Allianz Euro Monitor 2011

This year’s Allianz Euro Monitor reveals that, for the first time since 2007, the macroeconomic imbalances within the eurozone as a whole have decreased slightly. The private sector, in particular, has managed to reduce debt levels significantly. The Euro Monitor is an early warning tool measuring the extent to which individual EMU member states are achieving balanced growth and thus contributing to the stability of the euro area.

Among the Euro Monitor 2011’s key findings:

•For the first time since 2007 the macroeconomic imbalances within the eurozone as a whole have not widened further. 12 of the 17 member states saw a slight or moderate improvement in their ratings.

•Once again, no single country achieves a wholly satisfying score (above 8) on its balanced growth. Germany, Luxembourg and Austria lead the way, all three managing to improve their overall rating compared with 2010. Cyprus, Greece and Slovenia were the only countries to move in the wrong direction, with their overall rating slipping further on last year. In the case of Greece this was mainly due to a slide in domestic demand and the employment ratio. The steepest improvement was seen in Belgium, Estonia, Finland, Germany and Spain.

•France remains mired in a middling position at No.10, with several indicators such as the budget deficit, global merchandise trade share, unemployment rate and labour productivity flashing red, although the country’s private debt indicators and public deficit improved.

•Unsurprisingly, Greece still trails well behind. The picture in Ireland and Portugal, although still giving cause for concern with an average rating of less than 4, is better. Ireland’s overall score edged up slightly, while Portugal’s held steady.

•Italy, currently in the spotlight as a potential stumbler, actually edged up one place from 13th to 12th (with its overall score stable). The biggest improvement was in the debt-to-GDP ratio of households.

•While Slovenia disappointed, the other two Eastern European relative newcomers to the eurozone, Estonia and Slovakia, made encouraging progress, taking their scores substantially higher. Estonia is the model pupil in public finances, and households as well as enterprises managed to trim their debt ratios. Slovakia also saw an improvement in its households’ debt position and in the balance of payments.

•The most substantial improvement was seen in the indicators measuring “Private and foreign debt”, with deleveraging in the private sector making significant progress.

•It is important to note that the observed reduction in macroeconomic imbalances has taken place against the background of weak economic activity in a number of countries. In a host of indicators such as the government deficit, unit labour costs, domestic demand, and labour productivity, the cyclically-adjusted readings would probably be significantly better.

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