The European Commission highlighted improvements in Greece’s situation in 2023 regarding areas such as debt, unemployment, and non-performing loans, emphasizing that deep structural imbalances have now become regular imbalances.

According to the official report, Greece, along with Italy, is now found to be experiencing imbalances after experiencing excessive imbalances until last year as vulnerabilities have declined but remain a concern.

The Commission will survey the risks to fiscal sustainability within the framework of the revised Stability and Growth Pact (SPG), among other regards, in the context of Italy’s medium-term fiscal structural plan and its excessive deficit procedure.

The report mentioned that Greece’s vulnerabilities related to high government debt and high NPLs in the context of high unemployment remain relevant but have receded markedly and are expected to recede further, but the external position remains weak. The government debt-to-GDP ratio has continued to decline, and, while it remains high at almost 162% in 2023, the short-term risks to debt sustainability appear low. Nominal GDP growth was a major driver of the rapidly falling debt ratio in recent years, but the expected further improvement in fiscal balances is set to ensure that it continues to decline. The current account deficit, which had widened markedly over the years 2020 to 2022, narrowed significantly in 2023, but remains elevated against a backdrop of buoyant domestic demand. Only marginal improvements of the current account are expected this year and next, as the robust growth in investment is forecast to keep imports elevated. The deeply negative NIIP-to-GDP ratio also improved last year on the back of the high nominal GDP growth, but it remains the weakest in the EU. NPLs have shown a strong reduction in recent years and continued to decline in 2023, but the workout of the NPLs outside of the banking sector remains slow, and as a result they continue to weigh on the economy.

Employment increased and unemployment declined further, but remains relatively high. Years of sustained policy action and extensive structural reforms have clearly favored a reduction of the identified vulnerabilities. Maintaining the prudent fiscal stance and continued timely implementation of the RRP remain crucial to improve competitiveness and ensure the rebalancing of the economy, including on the external position.

Simultaneously, the Commission decided to initiate excessive deficit procedures against seven EU countries, including France and Italy, the second and third largest economies in the Eurozone, respectively, within the framework of the European Semester.

By the end of the reference year 2023, France’s public deficit had reached 5.5% of its GDP, while Italy’s had reached 7.4%. Paris faced another blow just a week and a half before the first round of parliamentary elections not to mention the “nightmare” of the far-right looming over the country.

With the initiation of the process, the five Eurozone countries—France, Italy, Belgium, Slovakia, and Malta—will have to adjust their budgets to gradually reduce the public deficit below the 3% limit. Outside the Eurozone, on the other hand, Poland and Hungary display excessive deficits.

Essentially, the European Commission will reactivate the revised Stability and Growth Pact, which had been put on hold with the onset of the coronavirus, to enable member states to respond to the crisis’s consequences.