As Europe begins another year of its sovereign debt crisis, many core and peripheral European countries are still in poor financial shape. Italy is showing worrisome signs, Portugal is in shambles, and Spanish banks and real estate are a mess.
To help deal with the crisis and encourage economic and fiscal integration, the EU, back in December announced a set of measures dubbed the 'six-pack'. The 'six-pack' is made up of five regulations and one directive, with a focus on government debt and deficits.
UBS analyst Amit Kara says the six-pack is a step in the right direction, but the focus is on fiscal problems:
"The fundamental worry is that the crisis we're suffering from now is not going to be helped by these six pack measures. The focus is very largely on fiscal issues, excessive credit expansion and asset bubbles, but parts of the euro area face prolonged periods of stagnation, possible deflation and in some cases, such as Greece, there is risk of complete collapse - these measures are not designed to address that."
Kara looked through the '10 early warning indicators' that the EU pointed out, to give us a sense of which countries are in the best shape. Remember, the European Commission has said it plans on taking full advantage of the six-pack rules and countries that consistently breach them risk facing sanctions and fines.
Click here to see which European countries are the fittest >
Not all countries are scored out of 10 as data on some of the 10 criteria were unavailable. The scoreboard gives a sense of how competitive and fiscally disciplined these countries are. Here are the specific criteria for the scoreboard:
1. A 3-year backward-moving average of the current account balance as a percentage of GDP, with thresholds of +6% of GDP and -4% of GDP.
2. A net international investment position as a percentage of GDP, with a threshold of -35%.
3. A 5-year percentage change of export market shares measured in value, with a threshold of -6%.
4. A 3-year percentage change in nominal unit labor cost, with thresholds of +9% for euro-area countries and +12% for non-euro area countries.
5. A 3-year percentage change in the real effective exchange rate based on HICP/CPI deflators, relative to 35 other industrial countries, with thresholds of -/+5% for euro-area countries and -/+11% for non-euro area countries.
6. Private sector debt as a percentage of GDP with a threshold of 160%.
7. Private sector credit flow as a percentage of GDP with a threshold of 15%.
8. Year-on-year changes in house prices relative to a Eurostat consumption deflator, with a threshold of 6%.
9. General government sector debt as a percentage of GDP with a threshold of 60%.
10. A 3-year backward-moving average unemployment rate, with a threshold of 10%.
Austria
Total score: 8/10
Austria fares well on the six-pack scoreboard, compared to other EU-17 countries, but scores poorly in terms of export share and general government debt.
As the eurozone is set to enter a recession this year, the Austrian economy is expected to stagnate in the first quarter, and labor conditions are expected to deteriorate.
Source: UBS / Friedl News
Belgium
Total score: 7/10
Belgium fares well on the six-pack scoreboard, but scores poorly in terms of export share, private sector debt, and general government debt.
Belgium resolved its governance problem late last year and they have made progress on debt over the years. It is currently benefiting from the strength in the German economy.
Source: UBS
Cyprus
Total score: 4/8
Cyprus scores fairly low on the six-pack scoreboard. It needs to boost its current account balance and improve its net international investment position (NIIP) as a percent of GDP. It also scores poorly on export share and general government debt.
Cyprus' banking exposure to Greece is significant, but domestic banks are trying to write off their Greek government bond holdings. The government has also lost access to international debt markets.
Note: Cyprus' private sector debt and house prices are not available.
Source: UBS / Fitch
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See Also:
- Here's Who Gets Clobbered If Greece Defaults
- A Guide To The Horrible Youth Unemployment Mess In Europe
- The 12 Crucial Issues Haunting The Eurozone Right Now