9.0 6.3 12.9 16.0 5.2 Change in debt held by foreigners ppt of GDP 2222 9.9 6.0 -6.1

5.3 Household savings rate % of disp. income 8888 6.8 6.5 12.6 5.0 5.3 Change in household savings rate ppt of disp. income 2222 8.1 4.7 3.8

5.4 Private debt % of GDP 24242424 4.0 6.5 201 209 5.4 Change in private debt ppt of GDP 11111111 6.6 5 -15

5.5 Bank assets % of GDP 17171717 5.1 5.4 355 416 5.5 Change in bank assets ppt of GDP 15151515 4.9 5 -50

5.6 NPL % of total loans 11111111 8.7 6.9 2.6 1.6 5.6 Change in NPL ppt of total loans 14141414 4.9 5.1 -1.3

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Wealthy Denmark's fundamental health score is well above the Eurozone average because of its top

marks for ease of doing business and solid scores for its robust financial system, strong labour market

and external competitiveness. It can comfortably afford to be in the middle for adjustment progress.

Adjustment progress slips, but fundamentally very strong

• Financial resilience further improves markedly

• Reform drive slackens

• Labour adjustment below average, but labour market overall in great shape

• Fiscal sustainability strengthens further

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Very business friendly • High private debt

• High employment rate • High government expenditure

• Low dependence on foreign investors • Strong rise in real labour costs

• Low public debt and redemptions • Low productive public investment

• Thrifty households

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

53

Estonia EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

EEEEEEEE EEEEEEEE EZEZEZEZ EEEEEEEE EEEEEEEE EEEEEEEE EEEEEEEE EZEZEZEZ EEEEEEEE

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 6666 6.9 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 26262626 4.1 5.3

1. External position1. External position1. External position1. External position 16161616 5.2 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 27272727 3.2 5.5

1.1 Current account % of GDP 13131313 5.9 6.4 1.7 -15.0 1.1 Change in current account ppt of GDP 9999 5.7 5.1 1.2

1.2 Net exports % of GDP 17171717 4.0 6.1 0.3 -9.8 1.2 Change in net exports ppt of GDP 22222222 3.7 5.3 -1.9

1.3 Exports % of GDP 14141414 5.6 6.3 85.5 62.4 1.3 Change in export ratio ppt of GDP 27272727 0.3 6.1 -2.3

2. Labour market2. Labour market2. Labour market2. Labour market 23232323 4.9 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 23232323 4.7 5.9

2.1 Change in RULC % since 2005 26262626 1.1 5.4 114.5 105.0 2.1 Change in RULC % since 2013 25252525 2.6 6.6 8.4

2.2 Change in NULC % since 2005 26262626 0.0 7.1 196.9 127.5 2.2 Change in NULC % since 2013 25252525 0.5 6.6 24.3

2.3 Employment rate % 6666 9.0 5.6 74.8 69.8 2.3 Change in employment rate ppt 15151515 7.4 5.2 6.3

3. Regulations3. Regulations3. Regulations3. Regulations 3333 8.5 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 8888 5.3 4.8

3.1 Ease of doing business 0-100 index 3333 8.5 6.0 80.2 75.4 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 8888 5.3 4.8 0.37

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 3333 7.5 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 28282828 2.5 4.8

4.1 Government expenditure % of GDP 13131313 6.0 5.7 39.7 34.2 4.1 Change in government expenditure ppt of GDP 28282828 2.1 4.7 1.2

4.2 Public debt % of GDP 1111 10.0 5.2 8.4 3.7 4.2 Change in public debt ppt of GDP 20202020 3.6 5.2 -1.8

4.3 Structural primary balance % of GDP 21212121 3.6 5.4 -0.1 -1.3 4.3 Change in structural primary balance ppt of GDP 22222222 3.9 5.0 -0.7

4.4 Structural balance % of GDP 14141414 6.8 5.6 -0.1 -0.9 4.4 Change in structural balance ppt of GDP 24242424 2.9 5.2 -0.8

4.5 Education/infrastruct. investment % of public expendit. 3333 8.3 4.0 5.6 7.3 4.5 ---

4.6 Consumption/property taxes % of tax revenue 7777 8.6 4.6 43.8 41.5 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 20202020 0.9 4.1 -2.3

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 1111 8.3 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 18181818 4.9 5.2

5.1 Debt redempt. in next three years % of GDP 1111 10.0 4.7 0.0 0.0 5.1 Change in redempt. in next three years ppt of GDP 19191919 3.5 5.6 0.0

5.2 Public debt held by foreigners % of GDP 2222 9.5 6.3 6.4 5.3 5.2 Change in debt held by foreigners ppt of GDP 9999 6.1 6.0 -0.9

5.3 Household savings rate % of disp. income 12121212 6.2 6.5 11.3 -0.3 5.3 Change in household savings rate ppt of disp. income 6666 6.8 4.7 2.1

5.4 Private debt % of GDP 12121212 7.7 6.5 106 123 5.4 Change in private debt ppt of GDP 14141414 5.5 5 -10

5.5 Bank assets % of GDP 8888 7.1 5.4 102 134 5.5 Change in bank assets ppt of GDP 22222222 2.9 5 -3

5.6 NPL % of total loans 7777 9.5 6.9 1.9 2.3 5.6 Change in NPL ppt of total loans 24242424 4.5 5.1 0.0

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

2018201820182018 2013-20182013-20182013-20182013-2018

• Very business friendly

• Tax and spending policies well targete

• High employment rate

• Financial resilience up slightly

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Best in financial resilience • Fast rebound in unit labour costs

• Extremely comfortable fiscal position

A small open, highly dynamic catching-up economy. Having suffered its own financial crisis in

2007/2008 and having responded strongly to that challenge, Estonia has reaped the benefits of

adjustment earlier than most other Eurozone members. Since 2013 it has relaxed the reins somewhat,

especially over the past two years. On balance, it could afford to do so.

Adjustment progress continues to weaken as pressure of crisis has passed

• External adjustment score much lower

• Fiscal adjustment efforts also slacken

Estonia still in good health. It can afford slippage better than almost all other countries

• Fiscal sustainability still excellent, but less stellar than before

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

54

Finland EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

FIFIFIFI FIFIFIFI EZEZEZEZ FIFIFIFI FIFIFIFI FIFIFIFI FIFIFIFI EZEZEZEZ FIFIFIFI

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 17171717 5.7 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 22222222 4.4 5.3

1. External position1. External position1. External position1. External position 26262626 2.3 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 22222222 3.7 5.5

1.1 Current account % of GDP 23232323 4.1 6.4 -1.9 3.7 1.1 Change in current account ppt of GDP 16161616 4.9 5.1 0.4

1.2 Net exports % of GDP 22222222 2.9 6.1 -1.9 3.4 1.2 Change in net exports ppt of GDP 20202020 3.9 5.3 -1.7

1.3 Exports % of GDP 27272727 0.0 6.3 41.4 40.7 1.3 Change in export ratio ppt of GDP 26262626 2.5 6.1 1.2

2. Labour market2. Labour market2. Labour market2. Labour market 10101010 6.9 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 11111111 6.4 5.9

2.1 Change in RULC % since 2005 11111111 5.8 5.4 99.0 97.9 2.1 Change in RULC % since 2013 4444 8.6 6.6 -6.6

2.2 Change in NULC % since 2005 12121212 6.5 7.1 124.8 101.5 2.2 Change in NULC % since 2013 5555 8.0 6.6 -0.4

2.3 Employment rate % 10101010 7.8 5.6 72.1 70.3 2.3 Change in employment rate ppt 21212121 4.4 5.2 3.1

3. Regulations3. Regulations3. Regulations3. Regulations 6666 8.1 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 13131313 3.7 4.8

3.1 Ease of doing business 0-100 index 6666 8.1 6.0 79.4 79.9 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 13131313 3.7 4.8 0.30

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 20202020 4.8 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 13131313 4.8 4.8

4.1 Government expenditure % of GDP 26262626 0.4 5.7 53.1 46.8 4.1 Change in government expenditure ppt of GDP 11111111 5.2 4.7 -4.4

4.2 Public debt % of GDP 14141414 6.9 5.2 58.9 34.0 4.2 Change in public debt ppt of GDP 25252525 2.2 5.2 2.4

4.3 Structural primary balance % of GDP 25252525 2.6 5.4 -0.7 1.9 4.3 Change in structural primary balance ppt of GDP 15151515 5.8 5.0 0.4

4.4 Structural balance % of GDP 18181818 5.4 5.6 -0.8 2.2 4.4 Change in structural balance ppt of GDP 19191919 4.8 5.2 0.4

4.5 Education/infrastruct. investment % of public expendit. 10101010 7.2 4.0 3.6 3.4 4.5 ---

4.6 Consumption/property taxes % of tax revenue 11111111 7.5 4.6 36.2 34.3 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 4444 6.9 4.1 2.5

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 13131313 6.3 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 26262626 3.4 5.2

5.1 Debt redempt. in next three years % of GDP 15151515 6.3 4.7 14.9 17.8 5.1 Change in redempt. in next three years ppt of GDP 22222222 2.8 5.6 1.4

5.2 Public debt held by foreigners % of GDP 19191919 4.6 6.3 47.6 42.2 5.2 Change in debt held by foreigners ppt of GDP 14141414 3.7 6.0 0.4

5.3 Household savings rate % of disp. income 16161616 4.5 6.5 7.3 7.0 5.3 Change in household savings rate ppt of disp. income 18181818 3.9 4.7 -1.3

5.4 Private debt % of GDP 18181818 6.3 6.5 143 124 5.4 Change in private debt ppt of GDP 17171717 4.7 5 -5

5.5 Bank assets % of GDP 12121212 6.2 5.4 269 164 5.5 Change in bank assets ppt of GDP 26262626 1.3 5 11

5.6 NPL % of total loans 1111 10.0 6.9 1.1 0.8 5.6 Change in NPL ppt of total loans 25252525 4.3 5.1 0.4

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Although Finland has a below-average score for fundamental health, it started to adjust late. For the

five years since 2013, overall adjustment efforts have been far too weak. Fortunately, we find some

evidence that Finland has started to improve a little in the past two years. If Finland stays the course

and manages to raise its export ratio, it may rise in our rankings over the next few years.

Insufficient adjustment progress for the overall 2013-2018 period

• Financial resilience drivers not impressive: NPL ratio and bank assets higher, savings rate lower

• Not much external adjustment

• Fiscal repair started late

Some progress in the past two years

• Falling unit labour costs and lower government expenditure

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Low NPL ratio • Weak export position

• Business friendly • Still excessive public expenditure

• Still relatively high employment rate • Primary fiscal deficit

• Decent productive expenditure share • Household savings rate too low

• Employment rate rising only slowly

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

55

France EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

FRFRFRFR FRFRFRFR EZEZEZEZ FRFRFRFR FRFRFRFR FRFRFRFR FRFRFRFR EZEZEZEZ FRFRFRFR

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 23232323 4.8 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 19191919 4.8 5.3

1. External position1. External position1. External position1. External position 20202020 4.1 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 14141414 5.0 5.5

1.1 Current account % of GDP 18181818 4.8 6.4 -0.3 -0.1 1.1 Change in current account ppt of GDP 17171717 4.7 5.1 0.2

1.2 Net exports % of GDP 20202020 3.2 6.1 -1.2 -0.5 1.2 Change in net exports ppt of GDP 15151515 4.9 5.3 -0.6

1.3 Exports % of GDP 17171717 4.1 6.3 32.1 27.4 1.3 Change in export ratio ppt of GDP 14141414 5.4 6.1 3.1

2. Labour market2. Labour market2. Labour market2. Labour market 19191919 5.1 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 22222222 4.8 5.9

2.1 Change in RULC % since 2005 22222222 4.5 5.4 103.2 98.6 2.1 Change in RULC % since 2013 15151515 6.2 6.6 -0.5

2.2 Change in NULC % since 2005 8888 7.1 7.1 119.3 103.3 2.2 Change in NULC % since 2013 10101010 7.0 6.6 3.0

2.3 Employment rate % 22222222 4.9 5.6 65.9 64.3 2.3 Change in employment rate ppt 26262626 3.2 5.2 1.8

3. Regulations3. Regulations3. Regulations3. Regulations 13131313 6.1 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 4444 7.1 4.8

3.1 Ease of doing business 0-100 index 13131313 6.1 6.0 75.7 66.4 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 4444 7.1 4.8 0.44

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 28282828 2.9 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 23232323 3.2 4.8

4.1 Government expenditure % of GDP 27272727 0.0 5.7 56.1 52.5 4.1 Change in government expenditure ppt of GDP 23232323 3.5 4.7 -1.1

4.2 Public debt % of GDP 23232323 4.4 5.2 98.4 64.5 4.2 Change in public debt ppt of GDP 27272727 1.3 5.2 5.0

4.3 Structural primary balance % of GDP 26262626 2.5 5.4 -0.8 -1.3 4.3 Change in structural primary balance ppt of GDP 14141414 6.0 5.0 0.5

4.4 Structural balance % of GDP 25252525 2.1 5.6 -2.5 -3.9 4.4 Change in structural balance ppt of GDP 17171717 5.7 5.2 0.9

4.5 Education/infrastruct. investment % of public expendit. 20202020 4.6 4.0 2.5 3.1 4.5 ---

4.6 Consumption/property taxes % of tax revenue 15151515 5.3 4.6 33.9 33.5 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 16161616 2.0 4.1 -1.4

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 19191919 5.6 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 24242424 3.7 5.2

5.1 Debt redempt. in next three years % of GDP 24242424 4.0 4.7 23.8 26.3 5.1 Change in redempt. in next three years ppt of GDP 16161616 4.7 5.6 -2.1

5.2 Public debt held by foreigners % of GDP 20202020 4.4 6.3 60.1 53.3 5.2 Change in debt held by foreigners ppt of GDP 15151515 3.6 6.0 0.6

5.3 Household savings rate % of disp. income 7777 7.3 6.5 13.7 14.5 5.3 Change in household savings rate ppt of disp. income 14141414 4.9 4.7 -0.2

5.4 Private debt % of GDP 19191919 6.1 6.5 148 116 5.4 Change in private debt ppt of GDP 26262626 2.0 5 11

5.5 Bank assets % of GDP 22222222 3.6 5.4 375 367 5.5 Change in bank assets ppt of GDP 24242424 2.0 5 3

5.6 NPL % of total loans 12121212 8.4 6.9 2.8 3.1 5.6 Change in NPL ppt of total loans 12121212 5.1 5.1 -1.9

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

France faces serious challenges. Still below average for both fundamental health and post-2013

adjustment, it is finally trying to do better. Recent structural reforms are starting to show up in a rise in

the employment rate. However, the effects are not pronounced enough yet to offset the country's

severe weaknesses. Fortunately, an above-average score for reform drive offers hope.

Adjustment progress improves from low base as France is trying to do better

• Reform responsiveness has risen strongly; this is starting to show up in some data

Effects not pronounced yet: low fundamental health score unchanged from 2007

• Not much improvement in external position

• Employment rate finally rising, but still low

• Public and private debt higher than in 2013

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Thrifty households • Second highest public expenditure

• Only takes 4 days to open a business • Primary deficit

• Pro-reform government • Weak net exports

• High ratio of bank assets in GDP

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

56

Germany EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

DEDEDEDE DEDEDEDE EZEZEZEZ DEDEDEDE DEDEDEDE DEDEDEDE DEDEDEDE EZEZEZEZ DEDEDEDE

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 2222 7.3 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 20202020 4.8 5.3

1. External position1. External position1. External position1. External position 5555 8.5 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 12121212 5.1 5.5

1.1 Current account % of GDP 4444 8.6 6.4 7.3 6.8 1.1 Change in current account ppt of GDP 13131313 5.2 5.1 0.8

1.2 Net exports % of GDP 7777 7.4 6.1 6.3 6.7 1.2 Change in net exports ppt of GDP 13131313 5.1 5.3 -0.4

1.3 Exports % of GDP 7777 9.3 6.3 50.1 42.0 1.3 Change in export ratio ppt of GDP 16161616 5.0 6.1 4.3

2. Labour market2. Labour market2. Labour market2. Labour market 3333 7.6 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 25252525 4.6 5.9

2.1 Change in RULC % since 2005 13131313 5.0 5.4 101.4 95.7 2.1 Change in RULC % since 2013 18181818 5.7 6.6 0.8

2.2 Change in NULC % since 2005 10101010 6.8 7.1 121.8 97.6 2.2 Change in NULC % since 2013 19191919 5.0 6.6 9.6

2.3 Employment rate % 3333 9.5 5.6 75.9 68.9 2.3 Change in employment rate ppt 25252525 3.7 5.2 2.4

3. Regulations3. Regulations3. Regulations3. Regulations 11111111 6.7 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 15151515 3.2 4.8

3.1 Ease of doing business 0-100 index 11111111 6.7 6.0 76.7 77.5 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 15151515 3.2 4.8 0.28

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 13131313 5.9 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 11111111 4.9 4.8

4.1 Government expenditure % of GDP 12121212 6.1 5.7 43.8 42.8 4.1 Change in government expenditure ppt of GDP 24242424 3.5 4.7 -0.8

4.2 Public debt % of GDP 15151515 6.7 5.2 60.9 63.7 4.2 Change in public debt ppt of GDP 3333 8.8 5.2 -17.3

4.3 Structural primary balance % of GDP 7777 7.0 5.4 2.0 1.5 4.3 Change in structural primary balance ppt of GDP 17171717 5.6 5.0 0.2

4.4 Structural balance % of GDP 4444 9.4 5.6 1.3 -1.0 4.4 Change in structural balance ppt of GDP 15151515 6.1 5.2 1.1

4.5 Education/infrastruct. investment % of public expendit. 22222222 2.8 4.0 2.0 2.3 4.5 ---

4.6 Consumption/property taxes % of tax revenue 28282828 1.5 4.6 29.5 31.9 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 18181818 1.5 4.1 -1.8

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 2222 8.1 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 12121212 6.0 5.2

5.1 Debt redempt. in next three years % of GDP 10101010 7.0 4.7 12.2 19.0 5.1 Change in redempt. in next three years ppt of GDP 9999 5.7 5.6 -4.1

5.2 Public debt held by foreigners % of GDP 10101010 7.3 6.3 32.8 42.5 5.2 Change in debt held by foreigners ppt of GDP 4444 9.8 6.0 -14.9

5.3 Household savings rate % of disp. income 3333 9.1 6.5 17.9 16.7 5.3 Change in household savings rate ppt of disp. income 9999 6.4 4.7 1.7

5.4 Private debt % of GDP 10101010 8.0 6.5 100 111 5.4 Change in private debt ppt of GDP 20202020 4.3 5 -3

5.5 Bank assets % of GDP 7777 7.2 5.4 229 302 5.5 Change in bank assets ppt of GDP 14141414 5.2 5 -37

5.6 NPL % of total loans 5555 9.9 6.9 1.6 1.9 5.6 Change in NPL ppt of total loans 21212121 4.6 5.1 -0.3

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Germany comes close to the top for its fundamentals with a strong labour market, solid public finances

and an oversized external cushion. Well placed to cope with shocks, but this is at the risk of becoming

too complacent. It has turned slightly less business-friendly. Tax and spending policies need to

become more supply-friendly by shifting, for example, from social consumption to public investment.

Adjustment progress low

• Export performance still strong, but less so than before

• Government expenditure has not fallem by much

• Much lower public debt

Fundamental health at second highest level

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• 2nd in financial resilience • Tax system too distortionary

• High household savings rate • Low productive public investment

• Stellar employment rate • Risk of further reform reversals

• Fiscal surplus, falling debt ratio

• Strong external position

• Low NPL ratios and bank assets

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

57

Greece EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

GRGRGRGR GRGRGRGR EZEZEZEZ GRGRGRGR GRGRGRGR GRGRGRGR GRGRGRGR EZEZEZEZ GRGRGRGR

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 28282828 3.5 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 4444 6.2 5.3

1. External position1. External position1. External position1. External position 27272727 2.3 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 4444 6.7 5.5

1.1 Current account % of GDP 25252525 3.6 6.4 -2.9 -15.2 1.1 Change in current account ppt of GDP 20202020 3.8 5.1 -0.9

1.2 Net exports % of GDP 21212121 3.2 6.1 -1.2 -13.0 1.2 Change in net exports ppt of GDP 4444 6.4 5.3 1.1

1.3 Exports % of GDP 27272727 0.0 6.3 34.1 22.5 1.3 Change in export ratio ppt of GDP 1111 9.9 6.1 6.2

2. Labour market2. Labour market2. Labour market2. Labour market 25252525 4.1 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 9999 7.1 5.9

2.1 Change in RULC % since 2005 7777 7.9 5.4 92.1 95.3 2.1 Change in RULC % since 2013 16161616 6.2 6.6 -0.5

2.2 Change in NULC % since 2005 2222 8.7 7.1 102.8 102.0 2.2 Change in NULC % since 2013 4444 8.4 6.6 -1.7

2.3 Employment rate % 28282828 0.0 5.6 54.9 60.9 2.3 Change in employment rate ppt 16161616 7.3 5.2 6.2

3. Regulations3. Regulations3. Regulations3. Regulations 27272727 1.7 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 3333 8.4 4.8

3.1 Ease of doing business 0-100 index 27272727 1.7 6.0 67.2 58.0 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 3333 8.4 4.8 0.50

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 18181818 5.3 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 19191919 3.9 4.8

4.1 Government expenditure % of GDP 21212121 2.5 5.7 46.9 47.0 4.1 Change in government expenditure ppt of GDP 2222 7.1 4.7 -7.9

4.2 Public debt % of GDP 28282828 0.0 5.2 170.0 103.1 4.2 Change in public debt ppt of GDP 9999 5.5 5.2 -7.4

4.3 Structural primary balance % of GDP 1111 10.0 5.4 6.3 -4.4 4.3 Change in structural primary balance ppt of GDP 24242424 2.0 5.0 -1.8

4.4 Structural balance % of GDP 1111 10.0 5.6 3.2 -9.1 4.4 Change in structural balance ppt of GDP 26262626 1.5 5.2 -1.6

4.5 Education/infrastruct. investment % of public expendit. 7777 7.4 4.0 4.2 3.8 4.5 ---

4.6 Consumption/property taxes % of tax revenue 1111 10.0 4.6 47.5 42.7 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 19191919 1.3 4.1 -1.9

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 25252525 4.0 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 19191919 4.9 5.2

5.1 Debt redempt. in next three years % of GDP 21212121 5.3 4.7 18.8 35.9 5.1 Change in redempt. in next three years ppt of GDP 10101010 5.6 5.6 -3.9

5.2 Public debt held by foreigners % of GDP n.a.n.a.n.a.n.a. n.a. 6.3 n.a. 83.9 5.2 Change in debt held by foreigners ppt of GDP n.a.n.a.n.a.n.a. n.a. 6.0 n.a.

5.3 Household savings rate % of disp. income 23232323 0.0 6.5 -6.2 6.5 5.3 Change in household savings rate ppt of disp. income 19191919 3.7 4.7 -1.5

5.4 Private debt % of GDP 14141414 7.3 6.5 116 102 5.4 Change in private debt ppt of GDP 12121212 6.3 5 -14

5.5 Bank assets % of GDP 6666 7.4 5.4 159 168 5.5 Change in bank assets ppt of GDP 7777 8.7 5 -67

5.6 NPL % of total loans 24242424 0.0 6.9 41.3 3.1 5.6 Change in NPL ppt of total loans 28282828 0.0 5.1 17.1

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

While still in a weak position, Greece has come a long way. Following Herculean efforts from 2010 to

2013, Greece remains near the top of the league for adjustment progress since 2013. These efforts show

up in a less dismal score for fundamental health, but Greece remains at the bottom of that ranking.

Public debt is the highest, the employment rate the lowest in the EU. It still has a long way to go.

Greece is close to the top of the league for adjustment efforts

• Further fall in unit labour costs

• Continued with serious structural reforms

• Export ratio has risen the most, but remains the second lowest

• Some fiscal slippage, but structural surplus remains huge

Country remains at the bottom of the fundamental health ranking

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Highest fiscal (primary) surplus • Worst performer on health

• Reliance on less distortionary taxes • Worst public debt ratio

• Very moderate labour cost changes • Lowest employment rate in EU

• Low ratio of bank assets/GDP • Still highly regulated economy

• Big correction in public expenditures • Huge burden of NPLs

• Export sector expands, but still small

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

58

Hungary EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

HUHUHUHU HUHUHUHU EZEZEZEZ HUHUHUHU HUHUHUHU HUHUHUHU HUHUHUHU EZEZEZEZ HUHUHUHU

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 16161616 5.8 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 21212121 4.7 5.3

1. External position1. External position1. External position1. External position 7777 7.4 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 24242424 3.4 5.5

1.1 Current account % of GDP 16161616 5.2 6.4 0.5 -7.1 1.1 Change in current account ppt of GDP 26262626 1.5 5.1 -3.3

1.2 Net exports % of GDP 9999 7.0 6.1 5.6 0.7 1.2 Change in net exports ppt of GDP 24242424 2.9 5.3 -2.8

1.3 Exports % of GDP 3333 9.9 6.3 97.4 73.4 1.3 Change in export ratio ppt of GDP 11111111 5.9 6.1 10.3

2. Labour market2. Labour market2. Labour market2. Labour market 11111111 6.8 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 8888 7.6 5.9

2.1 Change in RULC % since 2005 6666 8.1 5.4 91.3 97.9 2.1 Change in RULC % since 2013 17171717 6.0 6.6 -0.1

2.2 Change in NULC % since 2005 22222222 5.0 7.1 139.8 106.8 2.2 Change in NULC % since 2013 23232323 3.3 6.6 15.2

2.3 Employment rate % 15151515 6.5 5.6 69.3 57.1 2.3 Change in employment rate ppt 1111 10.0 5.2 11.2

3. Regulations3. Regulations3. Regulations3. Regulations 21212121 4.9 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 17171717 2.9 4.8

3.1 Ease of doing business 0-100 index 21212121 4.9 6.0 73.3 63.7 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 17171717 2.9 4.8 0.27

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 25252525 3.9 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 26262626 2.8 4.8

4.1 Government expenditure % of GDP 27272727 0.0 5.7 47.4 49.8 4.1 Change in government expenditure ppt of GDP 19191919 4.1 4.7 -2.0

4.2 Public debt % of GDP 17171717 6.1 5.2 70.8 65.5 4.2 Change in public debt ppt of GDP 11111111 5.1 5.2 -6.4

4.3 Structural primary balance % of GDP 24242424 3.0 5.4 -0.5 -2.9 4.3 Change in structural primary balance ppt of GDP 27272727 0.0 5.0 -4.1

4.4 Structural balance % of GDP 27272727 1.4 5.6 -2.9 -6.9 4.4 Change in structural balance ppt of GDP 27272727 0.1 5.2 -2.4

4.5 Education/infrastruct. investment % of public expendit. 14141414 6.3 4.0 3.9 3.5 4.5 ---

4.6 Consumption/property taxes % of tax revenue 6666 8.8 4.6 45.2 43.8 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 17171717 2.0 4.1 -1.4

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 16161616 5.9 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 6666 6.6 5.2

5.1 Debt redempt. in next three years % of GDP 27272727 1.4 4.7 34.3 33.2 5.1 Change in redempt. in next three years ppt of GDP 24242424 2.1 5.6 2.6

5.2 Public debt held by foreigners % of GDP 12121212 6.5 6.3 31.0 46.6 5.2 Change in debt held by foreigners ppt of GDP 3333 9.8 6.0 -14.3

5.3 Household savings rate % of disp. income 6666 7.4 6.5 14.1 9.5 5.3 Change in household savings rate ppt of disp. income 8888 6.6 4.7 1.9

5.4 Private debt % of GDP 4444 9.2 6.5 71 94 5.4 Change in private debt ppt of GDP 7777 8.1 5 -24

5.5 Bank assets % of GDP 16161616 5.7 5.4 96 110 5.5 Change in bank assets ppt of GDP 12121212 5.7 5 -18

5.6 NPL % of total loans 21212121 4.9 6.9 5.6 3.7 5.6 Change in NPL ppt of total loans 5555 7.4 5.1 -8.4

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

2018201820182018 2013-20182013-20182013-20182013-2018

• Strong gain in employment • Big structural primary deficit

• Focus on consumption/property taxes • High NPL ratio

• Big rise in employment rate despite strong nominal labour costs rises

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• High export ratio • High government expenditure

• Low private debt • Lots of debt redemptions

This fast-growing, open economy with the lowest corporate tax rates in the EU is in danger of

overheating in a few years due to double-digit wage growth and serious labour shortage. After a major

drop in our adjustment league, its health is no longer above average. The structural deficit has

deteriorated significantly. If the past years set a trend, the situation could become more precarious.

Adjustment progress drops

• Large drop in fiscal adjustment as structural deficit rises

• External position still strong, but adjustment slipping

• Subdued reform drive

Fundamental health similar to Eurozone overall

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

59

Ireland EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

IEIEIEIE IEIEIEIE EZEZEZEZ IEIEIEIE IEIEIEIE IEIEIEIE IEIEIEIE EZEZEZEZ IEIEIEIE

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 3333 7.2 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 1111 7.8 5.3

1. External position1. External position1. External position1. External position 2222 9.9 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 1111 8.0 5.5

1.1 Current account % of GDP 1111 10.0 6.4 10.2 -6.5 1.1 Change in current account ppt of GDP 1111 10.0 5.1 8.7

1.2 Net exports % of GDP 1111 10.0 6.1 23.7 6.1 1.2 Change in net exports ppt of GDP 1111 10.0 5.3 5.2

1.3 Exports % of GDP 5555 9.7 6.3 110.0 89.4 1.3 Change in export ratio ppt of GDP 20202020 4.0 6.1 7.1

2. Labour market2. Labour market2. Labour market2. Labour market 5555 7.5 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 3333 8.6 5.9

2.1 Change in RULC % since 2005 5555 8.1 5.4 91.1 104.1 2.1 Change in RULC % since 2013 3333 9.1 6.6 -7.7

2.2 Change in NULC % since 2005 1111 9.8 7.1 91.5 109.0 2.2 Change in NULC % since 2013 3333 9.4 6.6 -4.9

2.3 Employment rate % 16161616 6.2 5.6 68.7 71.8 2.3 Change in employment rate ppt 12121212 8.0 5.2 7.0

3. Regulations3. Regulations3. Regulations3. Regulations 8888 7.5 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 6666 5.4 4.8

3.1 Ease of doing business 0-100 index 8888 7.5 6.0 78.3 84.1 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 6666 5.4 4.8 0.37

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 5555 7.3 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 1111 9.9 4.8

4.1 Government expenditure % of GDP 1111 10.0 5.7 30.0 35.9 4.1 Change in government expenditure ppt of GDP 1111 10.0 4.7 -10.4

4.2 Public debt % of GDP 20202020 5.3 5.2 84.2 23.9 4.2 Change in public debt ppt of GDP 1111 10.0 5.2 -35.5

4.3 Structural primary balance % of GDP 13131313 5.8 5.4 1.2 -1.5 4.3 Change in structural primary balance ppt of GDP 4444 9.3 5.0 2.4

4.4 Structural balance % of GDP 16161616 6.1 5.6 -0.4 -2.2 4.4 Change in structural balance ppt of GDP 1111 10.0 5.2 4.2

4.5 Education/infrastruct. investment % of public expendit. 12121212 6.6 4.0 3.2 2.9 4.5 ---

4.6 Consumption/property taxes % of tax revenue 3333 9.5 4.6 38.4 41.2 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 1111 10.0 4.1 13.1

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 26262626 3.8 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 1111 7.2 5.2

5.1 Debt redempt. in next three years % of GDP 14141414 6.5 4.7 14.1 11.3 5.1 Change in redempt. in next three years ppt of GDP 27272727 0.9 5.6 4.8

5.2 Public debt held by foreigners % of GDP 22222222 3.2 6.3 59.2 47.1 5.2 Change in debt held by foreigners ppt of GDP 5555 8.4 6.0 -18.9

5.3 Household savings rate % of disp. income 11111111 6.4 6.5 11.8 6.5 5.3 Change in household savings rate ppt of disp. income 4444 7.0 4.7 2.4

5.4 Private debt % of GDP 25252525 2.3 6.5 244 198 5.4 Change in private debt ppt of GDP 8888 8.1 5 -24

5.5 Bank assets % of GDP 21212121 4.2 5.4 388 844 5.5 Change in bank assets ppt of GDP 5555 9.1 5 -178

5.6 NPL % of total loans 24242424 0.0 6.9 11.5 1.9 5.6 Change in NPL ppt of total loans 1111 9.4 5.1 -14.2

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

A star performer. Its small, open, highly competitive and fast-expanding economy has completed an

impressive post-crisis turnaround. It combines solid fundamentals with the best adjustment efforts, and

partly owes strong results to being low-tax European hub for tech companies. Unlike most other

erstwhile euro crisis countries, Ireland has delivered significant further gains since 2016.

Best performer on adjustment progress

• Highest scores for external, fiscal and financial efforts

• Top 3 labour cost adjustment

• NPL ratio, bank assets and private debt falling fast

• Low-tax regime for corporates makes Ireland a prime hub for global tech companies

• Irish GDP and export data difficult to interpret (data distortion partly adjusted for)

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• 3rd healthiest economy • High private debt

• Best external position • Depends on foreign creditors

• Big labour cost adjustment • Oversized banking system

• Lowest government expenditure • Public debt falling fast but still high

• Business friendly

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

60

Italy EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

ITITITIT ITITITIT EZEZEZEZ ITITITIT ITITITIT ITITITIT ITITITIT EZEZEZEZ ITITITIT

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 27272727 3.9 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 15151515 5.0 5.3

1. External position1. External position1. External position1. External position 17171717 5.0 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 10101010 5.5 5.5

1.1 Current account % of GDP 10101010 6.2 6.4 2.5 -1.4 1.1 Change in current account ppt of GDP 7777 5.9 5.1 1.5

1.2 Net exports % of GDP 15151515 5.0 6.1 2.0 -0.4 1.2 Change in net exports ppt of GDP 18181818 4.6 5.3 -0.9

1.3 Exports % of GDP 18181818 3.6 6.3 32.0 27.0 1.3 Change in export ratio ppt of GDP 10101010 6.1 6.1 3.5

2. Labour market2. Labour market2. Labour market2. Labour market 27272727 3.6 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 18181818 5.5 5.9

2.1 Change in RULC % since 2005 17171717 4.9 5.4 102.0 99.9 2.1 Change in RULC % since 2013 12121212 6.7 6.6 -1.7

2.2 Change in NULC % since 2005 9999 6.9 7.1 121.4 104.2 2.2 Change in NULC % since 2013 9999 7.1 6.6 2.7

2.3 Employment rate % 27272727 1.6 5.6 58.6 58.6 2.3 Change in employment rate ppt 22222222 4.3 5.2 3.0

3. Regulations3. Regulations3. Regulations3. Regulations 23232323 3.8 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 7777 5.3 4.8

3.1 Ease of doing business 0-100 index 23232323 3.8 6.0 71.1 63.1 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 7777 5.3 4.8 0.37

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 27272727 3.0 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 20202020 3.4 4.8

4.1 Government expenditure % of GDP 22222222 2.5 5.7 48.6 46.8 4.1 Change in government expenditure ppt of GDP 15151515 4.4 4.7 -2.5

4.2 Public debt % of GDP 27272727 2.3 5.2 132.2 99.8 4.2 Change in public debt ppt of GDP 26262626 1.9 5.2 3.2

4.3 Structural primary balance % of GDP 9999 6.7 5.4 1.8 1.6 4.3 Change in structural primary balance ppt of GDP 25252525 1.5 5.0 -2.1

4.4 Structural balance % of GDP 24242424 3.6 5.6 -1.7 -3.0 4.4 Change in structural balance ppt of GDP 25252525 2.2 5.2 -1.2

4.5 Education/infrastruct. investment % of public expendit. 27272727 0.0 4.0 1.6 2.4 4.5 ---

4.6 Consumption/property taxes % of tax revenue 14141414 5.4 4.6 34.6 31.1 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 12121212 5.2 4.1 1.2

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 24242424 4.3 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 17171717 5.0 5.2

5.1 Debt redempt. in next three years % of GDP 28282828 0.1 4.7 39.8 39.6 5.1 Change in redempt. in next three years ppt of GDP 12121212 5.1 5.6 -3.0

5.2 Public debt held by foreigners % of GDP 17171717 5.5 6.3 48.9 51.2 5.2 Change in debt held by foreigners ppt of GDP 16161616 3.2 6.0 1.5

5.3 Household savings rate % of disp. income 14141414 5.6 6.5 9.9 13.9 5.3 Change in household savings rate ppt of disp. income 17171717 4.0 4.7 -1.2

5.4 Private debt % of GDP 13131313 7.6 6.5 110 110 5.4 Change in private debt ppt of GDP 13131313 5.8 5 -11

5.5 Bank assets % of GDP 9999 7.1 5.4 209 212 5.5 Change in bank assets ppt of GDP 11111111 6.0 5 -43

5.6 NPL % of total loans 23232323 0.1 6.9 9.5 5.0 5.6 Change in NPL ppt of total loans 10101010 5.7 5.1 -3.5

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Severely challenged economy. Thanks to some serious reforms during and right after the euro crisis,

Italy comes in at No. 14 in our league for adjustment progress. For a country close to the bottom in

terms of its fundamental health, that result is not good enough. Even worse, the recent reform drive

seems to have petered out. Some current government initiatives threaten to deepen Italy’s malaise.

On the wrong track again after some clear post-2011 progress

• Thanks to its 2013-2017 reforms, Italy scores well above average in reform drive

• However adjustment efforts not enough for a country close to bottom of fundamental health league

• Further rise in public debt ratio

• Low employment rate is edging up only at a snail's pace

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• High primary surplus • High public debt and redemptions

• Low bank assets • Low productive public investment

• Current account surplus • Low employment rate (no change)

• Low private sector indebtedness • High structural deficit

• High NPLs

• Still highly regulated economy

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

61

Latvia EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

LVLVLVLV LVLVLVLV EZEZEZEZ LVLVLVLV LVLVLVLV LVLVLVLV LVLVLVLV EZEZEZEZ LVLVLVLV

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 18181818 5.5 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 9999 5.6 5.3

1. External position1. External position1. External position1. External position 25252525 2.8 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 15151515 4.8 5.5

1.1 Current account % of GDP 21212121 4.5 6.4 -1.0 -20.7 1.1 Change in current account ppt of GDP 5555 6.1 5.1 1.8

1.2 Net exports % of GDP 27272727 1.6 6.1 -4.1 -21.8 1.2 Change in net exports ppt of GDP 11111111 5.1 5.3 -0.4

1.3 Exports % of GDP 23232323 2.3 6.3 61.8 41.9 1.3 Change in export ratio ppt of GDP 23232323 3.2 6.1 2.9

2. Labour market2. Labour market2. Labour market2. Labour market 26262626 3.9 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 26262626 4.0 5.9

2.1 Change in RULC % since 2005 27272727 0.1 5.4 117.5 109.2 2.1 Change in RULC % since 2013 28282828 0.3 6.6 14.2

2.2 Change in NULC % since 2005 26262626 0.0 7.1 196.5 147.4 2.2 Change in NULC % since 2013 27272727 0.0 6.6 26.1

2.3 Employment rate % 11111111 7.6 5.6 71.8 68.1 2.3 Change in employment rate ppt 14141414 7.8 5.2 6.7

3. Regulations3. Regulations3. Regulations3. Regulations 7777 8.0 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 1111 10.0 4.8

3.1 Ease of doing business 0-100 index 7777 8.0 6.0 79.3 69.4 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 1111 10.0 4.8 0.58

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 9999 6.6 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 27272727 2.8 4.8

4.1 Government expenditure % of GDP 11111111 6.2 5.7 38.4 34.0 4.1 Change in government expenditure ppt of GDP 27272727 2.4 4.7 0.7

4.2 Public debt % of GDP 8888 8.3 5.2 35.9 8.0 4.2 Change in public debt ppt of GDP 15151515 4.2 5.2 -3.5

4.3 Structural primary balance % of GDP 22222222 3.4 5.4 -0.3 -2.8 4.3 Change in structural primary balance ppt of GDP 21212121 4.7 5.0 -0.3

4.4 Structural balance % of GDP 19191919 4.6 5.6 -1.2 -3.2 4.4 Change in structural balance ppt of GDP 22222222 4.5 5.2 0.2

4.5 Education/infrastruct. investment % of public expendit. 8888 7.4 4.0 4.8 5.9 4.5 ---

4.6 Consumption/property taxes % of tax revenue 8888 8.4 4.6 45.1 42.5 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 25252525 0.0 4.1 -3.5

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 14141414 6.2 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 9999 6.1 5.2

5.1 Debt redempt. in next three years % of GDP 8888 7.1 4.7 11.6 9.5 5.1 Change in redempt. in next three years ppt of GDP 28282828 0.0 5.6 6.8

5.2 Public debt held by foreigners % of GDP 16161616 5.6 6.3 31.5 38.8 5.2 Change in debt held by foreigners ppt of GDP 8888 6.5 6.0 -5.1

5.3 Household savings rate % of disp. income 17171717 3.5 6.5 5.0 0.3 5.3 Change in household savings rate ppt of disp. income 1111 10.0 4.7 8.8

5.4 Private debt % of GDP 7777 8.7 6.5 84 103 5.4 Change in private debt ppt of GDP 15151515 5.5 5 -9

5.5 Bank assets % of GDP 13131313 6.1 5.4 77 136 5.5 Change in bank assets ppt of GDP 1111 10.0 5 -51

5.6 NPL % of total loans 19191919 6.0 6.9 4.7 2.7 5.6 Change in NPL ppt of total loans 17171717 4.8 5.1 -0.9

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

This dynamic Baltic growth star escaped its 2007 crisis by taking the tough medicine of a serious

adjustment programme. A boost in exports led to a bounceback. Not as strong as neighbouring

Lithuania and Estonia on fundamental health scores, it remains above Lithuania and Estonia in the

adjustment progress table, owing to its continued strong reform drive.

Adjustment progress mixed

• Strongest structural reform drive in the EU

• Financial resilience improving (higher savings rate, lower bank assets)

• Labour cost adjustment over

• Fiscal slippage continuing

Fundamental health slightly below Eurozone average

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Very business friendy • Strong uptrend in labour costs

• Strong reform drive • Current account still in deficit

• Small government, low debt • Export ratio low for economy's size

• Tax/spending policies well targeted • Structural fiscal deficit

• Low private debt • Low household savings rate

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

62

Lithuania EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

LTLTLTLT LTLTLTLT EZEZEZEZ LTLTLTLT LTLTLTLT LTLTLTLT LTLTLTLT EZEZEZEZ LTLTLTLT

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 5555 7.0 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 23232323 4.4 5.3

1. External position1. External position1. External position1. External position 14141414 5.7 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 16161616 4.6 5.5

1.1 Current account % of GDP 14141414 5.8 6.4 1.6 -15.5 1.1 Change in current account ppt of GDP 12121212 5.2 5.1 0.8

1.2 Net exports % of GDP 18181818 3.9 6.1 -0.1 -13.2 1.2 Change in net exports ppt of GDP 23232323 3.1 5.3 -2.6

1.3 Exports % of GDP 11111111 7.5 6.3 90.7 49.3 1.3 Change in export ratio ppt of GDP 12121212 5.6 6.1 9.0

2. Labour market2. Labour market2. Labour market2. Labour market 16161616 6.0 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 20202020 5.0 5.9

2.1 Change in RULC % since 2005 21212121 4.5 5.4 103.1 101.3 2.1 Change in RULC % since 2013 26262626 0.6 6.6 13.6

2.2 Change in NULC % since 2005 24242424 3.3 7.1 157.5 117.4 2.2 Change in NULC % since 2013 26262626 0.0 6.6 25.9

2.3 Employment rate % 9999 7.9 5.6 72.4 65.0 2.3 Change in employment rate ppt 4444 9.7 5.2 8.7

3. Regulations3. Regulations3. Regulations3. Regulations 4444 8.4 6.0 3. Reforms3. Reforms3. Reforms3. Reforms n.a.n.a.n.a.n.a. n.a. 4.8

3.1 Ease of doing business 0-100 index 4444 8.4 6.0 80.0 73.4 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index n.a.n.a.n.a.n.a. n.a. 4.8 n.a.

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 2222 8.0 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 15151515 4.4 4.8

4.1 Government expenditure % of GDP 3333 9.5 5.7 34.0 35.2 4.1 Change in government expenditure ppt of GDP 17171717 4.2 4.7 -1.5

4.2 Public debt % of GDP 6666 8.4 5.2 34.2 15.9 4.2 Change in public debt ppt of GDP 14141414 4.5 5.2 -4.6

4.3 Structural primary balance % of GDP 9999 6.7 5.4 1.8 -6.9 4.3 Change in structural primary balance ppt of GDP 7777 8.0 5.0 1.7

4.4 Structural balance % of GDP 7777 8.6 5.6 0.9 -7.5 4.4 Change in structural balance ppt of GDP 5555 8.3 5.2 2.5

4.5 Education/infrastruct. investment % of public expendit. 4444 8.0 4.0 5.5 5.8 4.5 ---

4.6 Consumption/property taxes % of tax revenue 17171717 4.6 4.6 n.a. n.a. 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 24242424 0.6 4.1 -2.5

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 10101010 6.6 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 25252525 3.5 5.2

5.1 Debt redempt. in next three years % of GDP 9999 7.0 4.7 12.0 6.6 5.1 Change in redempt. in next three years ppt of GDP 21212121 3.2 5.6 0.6

5.2 Public debt held by foreigners % of GDP 15151515 5.9 6.3 31.5 27.7 5.2 Change in debt held by foreigners ppt of GDP 17171717 2.6 6.0 1.9

5.3 Household savings rate % of disp. income 22222222 0.8 6.5 -1.2 -4.1 5.3 Change in household savings rate ppt of disp. income 22222222 2.0 4.7 -3.6

5.4 Private debt % of GDP 2222 9.8 6.5 56 74 5.4 Change in private debt ppt of GDP 22222222 3.9 5 0

5.5 Bank assets % of GDP 4444 8.1 5.4 67 82 5.5 Change in bank assets ppt of GDP 21212121 2.9 5 -2

5.6 NPL % of total loans 14141414 8.1 6.9 3.1 3.6 5.6 Change in NPL ppt of total loans 8888 6.4 5.1 -5.5

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

2018201820182018 2013-20182013-20182013-20182013-2018

• Very business friendly • Negative household savings rate

• Low private debt • Strong labour cost increases

• Low bank assets

• Low public expenditure and debt

• High productive public investment

One of the Baltic tigers, Lithuania remains in excellent shape. By turning around its previous external

deficits, it has overtaken of Estonia in both of our rankings. Having successfully concluded its post-

bubble correction, it made sense to relax the reins since 2014. However, it needs to watch the fast rise

in its labour costs and address the reasons for its negative and declining household savings rate.

Adjustment progress among the lowest in the sample

• Financial resilience not improving: negative savings rate and only marginally lower private debt

• Employment rate significantly higher, but labour costs rising fast

• External position strengthening by less than Eurozone average

Fundamental health among the best

• Fiscally very sustainable with strong structural surplus

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

63

Luxembourg EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

LULULULU LULULULU EZEZEZEZ LULULULU LULULULU LULULULU LULULULU EZEZEZEZ LULULULU

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 11111111 6.3 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 28282828 3.3 5.3

1. External position1. External position1. External position1. External position 4444 9.1 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 13131313 5.0 5.5

1.1 Current account % of GDP 7777 7.4 6.4 4.8 9.7 1.1 Change in current account ppt of GDP 19191919 4.0 5.1 -0.6

1.2 Net exports % of GDP 1111 10.0 6.1 29.7 36.1 1.2 Change in net exports ppt of GDP 16161616 4.9 5.3 -0.6

1.3 Exports % of GDP 1111 10.0 6.3 209.1 168.7 1.3 Change in export ratio ppt of GDP 9999 6.3 6.1 23.7

2. Labour market2. Labour market2. Labour market2. Labour market 21212121 5.1 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 27272727 3.7 5.9

2.1 Change in RULC % since 2005 19191919 4.8 5.4 102.3 95.0 2.1 Change in RULC % since 2013 21212121 4.8 6.6 2.9

2.2 Change in NULC % since 2005 23232323 4.5 7.1 145.1 103.2 2.2 Change in NULC % since 2013 21212121 4.1 6.6 12.6

2.3 Employment rate % 21212121 5.5 5.6 67.1 64.2 2.3 Change in employment rate ppt 28282828 2.8 5.2 1.4

3. Regulations3. Regulations3. Regulations3. Regulations 26262626 1.7 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 20202020 0.7 4.8

3.1 Ease of doing business 0-100 index 26262626 1.7 6.0 67.3 64.7 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 20202020 0.7 4.8 0.17

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 1111 9.0 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 24242424 3.2 4.8

4.1 Government expenditure % of GDP 5555 8.9 5.7 43.0 37.8 4.1 Change in government expenditure ppt of GDP 26262626 3.2 4.7 -0.4

4.2 Public debt % of GDP 2222 9.2 5.2 21.4 7.7 4.2 Change in public debt ppt of GDP 18181818 3.8 5.2 -2.3

4.3 Structural primary balance % of GDP 11111111 6.1 5.4 1.4 1.0 4.3 Change in structural primary balance ppt of GDP 19191919 5.5 5.0 0.2

4.4 Structural balance % of GDP 2222 10.0 5.6 1.6 2.1 4.4 Change in structural balance ppt of GDP 21212121 4.5 5.2 0.2

4.5 Education/infrastruct. investment % of public expendit. 1111 9.2 4.0 4.8 5.6 4.5 ---

4.6 Consumption/property taxes % of tax revenue 5555 9.3 4.6 34.2 34.4 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 22222222 0.8 4.1 -2.3

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 12121212 6.4 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 21212121 3.8 5.2

5.1 Debt redempt. in next three years % of GDP 3333 9.1 4.7 3.8 0.0 5.1 Change in redempt. in next three years ppt of GDP 25252525 1.5 5.6 3.8

5.2 Public debt held by foreigners % of GDP 3333 9.0 6.3 10.5 n.a. 5.2 Change in debt held by foreigners ppt of GDP n.a.n.a.n.a.n.a. n.a. 6.0 n.a.

5.3 Household savings rate % of disp. income 1111 10.0 6.5 21.5 17.4 5.3 Change in household savings rate ppt of disp. income 10101010 6.3 4.7 1.6

5.4 Private debt % of GDP 27272727 0.0 6.5 316 317 5.4 Change in private debt ppt of GDP 25252525 3.3 5 3

5.5 Bank assets % of GDP 27272727 0.0 5.4 1830 3145 5.5 Change in bank assets ppt of GDP 20202020 3.7 5 -138

5.6 NPL % of total loans 1111 10.0 6.9 0.9 0.0 5.6 Change in NPL ppt of total loans 26262626 4.2 5.1 0.7

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

A small open, healthy economy with a strong external position and solid public finances. Being a

financial hub helps to generate tax revenues. Close to the bottom of our adjustment progress ranking,

but can afford to stay there for the time being. Despite signs of complacency, it remains above

average on fundamental health. Luxembourg has to be careful, though, not to lose too much ground.

Adjustment progress lowest in EU

• Smallest rise in employment rate, strong increase in labour costs

• Fiscal adjustment below Eurozone average

• Financial sector remains huge

• No pronounced reform drive

Fundamental health still satisfactory

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Highest export ratio • Extremely high private sector debt

• Most comfortable fiscal position • Low score for business friendliness

• Highest household savings rate • Strong rise in labour costs

• Tax and spend policies well targeted

• Lowest NPL ratios

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

64

Malta EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

MTMTMTMT MTMTMTMT EZEZEZEZ MTMTMTMT MTMTMTMT MTMTMTMT MTMTMTMT EZEZEZEZ MTMTMTMT

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 10101010 6.3 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 2222 7.8 5.3

1. External position1. External position1. External position1. External position 3333 9.7 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 5555 6.7 5.5

1.1 Current account % of GDP 1111 10.0 6.4 11.2 -3.0 1.1 Change in current account ppt of GDP 1111 10.0 5.1 11.0

1.2 Net exports % of GDP 1111 10.0 6.1 18.9 1.2 1.2 Change in net exports ppt of GDP 1111 10.0 5.3 12.5

1.3 Exports % of GDP 8888 9.1 6.3 145.3 125.6 1.3 Change in export ratio ppt of GDP 28282828 0.0 6.1 -9.5

2. Labour market2. Labour market2. Labour market2. Labour market 7777 7.3 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 1111 9.6 5.9

2.1 Change in RULC % since 2005 8888 7.6 5.4 93.1 100.5 2.1 Change in RULC % since 2013 1111 9.9 6.6 -9.8

2.2 Change in NULC % since 2005 18181818 6.2 7.1 128.3 106.1 2.2 Change in NULC % since 2013 7777 7.7 6.6 0.7

2.3 Employment rate % 12121212 7.5 5.6 71.4 55.0 2.3 Change in employment rate ppt 1111 10.0 5.2 9.2

3. Regulations3. Regulations3. Regulations3. Regulations 28282828 0.1 6.0 3. Reforms3. Reforms3. Reforms3. Reforms n.a.n.a.n.a.n.a. n.a. 4.8

3.1 Ease of doing business 0-100 index 28282828 0.1 6.0 64.2 61.8 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index n.a.n.a.n.a.n.a. n.a. 4.8 n.a.

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 4444 7.4 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 2222 8.1 4.8

4.1 Government expenditure % of GDP 4444 9.3 5.7 36.3 41.1 4.1 Change in government expenditure ppt of GDP 3333 6.9 4.7 -5.7

4.2 Public debt % of GDP 10101010 7.7 5.2 46.0 62.3 4.2 Change in public debt ppt of GDP 1111 10.0 5.2 -22.4

4.3 Structural primary balance % of GDP 6666 7.1 5.4 2.0 0.1 4.3 Change in structural primary balance ppt of GDP 12121212 6.3 5.0 0.6

4.4 Structural balance % of GDP 11111111 7.7 5.6 0.4 -3.5 4.4 Change in structural balance ppt of GDP 9999 7.2 5.2 1.8

4.5 Education/infrastruct. investment % of public expendit. 17171717 5.5 4.0 3.2 2.0 4.5 ---

4.6 Consumption/property taxes % of tax revenue 17171717 4.6 4.6 n.a. n.a. 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 3333 8.6 4.1 3.9

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 7777 6.9 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 4444 6.9 5.2

5.1 Debt redempt. in next three years % of GDP 12121212 6.5 4.7 13.9 21.2 5.1 Change in redempt. in next three years ppt of GDP 15151515 4.9 5.6 -2.6

5.2 Public debt held by foreigners % of GDP 1111 9.6 6.3 5.5 n.a. 5.2 Change in debt held by foreigners ppt of GDP n.a.n.a.n.a.n.a. n.a. 6.0 n.a.

5.3 Household savings rate % of disp. income n.a.n.a.n.a.n.a. n.a. 6.5 n.a. n.a. 5.3 Change in household savings rate ppt of disp. income n.a.n.a.n.a.n.a. n.a. 4.7 n.a.

5.4 Private debt % of GDP 15151515 7.3 6.5 118 147 5.4 Change in private debt ppt of GDP 5555 8.3 5 -25

5.5 Bank assets % of GDP 25252525 1.7 5.4 361 656 5.5 Change in bank assets ppt of GDP 1111 10.0 5 -297

5.6 NPL % of total loans 9999 9.4 6.9 2.0 1.3 5.6 Change in NPL ppt of total loans 23232323 4.5 5.1 0.0

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Strong current account surplus • Lowest ease of doing business score

• Lowest foreign debt ownership • Large banking sector

Star performer. Small open economy which has improved significantly. Malta has jumped into the top

10 in terms of fundamental health; its adjustment second only to that of Ireland in the past five years.

The external position and the labour market have substantially strengthened. The bottom position in

the ease of doing business league is the only major black spot.

Adjustment progress improves strongly

• External adjustment boosted by much higher net exports

• Fiscal and labour cost adjustment scores also rise

• Substantial progress on downsizing the banking sector and making financial system more resilient

Fundamental health improves

2018201820182018 2013-20182013-20182013-20182013-2018

• Strong fiscal position • Distortionary tax share too high

• High export ratio • Low productive public investment

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

65

Netherlands EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

NLNLNLNL NLNLNLNL EZEZEZEZ NLNLNLNL NLNLNLNL NLNLNLNL NLNLNLNL EZEZEZEZ NLNLNLNL

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 1111 7.5 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 7777 5.7 5.3

1. External position1. External position1. External position1. External position 1111 9.9 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 9999 5.5 5.5

1.1 Current account % of GDP 1111 10.0 6.4 10.8 6.9 1.1 Change in current account ppt of GDP 10101010 5.5 5.1 1.1

1.2 Net exports % of GDP 4444 10.0 6.1 10.9 6.4 1.2 Change in net exports ppt of GDP 6666 5.7 5.3 0.2

1.3 Exports % of GDP 4444 9.8 6.3 85.6 68.4 1.3 Change in export ratio ppt of GDP 13131313 5.4 6.1 8.2

2. Labour market2. Labour market2. Labour market2. Labour market 1111 7.9 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 13131313 6.0 5.9

2.1 Change in RULC % since 2005 14141414 5.0 5.4 101.5 97.9 2.1 Change in RULC % since 2013 8888 7.1 6.6 -2.8

2.2 Change in NULC % since 2005 7777 7.1 7.1 118.7 102.5 2.2 Change in NULC % since 2013 8888 7.3 6.6 1.9

2.3 Employment rate % 1111 10.0 5.6 77.2 73.5 2.3 Change in employment rate ppt 19191919 4.9 5.2 3.6

3. Regulations3. Regulations3. Regulations3. Regulations 15151515 6.0 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 12121212 4.1 4.8

3.1 Ease of doing business 0-100 index 15151515 6.0 6.0 75.4 74.3 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 12121212 4.1 4.8 0.32

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 6666 7.2 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 4444 6.7 4.8

4.1 Government expenditure % of GDP 7777 7.7 5.7 42.1 42.3 4.1 Change in government expenditure ppt of GDP 7777 5.7 4.7 -4.4

4.2 Public debt % of GDP 13131313 7.3 5.2 52.4 43.0 4.2 Change in public debt ppt of GDP 4444 8.1 5.2 -15.3

4.3 Structural primary balance % of GDP 12121212 5.8 5.4 1.3 -0.2 4.3 Change in structural primary balance ppt of GDP 8888 6.9 5.0 1.0

4.4 Structural balance % of GDP 9999 7.9 5.6 0.5 -1.7 4.4 Change in structural balance ppt of GDP 10101010 6.8 5.2 1.6

4.5 Education/infrastruct. investment % of public expendit. 5555 7.9 4.0 4.1 4.6 4.5 ---

4.6 Consumption/property taxes % of tax revenue 13131313 5.8 4.6 33.3 34.6 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 7777 6.1 4.1 1.9

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 9999 6.6 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 10101010 6.1 5.2

5.1 Debt redempt. in next three years % of GDP 11111111 6.9 4.7 12.4 20.8 5.1 Change in redempt. in next three years ppt of GDP 4444 7.9 5.6 -8.1

5.2 Public debt held by foreigners % of GDP 8888 7.7 6.3 25.1 38.4 5.2 Change in debt held by foreigners ppt of GDP 1111 10.0 6.0 -12.7

5.3 Household savings rate % of disp. income 4444 8.0 6.5 15.4 9.2 5.3 Change in household savings rate ppt of disp. income 12121212 5.1 4.7 0.1

5.4 Private debt % of GDP 26262626 1.9 6.5 252 228 5.4 Change in private debt ppt of GDP 19191919 4.4 5 -3

5.5 Bank assets % of GDP 15151515 5.7 5.4 300 350 5.5 Change in bank assets ppt of GDP 18181818 4.4 5 -33

5.6 NPL % of total loans 7777 9.5 6.9 1.9 1.9 5.6 Change in NPL ppt of total loans 18181818 4.8 5.1 -0.8

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Star performer. Tops our list for fundamental health. Best marks for external position and labour

market. Some room for improvement in private sector indebtedness. One of the few countries with

excellent fundamental health that is also improving rapidly. Strong external and fiscal results partly

due to its status as a European hub for some global technology giants.

Solid adjustment progress across the board

• Fiscal sustainability improves even further

• Labour costs rise below average

• External position continues to strengthen

• Reform drive slightly below Eurozone average

Solid adjustment efforts and good starting position to keep top spot for fundamental health

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Top performer on fundamentals • High private sector indebtedness

• Highest employment rate • Above-average size of banking sector

• High current account surplus

• High productive public investment

• High household savings rate

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

66

Poland EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

PLPLPLPL PLPLPLPL EZEZEZEZ PLPLPLPL PLPLPLPL PLPLPLPL PLPLPLPL EZEZEZEZ PLPLPLPL

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 14141414 5.9 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 18181818 4.8 5.3

1. External position1. External position1. External position1. External position 13131313 5.8 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 6666 6.4 5.5

1.1 Current account % of GDP 20202020 4.7 6.4 -0.7 -6.3 1.1 Change in current account ppt of GDP 14141414 5.1 5.1 0.6

1.2 Net exports % of GDP 14141414 5.0 6.1 2.0 -3.6 1.2 Change in net exports ppt of GDP 10101010 5.2 5.3 -0.3

1.3 Exports % of GDP 10101010 7.6 6.3 53.0 39.2 1.3 Change in export ratio ppt of GDP 4444 8.9 6.1 8.7

2. Labour market2. Labour market2. Labour market2. Labour market 17171717 5.8 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 10101010 6.8 5.9

2.1 Change in RULC % since 2005 10101010 5.9 5.4 98.6 97.1 2.1 Change in RULC % since 2013 20202020 4.9 6.6 2.7

2.2 Change in NULC % since 2005 15151515 6.3 7.1 126.6 102.5 2.2 Change in NULC % since 2013 16161616 5.6 6.6 7.6

2.3 Employment rate % 20202020 5.6 5.6 67.4 57.0 2.3 Change in employment rate ppt 10101010 8.5 5.2 7.4

3. Regulations3. Regulations3. Regulations3. Regulations 12121212 6.6 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 18181818 2.8 4.8

3.1 Ease of doing business 0-100 index 12121212 6.6 6.0 76.5 59.1 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 18181818 2.8 4.8 0.26

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 17171717 5.3 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 17171717 4.2 4.8

4.1 Government expenditure % of GDP 18181818 3.9 5.7 41.5 43.1 4.1 Change in government expenditure ppt of GDP 20202020 3.7 4.7 -1.1

4.2 Public debt % of GDP 12121212 7.5 5.2 48.9 44.2 4.2 Change in public debt ppt of GDP 10101010 5.3 5.2 -6.8

4.3 Structural primary balance % of GDP 20202020 3.6 5.4 -0.1 -0.7 4.3 Change in structural primary balance ppt of GDP 9999 6.8 5.0 0.9

4.4 Structural balance % of GDP 23232323 3.8 5.6 -1.6 -2.9 4.4 Change in structural balance ppt of GDP 8888 7.3 5.2 1.9

4.5 Education/infrastruct. investment % of public expendit. 6666 7.7 4.0 5.1 6.9 4.5 ---

4.6 Consumption/property taxes % of tax revenue 16161616 4.9 4.6 39.3 42.8 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 23232323 0.7 4.1 -2.4

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 18181818 5.8 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 22222222 3.8 5.2

5.1 Debt redempt. in next three years % of GDP 16161616 6.2 4.7 15.3 24.8 5.1 Change in redempt. in next three years ppt of GDP 18181818 4.1 5.6 -1.2

5.2 Public debt held by foreigners % of GDP 9999 7.4 6.3 27.0 22.6 5.2 Change in debt held by foreigners ppt of GDP 12121212 4.5 6.0 -1.1

5.3 Household savings rate % of disp. income 21212121 1.6 6.5 0.7 5.2 5.3 Change in household savings rate ppt of disp. income 20202020 3.5 4.7 -1.8

5.4 Private debt % of GDP 6666 8.9 6.5 76 54 5.4 Change in private debt ppt of GDP 23232323 3.7 5 1

5.5 Bank assets % of GDP 19191919 4.7 5.4 93 75 5.5 Change in bank assets ppt of GDP 25252525 1.8 5 1

5.6 NPL % of total loans 18181818 6.0 6.9 4.7 3.4 5.6 Change in NPL ppt of total loans 15151515 4.9 5.1 -1.3

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

This dynamic catching-up economy still has low labour costs and benefits from EU grants to overhaul

its infrastructure. Its health score is in line with Eurozone average. There are demographic challenges

due to a low birth rate and young people leaving the country. The government needs to interfere less

in the economy. It shows the biggest slippage in adjustment after Hungary for the past two years.

Adjustment progress below Eurozone average

• Reform drive slackens

• Financial sector indebtedness rising

• Current account almost balanced, much stronger export ratio

• Employment rate improves strongly from low level

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Well targeted public investment • Low household savings rate

• Low private debt levels • High structural deficit

• Most debt held locally

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

67

Portugal EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

PTPTPTPT PTPTPTPT EZEZEZEZ PTPTPTPT PTPTPTPT PTPTPTPT PTPTPTPT EZEZEZEZ PTPTPTPT

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 21212121 4.9 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 10101010 5.4 5.3

1. External position1. External position1. External position1. External position 22222222 3.0 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 19191919 4.4 5.5

1.1 Current account % of GDP 19191919 4.7 6.4 -0.6 -9.7 1.1 Change in current account ppt of GDP 24242424 2.6 5.1 -2.2

1.2 Net exports % of GDP 23232323 2.7 6.1 -2.2 -7.1 1.2 Change in net exports ppt of GDP 26262626 2.6 5.3 -3.1

1.3 Exports % of GDP 24242424 1.8 6.3 44.6 30.2 1.3 Change in export ratio ppt of GDP 7777 8.1 6.1 6.6

2. Labour market2. Labour market2. Labour market2. Labour market 2222 7.7 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 4444 8.5 5.9

2.1 Change in RULC % since 2005 4444 8.8 5.4 88.9 95.7 2.1 Change in RULC % since 2013 7777 7.2 6.6 -3.0

2.2 Change in NULC % since 2005 5555 8.3 7.1 106.9 101.6 2.2 Change in NULC % since 2013 12121212 6.5 6.6 4.5

2.3 Employment rate % 14141414 6.7 5.6 69.7 67.6 2.3 Change in employment rate ppt 3333 10.0 5.2 9.0

3. Regulations3. Regulations3. Regulations3. Regulations 14141414 6.0 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 19191919 2.0 4.8

3.1 Ease of doing business 0-100 index 14141414 6.0 6.0 75.5 67.5 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 19191919 2.0 4.8 0.23

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 22222222 4.7 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 5555 6.2 4.8

4.1 Government expenditure % of GDP 17171717 4.1 5.7 44.0 44.5 4.1 Change in government expenditure ppt of GDP 5555 6.5 4.7 -6.0

4.2 Public debt % of GDP 26262626 3.0 5.2 121.5 68.4 4.2 Change in public debt ppt of GDP 7777 5.5 5.2 -7.5

4.3 Structural primary balance % of GDP 4444 8.7 5.4 3.0 -1.4 4.3 Change in structural primary balance ppt of GDP 10101010 6.8 5.0 0.9

4.4 Structural balance % of GDP 15151515 6.4 5.6 -0.3 -4.0 4.4 Change in structural balance ppt of GDP 11111111 6.8 5.2 1.6

4.5 Education/infrastruct. investment % of public expendit. 27272727 0.0 4.0 1.4 5.1 4.5 ---

4.6 Consumption/property taxes % of tax revenue 4444 9.4 4.6 43.5 43.0 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 8888 6.1 4.1 1.8

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 27272727 3.1 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 11111111 6.0 5.2

5.1 Debt redempt. in next three years % of GDP 25252525 3.5 4.7 26.2 23.9 5.1 Change in redempt. in next three years ppt of GDP 14141414 4.9 5.6 -2.6

5.2 Public debt held by foreigners % of GDP 25252525 1.2 6.3 75.1 58.2 5.2 Change in debt held by foreigners ppt of GDP 11111111 5.4 6.0 -6.9

5.3 Household savings rate % of disp. income 19191919 3.3 6.5 4.6 7.0 5.3 Change in household savings rate ppt of disp. income 21212121 2.3 4.7 -3.2

5.4 Private debt % of GDP 20202020 5.8 6.5 156 185 5.4 Change in private debt ppt of GDP 1111 10.0 5 -46

5.5 Bank assets % of GDP 18181818 4.8 5.4 194 251 5.5 Change in bank assets ppt of GDP 1111 10.0 5 -109

5.6 NPL % of total loans 24242424 0.0 6.9 11.0 1.7 5.6 Change in NPL ppt of total loans 27272727 3.4 5.1 3.2

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Still in the bottom third of the fundamental health league. As it remains one of the stronger adjustment

performers, it should continue to move up. By and large it has remained on the right track even after

the pressure of the immediate crisis eased. While Portugal reaps the rewards of previous reform

efforts, a low score for pro-growth reforms can be problematic in the long run.

Adjustment progress above average

• Among top 3 for rise in employment rate

• Financial resilience score up

• Positive fiscal dynamics

But reform drive has slackened significantly over last two years

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Low unit labour cost increases • 2nd lowest productive expenditure

• One of the highest primary surpluses • Very high public debt

• Low share of distortionary taxes • One of the lowest export ratios

• High debt redemptions

• High NPLs

• Loss of reform momentum

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

68

Romania EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

RORORORO RORORORO EZEZEZEZ RORORORO RORORORO RORORORO RORORORO EZEZEZEZ RORORORO

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 22222222 4.8 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 24242424 4.3 5.3

1. External position1. External position1. External position1. External position 24242424 2.9 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 21212121 4.0 5.5

1.1 Current account % of GDP 27272727 2.7 6.4 -4.5 -13.7 1.1 Change in current account ppt of GDP 27272727 1.4 5.1 -3.5

1.2 Net exports % of GDP 28282828 0.5 6.1 -6.1 -12.9 1.2 Change in net exports ppt of GDP 27272727 1.0 5.3 -4.9

1.3 Exports % of GDP 15151515 5.4 6.3 50.5 26.4 1.3 Change in export ratio ppt of GDP 2222 9.6 6.1 9.0

2. Labour market2. Labour market2. Labour market2. Labour market 18181818 5.3 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 28282828 3.1 5.9

2.1 Change in RULC % since 2005 2222 8.9 5.4 88.6 83.3 2.1 Change in RULC % since 2013 27272727 0.5 6.6 13.7

2.2 Change in NULC % since 2005 25252525 0.2 7.1 187.8 106.7 2.2 Change in NULC % since 2013 27272727 0.0 6.6 34.8

2.3 Employment rate % 23232323 4.5 5.6 64.8 58.8 2.3 Change in employment rate ppt 17171717 5.9 5.2 4.7

3. Regulations3. Regulations3. Regulations3. Regulations 17171717 5.5 6.0 3. Reforms3. Reforms3. Reforms3. Reforms n.a.n.a.n.a.n.a. n.a. 4.8

3.1 Ease of doing business 0-100 index 17171717 5.5 6.0 74.4 64.8 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index n.a.n.a.n.a.n.a. n.a. 4.8 n.a.

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 16161616 5.4 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 22222222 3.3 4.8

4.1 Government expenditure % of GDP 8888 7.3 5.7 35.2 37.6 4.1 Change in government expenditure ppt of GDP 25252525 3.2 4.7 -0.3

4.2 Public debt % of GDP 7777 8.3 5.2 35.0 12.0 4.2 Change in public debt ppt of GDP 17171717 3.9 5.2 -2.6

4.3 Structural primary balance % of GDP 27272727 0.0 5.4 -2.4 -5.1 4.3 Change in structural primary balance ppt of GDP 26262626 0.4 5.0 -2.8

4.4 Structural balance % of GDP 28282828 0.0 5.6 -3.8 -5.7 4.4 Change in structural balance ppt of GDP 28282828 0.0 5.2 -2.6

4.5 Education/infrastruct. investment % of public expendit. 9999 7.3 4.0 5.1 9.4 4.5 ---

4.6 Consumption/property taxes % of tax revenue 17171717 4.6 4.6 n.a. n.a. 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 9999 5.8 4.1 1.7

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 20202020 5.2 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 3333 7.0 5.2

5.1 Debt redempt. in next three years % of GDP 13131313 6.5 4.7 14.0 13.7 5.1 Change in redempt. in next three years ppt of GDP 3333 8.1 5.6 -8.5

5.2 Public debt held by foreigners % of GDP 7777 8.2 6.3 18.2 14.0 5.2 Change in debt held by foreigners ppt of GDP 10101010 5.8 6.0 -2.1

5.3 Household savings rate % of disp. income 23232323 0.0 6.5 -6.0 -18.9 5.3 Change in household savings rate ppt of disp. income 11111111 6.2 4.7 1.4

5.4 Private debt % of GDP 1111 10.0 6.5 51 57 5.4 Change in private debt ppt of GDP 10101010 6.6 5 -16

5.5 Bank assets % of GDP 26262626 1.1 5.4 52 57 5.5 Change in bank assets ppt of GDP 10101010 6.4 5 -12

5.6 NPL % of total loans 20202020 5.5 6.9 5.1 1.5 5.6 Change in NPL ppt of total loans 2222 8.9 5.1 -12.8

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

• Weak employment rate

2018201820182018 2013-20182013-20182013-20182013-2018

• Lowest private debt • Highest net export deficit

• Real labour costs low • Structural balance weakest in EU

• Well targeted public investments • High bank assets

• Low public debt • Nominal labour cost rise too fast

• Low government expenditure • Low household savings rate

As a dynamic catching-up economy, Romania has been quite successful on many economic counts in

the past few years. However, it shows clear signs of excess. Instead of using fast GDP growth to build

up fiscal buffers and strengthen its resilience, Romania seems to be throwing a party that cannot last.

Emerging markets are even more prone to boom-bust cycles than more mature economies.

Adjustment progress has slipped significantly

• Fast rise in labour costs

• Export ratio has significantly increased, but current account deficit has become excessive again

• Structural fiscal deficit widened significantly

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

69

Slovakia EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

SKSKSKSK SKSKSKSK EZEZEZEZ SKSKSKSK SKSKSKSK SKSKSKSK SKSKSKSK EZEZEZEZ SKSKSKSK

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 15151515 5.9 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 25252525 4.2 5.3

1. External position1. External position1. External position1. External position 9999 6.9 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 23232323 3.6 5.5

1.1 Current account % of GDP 24242424 3.8 6.4 -2.5 -5.9 1.1 Change in current account ppt of GDP 28282828 0.6 5.1 -4.4

1.2 Net exports % of GDP 6666 7.7 6.1 6.8 -3.9 1.2 Change in net exports ppt of GDP 8888 5.4 5.3 -0.1

1.3 Exports % of GDP 6666 9.4 6.3 102.2 80.7 1.3 Change in export ratio ppt of GDP 18181818 4.7 6.1 8.2

2. Labour market2. Labour market2. Labour market2. Labour market 24242424 4.5 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 14141414 6.0 5.9

2.1 Change in RULC % since 2005 25252525 1.8 5.4 112.1 97.8 2.1 Change in RULC % since 2013 24242424 2.7 6.6 8.3

2.2 Change in NULC % since 2005 14141414 6.4 7.1 126.5 101.8 2.2 Change in NULC % since 2013 20202020 4.5 6.6 11.0

2.3 Employment rate % 19191919 5.7 5.6 67.6 60.7 2.3 Change in employment rate ppt 8888 8.7 5.2 7.6

3. Regulations3. Regulations3. Regulations3. Regulations 18181818 5.4 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 11111111 4.2 4.8

3.1 Ease of doing business 0-100 index 18181818 5.4 6.0 74.3 66.4 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 11111111 4.2 4.8 0.32

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 19191919 5.2 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 21212121 3.3 4.8

4.1 Government expenditure % of GDP 16161616 5.4 5.7 40.6 32.4 4.1 Change in government expenditure ppt of GDP 22222222 3.6 4.7 -0.9

4.2 Public debt % of GDP 11111111 7.5 5.2 48.9 30.1 4.2 Change in public debt ppt of GDP 13131313 4.9 5.2 -5.8

4.3 Structural primary balance % of GDP 19191919 3.7 5.4 -0.1 -3.7 4.3 Change in structural primary balance ppt of GDP 20202020 5.0 5.0 -0.1

4.4 Structural balance % of GDP 20202020 4.5 5.6 -1.3 -4.7 4.4 Change in structural balance ppt of GDP 20202020 4.6 5.2 0.3

4.5 Education/infrastruct. investment % of public expendit. 18181818 5.4 4.0 3.3 4.4 4.5 ---

4.6 Consumption/property taxes % of tax revenue 26262626 2.3 4.6 34.6 37.4 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 25252525 0.0 4.1 -3.9

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 6666 7.2 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 23232323 3.7 5.2

5.1 Debt redempt. in next three years % of GDP 4444 8.1 4.7 7.5 11.8 5.1 Change in redempt. in next three years ppt of GDP 2222 8.5 5.6 -9.2

5.2 Public debt held by foreigners % of GDP 14141414 6.0 6.3 32.9 15.0 5.2 Change in debt held by foreigners ppt of GDP 18181818 1.7 6.0 3.3

5.3 Household savings rate % of disp. income 15151515 5.0 6.5 8.4 7.1 5.3 Change in household savings rate ppt of disp. income 3333 7.1 4.7 2.5

5.4 Private debt % of GDP 8888 8.2 6.5 96 60 5.4 Change in private debt ppt of GDP 27272727 0.5 5 19

5.5 Bank assets % of GDP 2222 8.3 5.4 91 103 5.5 Change in bank assets ppt of GDP 27272727 0.0 5 9

5.6 NPL % of total loans 15151515 7.7 6.9 3.3 1.7 5.6 Change in NPL ppt of total loans 20202020 4.6 5.1 -0.4

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

A catching-up economy with the highest car production per capita globally, benefiting from euro

membership and fast export growth to western Europe. There is room for improvement. Slovakia has

slackened its efforts recently: it allowed its external position to slip and has to rein in labour cost rises.

Score for fundamental health still average but at risk in case of further slippage.

Post-2013 adjustment progress well below average

• Export ratio higher, but current account deficit widening

• Redemptions falling further and savings rate higher, but financial sector indebtedness rising

• Solid rise in employment rate, but labour costs rising fast

• Fiscal adjustment and sustainability below average

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• 2nd lowest bank assets to GDP ratio • High share of distortionary taxes

• Low public debt redemptions • Big increase in real labour costs

• High export ratio • Weak structural (primary) balance

• High net exports • Employment rate rising but still low

• Low private debt

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

70

Slovenia EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

SISISISI SISISISI EZEZEZEZ SISISISI SISISISI SISISISI SISISISI EZEZEZEZ SISISISI

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 8888 6.8 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 8888 5.6 5.3

1. External position1. External position1. External position1. External position 6666 8.0 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 2222 7.6 5.5

1.1 Current account % of GDP 5555 8.5 6.4 6.9 -4.1 1.1 Change in current account ppt of GDP 4444 6.9 5.1 2.6

1.2 Net exports % of GDP 5555 8.9 6.1 9.0 -2.5 1.2 Change in net exports ppt of GDP 3333 7.7 5.3 2.5

1.3 Exports % of GDP 12121212 6.5 6.3 86.9 64.9 1.3 Change in export ratio ppt of GDP 6666 8.3 6.1 13.3

2. Labour market2. Labour market2. Labour market2. Labour market 14141414 6.4 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 7777 7.8 5.9

2.1 Change in RULC % since 2005 12121212 5.1 5.4 101.3 97.6 2.1 Change in RULC % since 2013 11111111 6.7 6.6 -1.8

2.2 Change in NULC % since 2005 16161616 6.3 7.1 126.9 103.9 2.2 Change in NULC % since 2013 13131313 6.5 6.6 4.6

2.3 Employment rate % 13131313 7.4 5.6 71.2 67.7 2.3 Change in employment rate ppt 7777 8.9 5.2 7.9

3. Regulations3. Regulations3. Regulations3. Regulations 19191919 5.3 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 22222222 0.0 4.8

3.1 Ease of doing business 0-100 index 19191919 5.3 6.0 74.1 55.5 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 22222222 0.0 4.8 0.14

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 10101010 6.6 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 6666 5.9 4.8

4.1 Government expenditure % of GDP 15151515 5.4 5.7 42.2 41.9 4.1 Change in government expenditure ppt of GDP 6666 6.1 4.7 -7.1

4.2 Public debt % of GDP 16161616 6.2 5.2 70.1 22.8 4.2 Change in public debt ppt of GDP 22222222 3.1 5.2 -0.3

4.3 Structural primary balance % of GDP 5555 7.7 5.4 2.4 -1.8 4.3 Change in structural primary balance ppt of GDP 6666 8.2 5.0 1.7

4.4 Structural balance % of GDP 8888 7.9 5.6 0.5 -2.8 4.4 Change in structural balance ppt of GDP 7777 7.4 5.2 1.9

4.5 Education/infrastruct. investment % of public expendit. 15151515 6.0 4.0 3.4 4.0 4.5 ---

4.6 Consumption/property taxes % of tax revenue 10101010 8.0 4.6 40.7 38.6 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 5555 6.8 4.1 2.4

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 4444 7.6 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 7777 6.6 5.2

5.1 Debt redempt. in next three years % of GDP 17171717 6.1 4.7 15.7 10.2 5.1 Change in redempt. in next three years ppt of GDP 8888 5.9 5.6 -4.4

5.2 Public debt held by foreigners % of GDP 23232323 3.1 6.3 50.9 23.6 5.2 Change in debt held by foreigners ppt of GDP 20202020 0.0 6.0 15.8

5.3 Household savings rate % of disp. income 5555 7.9 6.5 15.1 15.3 5.3 Change in household savings rate ppt of disp. income 5555 7.0 4.7 2.4

5.4 Private debt % of GDP 5555 9.0 6.5 76 96 5.4 Change in private debt ppt of GDP 4444 9.4 5 -32

5.5 Bank assets % of GDP 1111 10.0 5.4 88 123 5.5 Change in bank assets ppt of GDP 6666 9.0 5 -39

5.6 NPL % of total loans 6666 9.6 6.9 1.9 4.2 5.6 Change in NPL ppt of total loans 3333 8.4 5.1 -11.5

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Small, dynamic catching-up economy. One of the star performers with above-average scores for both

fundamental health and adjustment progress. External position and financial resilience look solid. Its

resilience allowed Slovenia to overcome its financial crisis in 2013-2014 without having to call in the

troika. Political will for pro-growth structural reforms needs to strengthen, however.

Good adjustment efforts

• External adjustment improving strongly

• Fiscal sustainability up

• Financial system more resilient

Fundamental health improved

• Reform drive slowed

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Low bank assets • High % of debt held abroad

• Low private debt • Ease of doing business below average

• High current account surplus

• High primary surplus

• High household savings rate

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

71

Spain EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

ESESESES ESESESES EZEZEZEZ ESESESES ESESESES ESESESES ESESESES EZEZEZEZ ESESESES

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 19191919 5.3 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 13131313 5.1 5.3

1. External position1. External position1. External position1. External position 19191919 4.8 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 18181818 4.4 5.5

1.1 Current account % of GDP 15151515 5.5 6.4 0.9 -9.6 1.1 Change in current account ppt of GDP 18181818 4.0 5.1 -0.6

1.2 Net exports % of GDP 13131313 6.1 6.1 3.9 -6.0 1.2 Change in net exports ppt of GDP 12121212 5.1 5.3 -0.4

1.3 Exports % of GDP 22222222 2.8 6.3 32.8 25.8 1.3 Change in export ratio ppt of GDP 19191919 4.2 6.1 2.3

2. Labour market2. Labour market2. Labour market2. Labour market 20202020 5.1 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 6666 7.9 5.9

2.1 Change in RULC % since 2005 9999 6.4 5.4 97.0 100.3 2.1 Change in RULC % since 2013 10101010 6.9 6.6 -2.2

2.2 Change in NULC % since 2005 6666 8.0 7.1 110.4 107.8 2.2 Change in NULC % since 2013 6666 7.7 6.6 0.6

2.3 Employment rate % 25252525 3.4 5.6 62.4 65.8 2.3 Change in employment rate ppt 9999 8.7 5.2 7.6

3. Regulations3. Regulations3. Regulations3. Regulations 10101010 6.9 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 10101010 4.6 4.8

3.1 Ease of doing business 0-100 index 10101010 6.9 6.0 77.1 68.6 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 10101010 4.6 4.8 0.34

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 24242424 4.5 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 25252525 3.1 4.8

4.1 Government expenditure % of GDP 10101010 6.8 5.7 41.3 39.0 4.1 Change in government expenditure ppt of GDP 8888 5.7 4.7 -4.2

4.2 Public debt % of GDP 22222222 4.5 5.2 97.1 35.6 4.2 Change in public debt ppt of GDP 23232323 2.5 5.2 1.6

4.3 Structural primary balance % of GDP 23232323 3.1 5.4 -0.4 -0.3 4.3 Change in structural primary balance ppt of GDP 23232323 3.7 5.0 -0.9

4.4 Structural balance % of GDP 26262626 1.8 5.6 -2.7 -1.4 4.4 Change in structural balance ppt of GDP 23232323 3.5 5.2 -0.4

4.5 Education/infrastruct. investment % of public expendit. 23232323 2.6 4.0 2.1 5.5 4.5 ---

4.6 Consumption/property taxes % of tax revenue 12121212 6.5 4.6 36.9 31.6 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 21212121 0.9 4.1 -2.3

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 21212121 5.2 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 13131313 5.3 5.2

5.1 Debt redempt. in next three years % of GDP 26262626 3.3 4.7 26.7 20.2 5.1 Change in redempt. in next three years ppt of GDP 6666 6.3 5.6 -5.2

5.2 Public debt held by foreigners % of GDP 18181818 5.1 6.3 50.9 27.5 5.2 Change in debt held by foreigners ppt of GDP 20202020 0.0 6.0 12.7

5.3 Household savings rate % of disp. income 18181818 3.4 6.5 4.9 5.9 5.3 Change in household savings rate ppt of disp. income 25252525 1.0 4.7 -4.8

5.4 Private debt % of GDP 17171717 6.4 6.5 139 192 5.4 Change in private debt ppt of GDP 1111 10.0 5 -38

5.5 Bank assets % of GDP 14141414 5.9 5.4 219 278 5.5 Change in bank assets ppt of GDP 8888 8.5 5 -88

5.6 NPL % of total loans 17171717 7.1 6.9 3.8 2.6 5.6 Change in NPL ppt of total loans 9999 5.9 5.1 -4.1

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

A mostly mature economy forced to undergo major adjustment in the wake of a real estate and

banking crisis. Reforms and fiscal rebalancing have shown results. While the reform drive has petered

out, Spain has enjoyed strong growth over the past years with fundamental health improving. Political

gridlock does not affect economy too much yet, but the 22.3% minimum wage hike in 2019 is excessive.

Adjustment progress slips

• Reform drive weakens

• Scores of fiscal sustainability not improving by much

Progress in labour and financial adjustment

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Strong labour cost adjustment • High debt redemptions

• Relatively low public expenditure • Employment rate rising but still low

• Turnaround in current account • Still high structural fiscal deficit

• Low productive public investment

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

72

Sweden EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

SESESESE SESESESE EZEZEZEZ SESESESE SESESESE SESESESE SESESESE EZEZEZEZ SESESESE

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 7777 6.9 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 27272727 3.8 5.3

1. External position1. External position1. External position1. External position 15151515 5.2 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 25252525 3.3 5.5

1.1 Current account % of GDP 12121212 6.0 6.4 2.0 8.2 1.1 Change in current account ppt of GDP 25252525 1.6 5.1 -3.3

1.2 Net exports % of GDP 12121212 6.2 6.1 4.1 6.8 1.2 Change in net exports ppt of GDP 17171717 4.6 5.3 -0.9

1.3 Exports % of GDP 20202020 3.3 6.3 50.4 47.3 1.3 Change in export ratio ppt of GDP 21212121 3.8 6.1 3.0

2. Labour market2. Labour market2. Labour market2. Labour market 6666 7.4 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 19191919 5.4 5.9

2.1 Change in RULC % since 2005 23232323 4.3 5.4 103.8 99.7 2.1 Change in RULC % since 2013 9999 6.9 6.6 -2.3

2.2 Change in NULC % since 2005 21212121 5.8 7.1 132.4 104.4 2.2 Change in NULC % since 2013 17171717 5.5 6.6 7.9

2.3 Employment rate % 1111 10.0 5.6 77.6 74.2 2.3 Change in employment rate ppt 20202020 4.4 5.2 3.2

3. Regulations3. Regulations3. Regulations3. Regulations 5555 8.2 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 21212121 0.6 4.8

3.1 Ease of doing business 0-100 index 5555 8.2 6.0 79.6 78.4 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 21212121 0.6 4.8 0.16

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 15151515 5.7 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 16161616 4.3 4.8

4.1 Government expenditure % of GDP 20202020 2.9 5.7 49.8 49.2 4.1 Change in government expenditure ppt of GDP 18181818 4.1 4.7 -2.1

4.2 Public debt % of GDP 9999 8.1 5.2 38.8 39.2 4.2 Change in public debt ppt of GDP 19191919 3.6 5.2 -1.9

4.3 Structural primary balance % of GDP 17171717 4.2 5.4 0.3 2.3 4.3 Change in structural primary balance ppt of GDP 11111111 6.6 5.0 0.9

4.4 Structural balance % of GDP 10101010 7.8 5.6 0.5 1.6 4.4 Change in structural balance ppt of GDP 13131313 6.1 5.2 1.2

4.5 Education/infrastruct. investment % of public expendit. 11111111 6.8 4.0 3.3 3.2 4.5 ---

4.6 Consumption/property taxes % of tax revenue 24242424 3.3 4.6 30.3 31.5 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 15151515 3.3 4.1 -0.4

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 3333 7.8 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 15151515 5.2 5.2

5.1 Debt redempt. in next three years % of GDP 5555 7.7 4.7 9.2 10.8 5.1 Change in redempt. in next three years ppt of GDP 11111111 5.6 5.6 -3.9

5.2 Public debt held by foreigners % of GDP 5555 8.8 6.3 14.7 17.8 5.2 Change in debt held by foreigners ppt of GDP 6666 8.3 6.0 -4.5

5.3 Household savings rate % of disp. income 2222 9.8 6.5 19.5 12.3 5.3 Change in household savings rate ppt of disp. income 7777 6.7 4.7 2.0

5.4 Private debt % of GDP 23232323 4.1 6.5 197 168 5.4 Change in private debt ppt of GDP 24242424 3.6 5 1

5.5 Bank assets % of GDP 10101010 6.6 5.4 275 239 5.5 Change in bank assets ppt of GDP 23232323 2.5 5 -3

5.6 NPL % of total loans 1111 10.0 6.9 0.5 0.5 5.6 Change in NPL ppt of total loans 22222222 4.5 5.1 -0.1

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

Sweden is among the top group of EU economies in terms of fundamental health. Its once excellent

position has declined from number one in 2007 to number seven as its economy has become slightly

less competitive. Some slippage poses no serious problems as Sweden’s fundamental health remains

well above average. Over the long term, it should be careful not to become too complacent.

Second lowest adjustment progress

• Reform drive and external adjustment scores low

• Further rise in household savings rate mitigates financial risks

If slippage continues, it could fall out of Top 10 for fundamental health in a few years

• Starting to rein in labour costs

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• High employment rate • Too much focus on distortionary taxes

• Lowest NPL ratios • High private sector debt levels

• Thrifty households • High government expenditure

• Business friendly • Reform drive well below average

• Low debt redemptions

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

73

United Kingdom EZ19EZ19EZ19EZ19

Overall assessmentOverall assessmentOverall assessmentOverall assessment

2013-2018 key developments2013-2018 key developments2013-2018 key developments2013-2018 key developments

Detailed scoresDetailed scoresDetailed scoresDetailed scores

2007200720072007

UKUKUKUK UKUKUKUK EZEZEZEZ UKUKUKUK UKUKUKUK UKUKUKUK UKUKUKUK EZEZEZEZ UKUKUKUK

Rank Score Score Value Value Rank Score Score Value

HEALTHHEALTHHEALTHHEALTH 12121212 6.2 5.9 ADJUSTMENTADJUSTMENTADJUSTMENTADJUSTMENT 16161616 4.8 5.3

1. External position1. External position1. External position1. External position 23232323 2.9 6.3 1. External adjustment1. External adjustment1. External adjustment1. External adjustment 20202020 4.2 5.5

1.1 Current account % of GDP 26262626 3.1 6.4 -3.9 -3.6 1.1 Change in current account ppt of GDP 8888 5.7 5.1 1.3

1.2 Net exports % of GDP 24242424 2.4 6.1 -2.6 -2.3 1.2 Change in net exports ppt of GDP 19191919 4.5 5.3 -1.1

1.3 Exports % of GDP 21212121 3.2 6.3 30.2 28.1 1.3 Change in export ratio ppt of GDP 25252525 2.5 6.1 0.9

2. Labour market2. Labour market2. Labour market2. Labour market 9999 7.1 5.8 2. Labour adjustment2. Labour adjustment2. Labour adjustment2. Labour adjustment 16161616 5.7 5.9

2.1 Change in RULC % since 2005 18181818 4.8 5.4 102.1 102.3 2.1 Change in RULC % since 2013 14141414 6.2 6.6 -0.6

2.2 Change in NULC % since 2005 20202020 5.9 7.1 131.0 108.0 2.2 Change in NULC % since 2013 18181818 5.5 6.6 8.0

2.3 Employment rate % 7777 9.0 5.6 74.7 71.5 2.3 Change in employment rate ppt 18181818 5.4 5.2 4.1

3. Regulations3. Regulations3. Regulations3. Regulations 2222 9.0 6.0 3. Reforms3. Reforms3. Reforms3. Reforms 5555 5.8 4.8

3.1 Ease of doing business 0-100 index 2222 9.0 6.0 81.1 82.5 3.1 ---

3.2 --- 3.2 Reform drive 0-1 index 5555 5.8 4.8 0.39

4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability4. Fiscal sustainability 11111111 6.3 5.2 4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment4. Fiscal adjustment 7777 5.4 4.8

4.1 Government expenditure % of GDP 6666 7.9 5.7 40.8 40.9 4.1 Change in government expenditure ppt of GDP 12121212 5.0 4.7 -3.1

4.2 Public debt % of GDP 21212121 5.1 5.2 86.8 41.7 4.2 Change in public debt ppt of GDP 23232323 2.5 5.2 1.6

4.3 Structural primary balance % of GDP 18181818 3.9 5.4 0.1 -3.5 4.3 Change in structural primary balance ppt of GDP 2222 9.9 5.0 2.7

4.4 Structural balance % of GDP 21212121 4.2 5.6 -1.4 -5.2 4.4 Change in structural balance ppt of GDP 4444 8.4 5.2 2.5

4.5 Education/infrastruct. investment % of public expendit. 16161616 5.9 4.0 3.0 2.5 4.5 ---

4.6 Consumption/property taxes % of tax revenue 1111 10.0 4.6 44.5 42.1 4.6 ---

4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 10101010 5.4 4.1 1.4

5. Financial resilience5. Financial resilience5. Financial resilience5. Financial resilience 17171717 5.8 6.1 5. Financial adjustment5. Financial adjustment5. Financial adjustment5. Financial adjustment 28282828 2.9 5.2

5.1 Debt redempt. in next three years % of GDP 20202020 5.7 4.7 17.1 11.2 5.1 Change in redempt. in next three years ppt of GDP 23232323 2.4 5.6 2.0

5.2 Public debt held by foreigners % of GDP 11111111 7.3 6.3 32.1 20.5 5.2 Change in debt held by foreigners ppt of GDP 20202020 0.0 6.0 6.8

5.3 Household savings rate % of disp. income 20202020 3.3 6.5 4.5 8.5 5.3 Change in household savings rate ppt of disp. income 23232323 1.6 4.7 -4.1

5.4 Private debt % of GDP 21212121 5.2 6.5 171 183 5.4 Change in private debt ppt of GDP 21212121 4.2 5 -2

5.5 Bank assets % of GDP 23232323 3.5 5.4 377 443 5.5 Change in bank assets ppt of GDP 16161616 4.8 5 -51

5.6 NPL % of total loans 1111 10.0 6.9 1.3 1.0 5.6 Change in NPL ppt of total loans 19191919 4.6 5.1 -0.4

Notes: The light-blue shaded bars in the chart indicate the Eurozone average for comparison. Scores are from 10 (best possible) to 0 (worst possible). Ranks show the relative position

A solid, mature economy with a flexible labour market, light-touch regulation and London as a tax

revenue generator. It has enough policy headroom to deal with a shock. Its score for fundamental

health is only modestly above the Eurozone which has moved up. Brexit could hurt due to lower growth

in trade, investment and immigration. The UK is at risk of falling back a little.

Adjustment progress neither strong nor weak

• Helped by a weaker currency the current account defcit has come down a little

• Fiscal adjustment improves further (was less frontloaded than in Eurozone)

Fundamental health still modestly above Eurozone average, but less so than before

• Fiscal sustainability score rises

• Financial resilience slips

StrengthsStrengthsStrengthsStrengths WeaknessesWeaknessesWeaknessesWeaknesses

• Focus on non-distortionary taxes • High current account deficit

• Very business friendly • Low savings rate

• Low NPL ratios • Still high structural fiscal deficit

• Small government • Low score for financial adjustment

• High employment rate

2018201820182018 2013-20182013-20182013-20182013-2018

among the 28 EU members from 1 (best) to 28 (worst). For an explanation of the variables, see the separate notes to all country tables.

HEALTH

1. External position

2. Labour market

3. Regulations

4. Fiscal sustainability

5. Financial resilience

ADJUSTMENT

1. External adjustment

2. Labour adjustment

3. Reforms

4. Fiscal adjustment

5. Financial adjustment

Economics

74

Methodology

While the focus and the data covered differ, we largely use the same methodology as we have done in The Euro Plus Monitor in the years 2011 to 2017.

For the scores, we rank all sub-indicators on a linear scale of 10 (best) to 0 (worst). In most cases, we calibrate the linear scale so that the top performing country is slightly below the upper bound and the worst country slightly above the lower bound of the 10-0 range to leave room for subsequent data revisions.

For some indicators, small countries had results so far outside the range of the readings for others that we did not use these outliers to define the range. Instead, we accorded these outliers the top score of 10 or the bottom score of 0 respectively.

We compare the 2018 scores and the ranks for each country’s fundamental health to those based on their 2007 data. We also look at the more recent adjustment progress over the past five years, giving scores for the cumulative changes in these variables from 2013 to 2018. In addition, we also assign adjustment scores for the shorter 2013-2016 period. The difference between the scores for the longer and shorter period indicates whether or not countries have made further progress in the past two years. However, as annual data can be volatile, we focus more on the longer 2013-2018 period than on the shorter period.

To ensure a rough consistency of the data over time, we have adjusted the Irish national accounts data for 2015 to 2018 for the strong upward revision in Irish GDP in Q1 2015 that reflected the activities and statistical treatment of large multinational enterprises in Ireland rather than any underlying sudden surge in Irish output or its exports or imports.

Economics

75

Notes on key components

Cut-off date for data: 7 May 2019.

1) External position

Current account balance, in percent of GDP. Source: Eurostat

Health: 2018 versus 2007

Adjustment: Change from 2013 to 2018 and from 2013 to 2016 (for comparison)

Net exports of goods and services, in percent of real GDP. Source: Eurostat

Health: 2018 versus 2007

Adjustment: Change from 2013 to 2018 and from 2013 to 2016 (for comparison)

Exports of goods and services in percent of real GDP. Source: Eurostat, Berenberg calculations

Health: Export ratio adjusted for GDP (size) and GDP per capita (income), score based on deviation of adjusted export ratio from the norm for a country its GDP and per capita GDP. Data for outlier Luxembourg were excluded from the regression establishing the norm for 2018.

Adjustment: Score based on average annual rise in export ratio relative to starting point for 2013-2018 and 2013-2016 (for comparison)

2) Labour market

Unit labour costs, in real and nominal terms (2005=100). Source: European Commission

Health: 2018 versus 2007

Adjustment: Cumulative increase 2013-2018 and 2013-2016 (for comparison)

Employment rate, in percent of all 15-64 year-olds. Source: Eurostat

Health: 2018 versus 2007

Adjustment: Cumulative change from 2013 to 2018 and from 2013 to 2016 (for comparison)

3) Regulations and reforms

Health: Ease of doing business, customised score which includes “Starting a business”, “Dealing with construction permits”, “Registering property”, “Getting credit”, “Protecting minorities”, “Paying taxes”, “Trading across borders”, “Enforcing contracts” and “Resolving insolvency”, but excludes score for “Getting electricity” from overall score for lack of pre-2010 data, 0-100 range, index, 2018 versus 2007. Source: World Bank

Adjustment: Reform drive, 0-1 range index. Average of 2013/2014, 2015/2016, 2017 and for 2010, 2011/2012 and 2013/2014 (for comparison); 2018 data not yet available. Source: OECD

4) Fiscal sustainability

Government expenditure, in percent of GDP. Source: Eurostat, Berenberg calculations

Health: Score based on deviation of adjusted government expenditure from a norm for which country data have been adjusted for differences in GDP per capita, 2018 versus 2007

Adjustment: Score based on average annual rise relative to starting point. 2013-2018 and 2013-2016 (for comparison)

Government debt, in percent of GDP. Source: Eurostat

Health: 2018 versus 2007

Adjustment: Change in debt ratio from 2013 to 2018 and from 2013 to 2016 (for comparison)

Economics

76

Structural (primary) balance, in percent of GDP. Source: IMF

Health: 2018 versus 2007

Adjustment: Change in balance from 2013 to 2018 and from 2013 to 2016 (for comparison)

Health: Education and infrastructure investment, in percent of total government expenditure, 2016/2017 versus 2009/2010. 2018 data not yet available. Score based on deviation of adjusted share from a norm based on GDP per capita. Source: Eurostat, Berenberg calculations

Health: Revenue from consumption and property taxes, in percent of total tax revenue, 2016/2017 versus 2009/2010. 2018 data not yet available. Source: European Commission, Eurostat, OECD

Adjustment: Sum of cuts in government expenditure and in taxes, in percentage points of GDP, for 2012/2013 to 2017/2018 and for 2012/2013 to 2015/2016 (for comparison). Source: European Commission

5) Financial resilience

Government debt redemptions in the next three years, in percent of GDP. Source: Bloomberg, Eurostat

Health: Redemptions 2019-2021 versus 2010-2012 (no earlier data available)

Adjustment: Change in redemptions ratio 2019-2021 over 2014-2016 and for 2017-2019 over 2014-2016 (for comparison)

Government debt held by foreigners, in percent of GDP. Source: IMF, Berenberg calculations

Health: Score based on deviation of public debt held abroad from adjusted norm based on GDP (size). 2018 versus 2010 (no earlier data available)

Adjustment: Score based on average annual rise relative to starting point, from 2013 to 2018 and from 2013 to 2016 (for comparison)

Household savings rate, gross, in percent of disposable income. Source: European Commission

Health: 2018 versus 2007

Adjustment: change from 2013 to 2018 and from 2013 to 2016 (for comparison)

Private debt, in percent of GDP. Source: European Commission

Health: 2017/2018 versus 2007

Adjustment: Change from 2013 to 2017/2018 and from 2013 to 2016 (for comparison)

Bank assets, in percent of GDP. Source: ECB, Eurostat, Berenberg calculations

Health: Score based on deviation of bank assets from adjusted norm based on GDP per capita (income), 2018 versus 2007

Adjustment: Score based on average annual change relative to starting point for 2013 to 2018 and for 2013 to 2016 (for comparison)

Non-performing loans, in percent of total loans. Source: Eurostat, IMF

Health: 2017 or 2018 (latest available) versus 2008 (no earlier data available)

Adjustment: Change in NPL ratio from 2013 to 2017 or 2018 and from 2013 to 2016 (for comparison)

Economics

77

References and additional reading

European Commission. Spring 2019 Economic Forecast: Growth continues at a more moderate pace (Brussels: European Commission, 2019)

International Monetary Fund (IMF). Fiscal Monitor April 2019: Curbing corruption (Washington, DC: IMF, 2019)

Organisation for Economic Co-operation and Development (OECD). Going for growth 2018: An opportunity that governments should not miss (Paris: OECD, 2018).

World Bank. Doing Business 2019: Training for reform (Washington, DC: World Bank, 2018)

Full editions of The Euro Plus Monitor

Schmieding, Holger. The 2015 Euro Plus Monitor: More Progress, New Risks (London/Brussels: Berenberg/Lisbon Council, 2015)

Schmieding, Holger, and Florian Hense. The 2016 Euro Plus Monitor: Coping with the Backlash (London/Brussels: Berenberg/Lisbon Council, 2016)

-------------. The 2017 Euro Plus Monitor: Into a higher gear (London/Brussels: Berenberg/Lisbon Council, 2017)

Schmieding, Holger, Paul Hofheinz, Jörn Quitzau, Anna Rossen and Christian Schulz. The 2011 Euro Plus Monitor: Progress Amid the Turmoil (London/Brussels: Berenberg/Lisbon Council, 2011)

Schmieding, Holger, and Christian Schulz. The 2014 Euro Plus Monitor: Leaders and Laggards (London/Brussels: Berenberg/Lisbon Council, 2014)

Schmieding, Holger, Christian Schulz and Paul Hofheinz. The 2012 Euro Plus Monitor: The Rocky Road to Balanced Growth (London/Brussels: Berenberg/Lisbon Council, 2012)

-----------. The 2013 Euro Plus Monitor: From Pain to Gain (London/Brussels: Berenberg/Lisbon Council, 2013)

Economics

DisclaimerDisclaimerDisclaimerDisclaimer

This document was compiled by the above mentioned authors of the economics department of Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as “the Bank”). The Bank has made any effort to carefully research and process all information. The information has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised press. However, we do not assume liability for the correctness and completeness of all information given. The provided information has not been checked by a third party, especially an independent auditing firm. We explicitly point to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. We do not assume responsibility to indicate such changes and/or to publish an updated document. The forecasts contained in this document or other statements on rates of return, capital gains or other accession are the personal opinion of the author and we do not assume liability for the realisation of these.

This document is only for information purposes. It does not constitute a financial analysis within the meaning of § 34b or § 31 Subs. 2 of the German Securities Trading Act (Wertpapierhandelsgesetz), no investment advice or recommendation to buy financial instruments. It does not replace consulting regarding legal, tax or financial matters.

Remarks regarding foreign investors

The preparation of this document is subject to regulation by German law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions.

United Kingdom

This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

United States of America

This document has been prepared exclusively by Joh. Berenberg, Gossler & Co. KG. Although Berenberg Capital Markets LLC, an affiliate of the Bank and registered US broker-dealer, distributes this document to certain customers. This document does not constitute research of Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1 617.292.8200), if you require additional information.

Copyright

The Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the Bank’s prior written consent.

© 2019 Joh. Berenberg, Gossler & Co. KG

Contacts

79

Internet www.berenberg.com E-mail: firstname.lastname@berenberg.com

EQUITY RESEARCH

GENERAL MID CAP BUSINESS SERVICES, LEISURE & TRANSPORT ENERGY (cont'd) INDUSTRIALS (cont'd)

MID CAP - DACH BUSINESS SERVICES OIL & GAS (cont'd) CAPITAL GOODS

Carl-Oscar Bredengen +44 20 3753 3160 Zaim Beekawa +44 20 3207 7855 Edward Pizzey +44 20 3753 3185 Jonathan Coubrough +44 20 3465 2699

Marta Bruska +44 20 3753 3187 Tom Burlton +44 20 3207 7852 Henry Tarr +44 20 3207 7827 Philippe Lorrain +44 20 3207 7823

Martin Comtesse +44 20 3207 7878 LEISURE UTILITIES Rizk Maidi +44 20 3207 7806

Charlotte Friedrichs +44 20 3753 3077 Roberta Ciaccia +44 20 3207 7805 Oliver Brown +44 20 3207 7922 Simon Toennessen +44 20 3207 7819

Gustav Froberg +44 20 3465 2655 Jack Cummings +44 20 3753 3161 Andrew Fisher +44 20 3207 7937 Ethan Zhang +44 20 3465 2634

James Letten +44 20 3753 3176 Stuart Gordon +44 20 3207 7858 Lawson Steele +44 20 3207 7887

Alexander O'Donoghue +44 20 3207 7804 Annabel Hay-Jahans +44 20 3465 2720 MATERIALS

Gerhard Orgonas +44 20 3465 2635 TRANSPORT & LOGISTICS FINANCIALS CHEMICALS

Benjamin Pfannes-Varrow +44 20 3465 2620 William Fitzalan Howard +44 20 3465 2640 BANKS Sebastian Bray +44 20 3753 3011

MID CAP - EU core Joel Spungin +44 20 3207 7867 Adam Barrass +44 20 3207 7923 Xian Deng +44 20 3753 3014

Beatrice Allen +44 20 3465 2662 Adrian Yanoshik +44 20 3753 3073 Frederick Brennan +44 20 3753 3171 Anthony Manning +44 20 3753 3092

Fraser Donlon +44 20 3465 2674 Michael Christodoulou +44 20 3207 7920 Rikin Patel +44 20 3753 3080

Christoph Greulich +44 20 3753 3119 CONSUMER Andrew Lowe +44 20 3465 2743 METALS & MINING

Andreas Markou +44 20 3753 3022 BEVERAGES Eoin Mullany +44 20 3207 7854 Richard Hatch +44 20 3753 3070

Anna Patrice +44 20 3207 7863 Javier Gonzalez Lastra +44 20 3465 2719 Peter Richardson +44 20 3465 2681 Laurent Kimman +44 20 3465 2675

Trion Reid +44 20 3753 3113 Matt Reid +44 20 3753 3075 DIVERSIFIED FINANCIALS Michael Stoner +44 20 3465 2643

Jan Richard +44 20 3753 3029 FOOD MANUFACTURING AND HPC Panos Ellinas +44 20 3753 3149

MID CAP - UK Ebba Bjorklid +44 20 3753 3247 Chris Turner +44 20 3753 3019 TMT

Joseph Barron +44 20 3207 7828 Rosie Edwards +44 20 3207 7880 REAL ESTATE TECHNOLOGY

Calum Battersby +44 20 3753 3118 James Targett +44 20 3207 7873 Kai Klose +44 20 3207 7888 Tammy Qiu +44 20 3465 2673

Joseph Bloomfield +44 20 3753 3248 FOOD RETAIL Tej Sthankiya +44 20 3753 3099

Robert Chantry +44 20 3207 7861 Dusan Milosavljevic +44 20 3753 3123 HEALTHCARE Lou Ann Yong +44 20 3753 3159

Sam Cullen +44 20 3753 3183 GENERAL RETAIL Scott Bardo +44 20 3207 7869 MEDIA

Ned Hammond +44 20 3753 3017 Michael Benedict +44 20 3753 3175 Klara Fernandes +44 20 3465 2718 Robert Berg +44 20 3465 2680

Edward James +44 20 3207 7811 Thomas Davies +44 20 3753 3104 Michael Healy +44 20 3753 3201 Keisi Hysa +44 20 3207 7817

Kieran Lee +44 20 3465 2736 Oliver Anderson +44 20 3753 3173 Tom Jones +44 20 3207 7877 Laura Janssens +44 20 3465 2639

Lush Mahendrarajah +44 20 3207 7896 Graham Renwick +44 20 3207 7851 Michael Ruzic-Gauthier +44 20 3753 3128 Sarah Simon +44 20 3207 7830

Benjamin May +44 20 3465 2667 Michelle Wilson +44 20 3465 2663 TELECOMMUNICATIONS

Iain Pearce +44 20 3465 2665 LUXURY GOODS INDUSTRIALS David Burns +44 20 3753 3059

Anthony Plom +44 20 3207 7908 Mariana Horn +44 20 3753 3044 AEROSPACE & DEFENCE Usman Ghazi +44 20 3207 7824

Eoghan Reid +44 20 3753 3055 Lauren Molyneux +44 20 3207 7892 Andrew Gollan +44 20 3207 7891 Laura Janssens +44 20 3465 2639

Owen Shirley +44 20 3465 2731 Ross Law +44 20 3465 2692 Abhilash Mohapatra +44 20 3465 2644

Donald Tait +44 20 3753 3031 George McWhirter +44 20 3753 3163 Carl Murdock-Smith +44 20 3207 7918

Sean Thapar +44 20 3465 2657 ENERGY AUTOMOTIVES

OIL & GAS Cristian Dirpes +44 20 3465 2721 ECONOMICS

THEMATIC RESEARCH Baha Bassatne +44 20 3753 3158 Asad Farid +44 20 3207 7932 Florian Hense +44 20 3207 7859

Steven Bowen +44 20 3753 3057 John Gleeson +44 20 3465 2716 Alexander Haissl +44 20 3465 2749 Kallum Pickering +44 20 3465 2672

Julia Schrameier +44 20 3753 3172 Ilkin Karimli +44 20 3465 2684 Viktoria Oushatova +44 20 3207 7890 Holger Schmieding +44 20 3207 7889

EQUITY SALESSPECIALIST SALES FRANCE UK (cont'd) CRM

AEROSPACE & DEFENCE & CAPITAL GOODS Alexandre Chevassus +33 1 5844 9512 Christopher Pyle +44 20 3753 3076 Megan Connelly +44 20 3753 3244

Cara Luciano +44 20 3753 3146 Dalila Farigoule +33 1 5844 9510 Adam Robertson +44 20 3753 3095 Laura Cooper +44 20 3753 3065

AUTOS & TECHNOLOGY Kevin Nor +33 1 5844 9505 Joanna Sanders +44 20 3207 7925 Beau Dibbs +44 20 3753 3048

Edward Wales +44 20 3207 7815 Guillaume Viret +331 5844 9507 Mark Sheridan +44 20 3207 7802 Jessica Jarmyn +44 20 3465 2696

BANKS & DIVERSIFIED FINANCIALS George Smibert +44 20 3207 7911 Madeleine Lockwood +44 20 3753 3110

Alex Medhurst +44 20 3753 3047 SCANDINAVIA Sam Stannah +44 20 3753 3157 Vikram Nayar +44 20 3465 2737

BUSINESS SERVICES, LEISURE & TRANSPORT Donata Leonova +44 20 3753 3156 Paul Walker +44 20 3465 2632

Rebecca Langley +44 20 3207 7930 Marco Weiss +49 40 3506 0719

CONSUMER DISCRETIONARY CORPORATE ACCESS

Victoria Maigrot +44 20 3753 3010 UK GERMANY Lindsay Arnold +44 20 3207 7821

CONSUMER STAPLES Thomas Baker +44 20 3753 3062 Simone Arnheiter +49 69 91 30 90 740 Sally Fitzpatrick +44 20 3207 7826

Ramnique Sroa +44 20 3753 3064 James Burt +44 20 3207 7807 Nina Buechs +49 69 91 30 90 735 Maz Gentile +44 20 3465 2668

HEALTHCARE Fabian De Smet +44 20 3207 7810 André Grosskurth +49 69 91 30 90 734 Robyn Gowers +44 20 3753 3109

David Hogg +44 20 3465 2628 Marta De-Sousa Fialho +44 20 3753 3098 Dipti Jethwani +44 20 3207 7936

MEDIA & TELECOMS Katie Ferry +44 20 3753 3041 SWITZERLAND, AUSTRIA & ITALY Ross Mackay +44 20 3207 7866

Jonathan Smith +44 20 3207 7842 Robert Floyd +44 20 3753 3018 Duncan Downes +41 22 317 1062 Stella Siggins +44 20 3465 2630

METALS & MINING David Franklin +44 20 3465 2747 Andrea Ferrari +41 44 283 2020 Lucy Stevens +44 20 3753 3068

Sanam Nourbakhsh +44 20 3207 7924 Sean Heath +44 20 3465 2742 Gianni Lavigna +41 44 283 2038 Abbie Stewart +44 20 3753 3054

OIL & GAS AND UTILITIES Stuart Holt +44 20 3465 2646 Jamie Nettleton +41 44 283 2026

Jason Turner +44 20 3753 3063 James Hunt +44 20 3753 3007 Yeannie Rath +41 44 283 2029 EVENTS

THEMATICS James McRae +44 20 3753 3036 Miranda Bridges +44 20 3753 3008

Chris Armstrong +44 20 3207 7809 David Mortlock +44 20 3207 7850 Charlotte David +44 20 3207 7832

SALES Eleni Papoula +44 20 3465 2741 COO Office Suzy Khan +44 20 3207 7915

BENELUX Bhavin Patel +44 20 3207 7926 Fenella Neill +44 20 3207 7868 Natalie Meech +44 20 3207 7831

Miel Bakker +44 20 3207 7808 Kushal Patel +44 20 3753 3038 Greg Swallow +44 20 3207 7833 Eleanor Metcalfe +44 20 3207 7834

Bram van Hijfte +44 20 3753 3000 Richard Payman +44 20 3207 7825 Sarah Weyman +44 20 3207 7801

SALES TRADING EQUITY TRADING LONDON (cont'd)

LONDON LONDON (cont'd) HAMBURG Danny Carr +44 20 3753 3360

Charles Beddow +44 20 3465 2691 AJ Pulleyn +44 20 3465 2756 David Hohn +49 40 350 60 761 Jack Clayton +44 20 3753 3166

Mike Berry +44 20 3465 2755 Paul Somers +44 20 3465 2753 Lukas Niehoff +49 40 350 60 798 Will Kain +44 20 3753 3167

Joseph Chappell +44 20 3207 7885 Frans Van Wakeren +44 20 3753 3079 Lennart Pleus +49 40 350 60 596 Chris McKeand +44 20 3207 7938

Stewart Cook +44 20 3465 2752 Marvin Schweden +49 40 350 60 576 Ross Tobias +44 20 3753 3137

Mark Edwards +44 20 3753 3004 PARIS Philipp Wiechmann +49 40 350 60 346 Robert Towers +44 20 3753 3262

Tom Floyd +44 20 3753 3136 Vincent Klein +33 1 58 44 95 09 Christoffer Winter +49 40 350 60 559

Tristan Hedley +44 20 3753 3006 ELECTRONIC TRADINGLuke Holmes +44 20 3465 2750 LONDON Jonas Doehler +44 40 3506 0391

Peter King +44 20 3753 3139 Christopher Brown +44 20 3753 3085 Matthias Führer +49 40 3506 0597

Simon Messman +44 20 3465 2754 Edward Burlison-Rush +44 20 3753 3005 Sven Kramer +49 40 3506 0347

JOH. BERENBERG, GOSSLER & CO. KG

Contacts

80

Member FINRA & SIPC

Internet www.berenberg-us.com E-mail: firstname.lastname@berenberg-us.com

EQUITY RESEARCHCONSTRUCTION INDUSTRIAL MATERIALS ECONOMICSRobert Muir +1 646 949 9028 Paretosh Misra +1 646 949 9031 Mickey Levy +1 646 949 9099 CRM

Daniel Wang +1 646 949 9025 Roiana Reid +1 646 949 9098 Sammy Chea +1 646 949 9241

MULTI-CHANNEL RETAILING

GENERAL MID CAP - US Sumit Sharma +1 646 949 9034 CORPORATE ACCESS

Samuel England +1 646 949 9035 EQUITY SALES Adriane Klein +1 617 292 8202

Alex Maroccia +1 646 949 9033 REAL ESTATE SALES Olivia Lee +1 646 949 9207

Brett Knoblauch +1 646 949 9032 Nate Crossett +1 646 949 9030 Albert Aguiar +1 646 949 9218

Connor Siversky +1 646 949 9037 Daniel Claeys +1 646 949 31 44 EVENTS

HEALTHCARE Nate Emerton +1 617 292 82 11 Meridian Della Penna     +1 646 949 9208

BIOTECH/THERAPEUTICS SHIPPING & TRANSPORTATION Kelleigh Faldi +1 617 292 8288 Laura Hawes +1 646 949 9209

Shanshan Xu +1 646 949 9023 Donald McLee +1 646 949 9026 Ted Franchetti +1 646 949 9231

MED. TECH/SERVICES Rich Harb +1 617 292 8228

Ravi Misra +1 646 949 9028 SOFTWARE & IT SERVICES Zubin Hubner +1 646 949 9202 SALES TRADINGSPECIALTY PHARMA/BIOTECH Gal Munda +1 646 949 9021 Jessica London +1 646 949 9203 Isaac Carp +1 646 949 9107

Patrick R. Trucchio +1 646 949 9027 Joshua Tilton +1 646 949 9036 Anthony Masucci +1 646 949 9217 Ronald Cestra +1 646 949 9104

Ryan McDonnell +1 646 949 9214 Mark Corcoran +1 646 949 9105

CAPITAL GOODS TECHNOLOGY HARDWARE Emily Mouret +1 415 802 2525 Michael Haughey +1 646 949 9106

Andrew Buscaglia +1 646 949 9040 Andrew DeGasperi +1 646 949 9044 Peter Nichols +1 646 949 9201 Christopher Kanian +1 646 949 9103

Kieran O'Sullivan +1 617 292 8292 Lars Schwartau +1 646 949 9101

LEISURE Rodrigo Ortigao +1 646 949 9205

Brennan Matthews +1 646 949 9024

BERENBERG CAPITAL MARKETS LLC