Croatia has for now escaped corrective action over excessive economic imbalances and the European Commission will reconsider its assessment of Croatia and Portugal in May to take into account the ambitiousness of their national reform programmes, which they need to submit by the end of April, the Commission said on Tuesday.
The Commission has divided the EU member states into four categories. The first category includes countries without macroeconomic imbalances, the second category comprises countries with macroeconomic imbalances, the third consists of countries with excessive imbalances and the fourth includes countries with excessive imbalances that require corrective action.
Out of 18 countries that were subjected to in-depth reviews, six were found not to be experiencing macroeconomic imbalances, seven were found to be experiencing imbalances and five were found to be experiencing excessive imbalances. The countries found to be experiencing imbalances and excessive imbalances will be placed under specific monitoring, in line with the degree and nature of the imbalances.
"Croatia is experiencing excessive macroeconomic imbalances. Vulnerabilities are linked to high levels of public, corporate and external debt in a context of high unemployment. The modest economic recovery is set to ease corporate deleveraging and the improvement in the current account balance should contribute to a reduction in external liabilities, but public debt is expected to continue rising. In the banking sector, non-performing loans remain high and profitability is weak. Further consolidation effort and improvements in fiscal governance are needed. Although measures have been taken to improve the insolvency framework and enhance labour market flexibility, substantial policy gaps remain requiring specific policy actions, in particular regarding governance of state owned enterprises, public administration efficiency and the resolution of non-performing loans," the Commission said.