European Progress Monitor

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
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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
Highlights at a glance
Ready for a new shock? We see no economic reason to expect a grave financial crisis or a No reason to expect a new
genuine recession within the next two years. However, trade tensions, the Brexit turmoil and crisis soon – but what if?
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 Three reasons to be less
five or 10 years ago: First, they have become more resilient to shocks. Second, the next afraid
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 Most countries better placed
key economic fundamentals as well as the recent adjustment process in all 28 EU member to brave a future downturn
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 But the political situation is
pains of post-crisis adjustment have contributed to the anger on which the populists in more challenging...
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 ...and gains have been
remaining problems. Chart 1 shows the major rise in the rate for the Eurozone since the 2013 uneven
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
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Employment in percent of working age population (16-64 years). Weighted average for reform-5: Spain, Ireland, Portugal,
Greece and Cyprus. Source: Eurostat
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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
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I. Key conclusions

About 10 years after the end of the great financial crisis, Europe is in better shape than it was Europe is in better shape
before the crisis. Most economies of the European Union have improved their fundamental than it was in 2007
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- Most EU member states
slump of 2008/2009. Policymakers rarely make the same grave mistakes twice in row. With could cope with a recession
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 Europe still faces grave risks
significantly more fragile than it did before. The rise of potentially destructive populist – the political situation is
forces has many causes unrelated to specific European affairs (think Trump, for example). more fragile
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 Public debt is high – but
deficits, the ratio of public debt to GDP that had surged during the bad years remains well some debt has migrated into
above the 2007 level for most despite some recent progress. This remains a concern. In some stronger hands
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

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Structural balance in percent of GDP. Source: IMF Current account balance in percent of GDP. Source: Eurostat
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Fundamental health and recent adjustment progress

This report analyses key economic fundamentals in all 28 EU member states. We address Looking at key
three questions. fundamentals in all 28 EU
x How healthy are the countries’ economies?
members
x Are they more or less vulnerable to shocks than they were in 2007 – that is, just ahead of
the great financial crisis?
x 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 Two separate rankings for
the current state of key economic fundamentals to assess their economic health. We also 28 countries
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 New institutions may have
the institutional changes that have given the Eurozone new tools to prevent or fight financial made Europe more resilient
panics and new regulations designed to make financial systems in the EU more stable. We than economic data suggest
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 Shifting the focus to post-
1
Lisbon Council from 2011 to 2017. In the new “European Progress Monitor”, we shift the 2013 changes
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 22 out of 28 EU members
subsequent euro crisis of 2011/2012, 22 of the 28 EU members have improved their key have improved their key
economic fundamentals. As a result, the region as a whole is now less vulnerable to economic fundamentals
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 More prudence, stronger
balance, structural fiscal deficits and some pro-growth reforms have raised the score in external position, more pro-
our assessment of fundamental economic health from 5.0 to 5.9 on a scale of 0 to 10. growth reforms
1
See the references on page 78 for a list of these reports.
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3. A new Hanseatic League?: The Netherlands lead our 2019 ranking for fundamental Northern strength
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, Most of the laggards have
Portugal (number 21), Romania (number 22), France (number 23), Bulgaria (number improved since 2007
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 A wide range of results: EU
seem to make a major difference. Some euro members as well as some non-members rules let countries be the
are at or close to the top of the league, while others are at or close to the bottom. In the masters of their own fate
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?

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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 The leaders of the
adjustment progress since 2013, a number of small countries from various parts of the adjustment league
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 Euro crisis countries remain
help in the euro crisis make it into the top half of the post-2013 adjustment league table mostly on the right track –
(see Chart 5 on page 8) although the scores for Portugal (number 10) and Spain (number despite signs of slippage
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
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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 Finally on the right track in
mature core European economy has adjusted better in the past five years to economic Vienna
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 On balance, many of the
allow themselves to relax a little. Weaker countries with low scores for their weaker countries are now
fundamental health need to shape up more forcefully. By and large, we find some shaping up
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)

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10. Star performers: Combining the results of our two separate rankings, we find a small A small group of star
group of star performers: Ireland, Malta, the Netherlands and Slovenia make it into the performers excels in both
top 10 on both counts. While they are already among the more solid economies in rankings
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 Strong countries have less
(number 28), Sweden (number 27), Estonia (number 26) and Lithuania (number 23) can need to adjust – and it
afford to be in that position at least for the time being. Despite clear signs of shows
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.
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12. Potential problem cases: Combining the two strands of our analysis, the assessment of Finland and Romania:
fundamental health and recent adjustment progress, two countries stand out as adjustment laggards despite
potential problem cases. Both Finland and Romania have scores for fundamental health a clear need to shape up
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 Sweden can take it easy –
slightly better than its Baltic Sea neighbours Estonia (number 26) and Sweden (number Finland cannot
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 Throwing a party that
quite successful on many economic counts in the past few years. Real GDP has expanded cannot last
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 France and Italy need to do
teetering on the brink of turning into potential problem cases. Although both have more to improve their
improved their fundamental health relative to 2007 roughly in line with the advance by fundamentals
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, After some post-2013 gains,
Italy finally implemented some serious fiscal and structural reforms during and in the Italy’s partial reform drive
immediate aftermath of the crisis. As a result, it comes in at number 15 in our post-2013 seems to be petering out
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.
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Chart 6: Italian export ratio versus Eurozone ex-Italy Chart 7: French and German employment: big gap = big potential
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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 Recent reforms are starting
masterminded partly by Emmanuel Macron during his stint as economics minister to show up in the data
(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 Low household savings rate
exceptionally business-friendly economy well placed to cope with shocks. However, the lowers the score for the UK
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 Cushion against shocks help
in a comfortable position. While its external and fiscal surpluses are controversial and – but do they need to be that
do not represent an optimal use of the country’s resources, they do provide a cushion big?
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
10
Economics
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
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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 Europe needs to tackle NPLs
Eurozone can now cope better with shocks than in 2007 comes with one caveat. The to increase its resilience
score for the resilience of the financial system, although up significantly since 2013, is against financial shocks
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 Pains of adjustment can fuel
populists are feeding across much of Europe is beyond the scope of this study. The rise of popular anger
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 Right-wing populists
that left-wing populists are losing ground, whereas right-wing populists are still advancing. showed gains but left-wing
This shift may partly reflect economic developments. Left-wing populists railing against populists seem to be past
actual or perceived social injustices often do well in times of economic hardship. Right-wing their peak
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.
11
Economics
II. Fundamental health

Table 1: Fundamental health indicator
Rank Country Total health score External position Labour market Regulations Fiscal sustainability Financial resilience
2018 2007 2018 Change 2007 2018 Change 2007 2018 Change 2007 2018 Change 2007 2018 Change 2007 2018 Change 2007
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
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 Occasional recessions are a
and when they occur. The fundamental health indicator is designed to identify underlying fact of life
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:
ʀ the external position;
ʀ the labour market;
ʀ the ease of doing business;
ʀ the fiscal sustainability; and
ʀ the potential resilience to financial shocks.
For each of the five pillars of our analysis, we aggregate the results on a number of sub- Aggregating the results
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 Good health does not
financial panic or economic shock. Instead, its signals a greater resilience in two respects: preclude accidents – but
first, it would take a bigger blow than otherwise to seriously harm it. Second, if hit by a bad makes it easier to recover…
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 …as the years after the great
made headlines during the euro crisis of 2011/2012. It indicates that Ireland should have financial crisis have shown
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.
12
Economics
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 While healthy Germany
than most other European economies during the post-Lehman plunge. While Germany’s real suffered badly in early 2009,
GDP plunged by 6.9% yoy in Q1 2009, the economy in the remainder of the Eurozone it then rebounded very fast
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 Better able to cope with
improvements in the external balance, structural fiscal deficits and business friendliness shocks
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
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Scores for fundamental health and its five pillars on a scale of 0 to 10. See Real GDP, indexed at Q1 1991=100. Sources: Destatis, Istat
notes under Table 1 on page 12. Source: Berenberg
2. Strong northern core: Germany and two of its immediate neighbours have the Germany and two of its
healthiest fundamentals, according to our ranking, with the Netherlands (number one) northern neighbours top the
just ahead of Germany (number two) and Denmark (number four). They are joined at ranking
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.
13
Economics
3. North-south gap: While the top seven countries in our league are all located in the While the bottom eight are
northern half of the EU, the bottom eight are all in the south, with Portugal (number 21) all from the south…
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 …they have all raised their
our fundamental health league for 2018 with the scores which the countries would have scores since 2007
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 A comfortable external
2007: With the exception of Belgium, Finland, Luxembourg and Sweden, all countries position
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 24 of 28 EU members now
World Bank’s ease of doing business ranking from 2007 to 2018. The exceptions are receive higher scores from
Finland, Germany, Ireland and the UK. Whereas these four countries have fallen back the World Bank
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 Lower deficits – but still a
improved their structural fiscal balance by more than 1ppt of GDP relative to 2007. huge burden of public debt
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 Some of the debt has
vulnerability to shocks, however. Under the ECB’s public sector asset purchase migrated into stronger
programme, the European system of central banks has bought bonds to the tune of hands, including those of
€2,256bn, equivalent to 19.5% of the Eurozone’s 2018 GDP. By chance, this amounts to the ECB
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.
14
Economics
III. Adjustment progress

Table 2: Adjustment progress indicator
Rank Country Total adjustment score External position Labour market Regulations & reforms Fiscal sustainability Financial resilience
2013 2013 2013 2013 2013 2013 2013 2013 2013
Change Change Change Change Change Change
-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
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 Health and adjustment – the
complements the fundamental health indicator. Ideally, countries with below-average scores two sides of the coin
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 Some changes show up in
hard economic data. For example, fiscal tightening affects economic statistics almost the data fast
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 Summarising five measures
(best). We then aggregate them to assign an overall adjustment progress indicator score. of adjustment
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.
15
Economics
The five pillars of our analysis of adjustment progress since 2013 are very similar to those Whatever their starting
used in the fundamental health indicator. Apart from one significant shift in the source data situation, are countries
on which we base our results for reforms and regulations (see notes on key components on making progress?
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 Shift in focus to more recent
Monitors” from late 2011 to late 2017, we examined the cumulative adjustment progress 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
2
bad old habits of pre-crisis times.
Beyond calculating an adjustment progress score for the 2013-2018 period, we also run the A brief look at the most
exercise for the shorter 2013-2016 period. The difference between the scores based on 2018 recent changes – but short-
and 2016 as the end date indicates whether countries have made further progress or allowed term data can be volatile
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 Most countries have tackled
deficits, reduced their financial fragility and improved some key structural fiscal and external problems
characteristics of their economies since 2013.
2. A better balance: Following huge adjustment efforts of the periphery in the 2010-2013 Eurozone is becoming more
period and some recent progress across major parts of the region (including some core balanced
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 More troubled countries are
within the EU. Most importantly, seven out of the 10 countries with the most doing better
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 Support for the periphery
protect them against market turbulence and helps to finance their budget if they slash has worked
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 Some countries in the core
periphery is petering out, the data show some signs of a new wave of change in parts of are now adjusting faster
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.
16
Economics
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
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Unemployment in percent of labour force (16-64 years). Weighted average for Unemployment in percent of labour force (16-64 years). Source: Eurostat
reform-5, ie Spain, Ireland, Portugal, Greece and Cyprus. Source: Eurostat
6. Progress on three major counts: For the Eurozone as a whole, the adjustment progress More employment, less
since 2013 is most visible on three counts: (i) helped by a return to sustained economic private debt
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 The external adjustment has
external position only modestly further since 2013. By and large, it had little need to. been completed successfully
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 Smaller countries can
clear pattern: small countries dominate both the top and the bottom of the league, change faster
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, Fast change in the
the top 10 countries in our adjustment league have little in common. They range from northwest as well as the
the far northwest (Ireland as number one) to the far southeast of the EU (Cyprus as southeast
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 Some countries can afford
adjustment, Luxembourg as number 28, Sweden as number 27 and Estonia as number to take it easy
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
17
Economics
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 Finland and Romania look
ought to do much better. Finland (number 22) and Romania (number 24) look more vulnerable
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 Hungary and Poland have
attained on their 2018 data, Hungary, Portugal, Spain and Poland show the most fallen into the lower half of
pronounced slippage for the past two years. While Portugal still remains among the top the adjustment league
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 The big wave of change is
advanced significantly further in the past two years (2017 and 2018). Among the top five, over – but Greece maintains
only Greece is a partial exception on this count: after markets and debtors forced it into a solid score for adjustment
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.
18
Economics
IV. Five pillars of analysis: results in detail

This section gives the detailed results of the five pillars of our analysis:
x external position;
x labour market;
x reforms and regulations;
x fiscal sustainability; and
x financial resilience.
For each pillar, we first present the table on fundamental health based on the 2018 position. Aggregating the results for
For comparison, this table also includes the score which a country would have attained our five pillars of analysis
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.
19
Economics
External position
Table 3: Fundamental health: external position
Current account Net exports Exports
Country External position
% of GDP % of GDP % of GDP
2018 2007 2018 2007 2018 2018 2018
Rank 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
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 About 12 years ago,
periphery vulnerable to shocks. The deficits largely reflected credit-fuelled excesses in persistent deficits had made
domestic consumption. In the wake of the post-Lehman financial crisis and the subsequent many countries vulnerable
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 A high current account
per se. Surplus countries such as Germany or the Netherlands could do better if they spent surplus need not be a
more on investment at home instead of channelling a savings surplus towards financial desirable feature
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 The Eurozone has become
3
of exports to GDP has risen to 48.8% last year from 43.4% five years ago and 38.9% in 2007 an even more open
(see Chart 14 on page 21). The current account surplus has widened modestly further from economy
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.
20
Economics
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
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Exports in percent of GDP. Source: Eurostat
All in all, the external position of most EU members looks quite comfortable today, and The external position of
much more so than in 2007; 17 out of 28 EU members had a current account surplus in 2018, most EU members looks
while only five had deficits exceeding 2% of GDP. In 2007, only eight EU members had an comfortable today
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

Current account Net export Export ratio
Country External adjustment
change ppt of GDP change ppt of GDP change ppt of GDP
2013 2013 2013 2013
2013-2018 2013-2018 2013-2018
-2018 -2016 -2018 -2016
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
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
21
Economics
Turning from the assessment of the current external position to the changes since 2013, the A clear split: small countries
results for external adjustment show a clear if unsurprising split: whereas most of the bigger can correct their external
EU members attain scores close to the overall average, many of the small open economies imbalances faster
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 Further significant export
of 2009-2012, most EU member countries continued to improve their external position after gains after 2013
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
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Four-quarter rolling sum of real exports and imports for Eurozone, in millions of Four-quarter rolling sum of real exports and imports for Spain, Greece, Portugal
chained 2010 euros. Source: Eurostat 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 Two of the top performers
euro crisis countries, with Ireland taking the lead (number one) well ahead of Greece are former euro crisis
(number four). The list also includes small Malta (number five) as well as three central and countries
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), Poor results for some
Denmark (number 26), Sweden (number 25), Hungary (number 24) and Slovakia (number countries, including Finland
23) have allowed themselves the most slippage in their external accounts since 2013: Finland and Sweden
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 Greece remains a special
receive good marks for its overall external adjustment with a score of 6.7. In the wake of the case
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
22
Economics
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 France still below average
(number 14 with 5.0) remain below the Eurozone average of 5.5 for external adjustment. For for external adjustment
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 Insufficient external
modestly since 2016 as the plunge in the sterling exchange rate after the Brexit vote in June progress in the UK
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 Most of Europe’s emerging
themselves well into the European and global economy, as seen by the significant rise in the markets are rapidly
share of exports in their GDP over time. In our overall ranking for external adjustment, becoming more open
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 account
Countries that need to attract capital from abroad to finance a current account deficit are 17 EU members improved
more vulnerable to economic and financial shocks than countries with an external surplus. their current accounts
As the first sub-criterion to judge external adjustment since 2013, we thus look at the shift in further after 2013 ...
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 … but the Eurozone’s
of 2.3% in 2013, the Eurozone raised its surplus further to a peak of 3.2% in 2017 before the current account surplus has
surplus receded to 2.9% in 2018 under the impact of a slowdown in global demand and a peaked
temporary spike in oil prices.
Among individual countries, small Malta and Ireland attained outsized shifts in their current Small Malta and Ireland
account positions, with Malta raising its surplus from 0.1% of GDP in 2013 to a whopping attain outsized shifts in
11.2% in 2018, followed by Ireland’s rise from 1.6% to 10.2% last year. Apart from these two their current accounts
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’s deficit is not yet a
Slovakia allowed its current account position to deteriorate by 4.4ppt, turning a surplus of cause for concern
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 exports
Closely related to shifts in the current account are changes in net exports, the balance of Net exports are a key
exports and imports. They are not identical, however. For example, we can examine exports contributor to real GDP
and imports of goods and services in real terms, stripping out changes that stem merely
23
Economics
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 After rapid adjustment,
crisis, most EU members raised their imports faster than their exports in real terms from many countries have now
2013 to 2018. To some extent, they have relaxed their reins a little since then. Only six of 28 relaxed the reins a little
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 For Romania, the fall in net
became significantly more precarious for Cyprus and Romania with excessive falls in their exports looks excessive
ratio of net exports to GDP by c5ppt.
Share of exports in GDP

In the immediate aftermath of the Eurozone confidence crisis of 2011/2012, a closer look at A darker side of the story
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. Small countries are more
They also find it much easier to shift resources into export-orientated activities. Upon open – we adjust the data
calculating our scores for the export share for the fundamental health league and for the for this fact
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, Export shares are still low
Slovakia and Germany are exceptionally well integrated into the European and global for Greece, Finland, Cyprus
economies. At the lower end of the range, the export shares are still comparatively low for and Croatia
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, Impressive export gains for
Luxembourg with its very small and very open economy managed the most impressive rise Poland and the Netherlands
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 A significant deterioration
in Malta (by 9.5ppt of GDP) and more modestly in Estonia (by 2.3ppt). For the UK (export in Malta
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 Relative to its dismal
unfair. Small open economies such as Ireland, Malta, Luxembourg and the Baltic states find starting position…
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.
24
Economics
To some extent, the results are similar: Romania, Slovenia and Belgium receive excellent …Greece has made the
scores on this count. However, relative to its 2013 starting level, Greece has achieved the biggest shift
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.
25
Economics
Labour market
Table 5: Fundamental health: labour market
RULC NULC Employment rate
Country Labour market
% since 2005 % since 2005 %
2018 2007 2018 2007 2018 2018 2018
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
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 Labour costs are not a
competitiveness is whether or not a company or country can profitably sell its wares. Other
perfect gauge – but they
factors such as changes in product quality, brand value, consumer tastes and the mix of
matter
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 Looking at the cumulative
labour costs since 2005 as one key input into our analysis of fundamental health. For our changes since 2005 and
adjustment progress league, we take the cumulative changes since 2013. Beyond an since 2013
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 A key success for the
67.4% in 2018 as one of its key successes in the past five years. The rate comfortably exceeds Eurozone: it has raised its
the pre-crisis 65.4% in 2007. Remarkably, all 28 EU members raised their employment rate employment rate
since 2013, supported by a return of economic growth to normal after years characterised by
the great financial and euro crisis before.
26
Economics
Table 6: Adjustment progress: labour adjustment

RULC NULC Employment rate
Country Labour adjustment
% since 2013 % since 2013 change ppt
2013 2013 2013 2013
2018 2018 2013-2018
-2018 -2016 -2018 -2016
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
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 Three small countries lead
overall labour adjustment, followed by Portugal, Cyprus, Spain, Slovenia, Hungary and the ranking for labour
Greece. Unsurprisingly, all countries that were forced to adjust because they fell victim to the market adjustment
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 The labour market in France
globalisation. Taking the past five years together, we find serious progress on some counts. does not yet function well
Most importantly, nominal unit labour costs rose by merely 3.0%, slightly below the 4.3% enough
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.
27
Economics
Chart 17: Real unit labour costs since 2013 Chart 18: Nominal unit labour costs since 2013
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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 Wage pressures abated in
increases in nominal unit labour costs until 2013, wage pressures abated somewhat in the Italy in the past five years
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) Nominal labour costs are
with a low score for external adjustment (number 20). Unlike less-advanced countries with rising at an above-average
significant catch-up potential, such as the Baltic countries and several EU members from pace in the UK
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 The Baltic countries can
also let their unit labour costs rise substantially since 2013. However, they also managed to probably afford their higher
raise their employment rates at an above-average pace and enjoy comfortable external labour costs – for now
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, Romania at the bottom for
just below Luxembourg (number 27), Latvia (number 26), Germany (number 25) and labour adjustment
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 German wage gains outpace
outpaced those in most other western European countries in the sample, with a cumulative those elsewhere
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).
28
Economics
As part of a successful catching-up process with their more advanced peers, some countries Some upward convergence
with a particularly low starting level (Malta, Hungary, Croatia and Poland) raised their of employment rates
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 Key question: do catching-
costs rise faster than the Eurozone average since 2013, they nonetheless managed to contain up economies keep their
the increase in their real unit labour costs to below the Eurozone average. This is a feature competitive edge?
4
often seen in catching-up economies as described by the Balassa-Samuelson effect. 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).
29
Economics
Regulations and reforms

Table 7a: Fundamental health: ease of doing business Table 7b: Adjustment progress: reform drive
Ease of doing business Reform drive
Country Regulations Country Reforms
0-100 index 0-1 index
2013 2013 2013 2010
2018 2007 2018 2007 2018 2007 2013-2017
-2018 -2016 -2018 -2014
Rank Score Change Score Value Change Value Rank 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
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 Countries need to be
offer businesses attractive conditions to invest, innovate and create jobs. To make their fiscal attractive places to invest
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 Crises are handmaidens of
periphery have taken many steps to make their economies leaner and fitter for growth change
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 Drawing on the expertise of
Bank’s “ease of doing business” reports. They give a broad overview of key conditions that the World Bank
5
businesses need to thrive.
The World Bank scores show a clear North-South divide. Denmark (number one) and the UK A North-South divide
(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).
30
Economics
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 The final place goes to Malta
an otherwise stellar set of results for fundamental health. If Malta had brought its ease of on this count
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 Doing business score holds
business (8.1 instead of a Eurozone average of 6.0), it would have slipped from number 17 to Finland up
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 The Luxembourg exception
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 24 of 28 countries receive
most of the European Union: 24 out of 28 countries have raised their scores. The exceptions higher scores from the
are Ireland, Finland, Germany and the UK. Despite their slippage in the World Bank’s World Bank
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

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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 Focus on pro-growth
on the factors used in the World Bank’s “ease of doing business” ranking which includes reforms for the adjustment
private as well as public initiatives. To measure the reform progress, or the lack thereof, we league
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 Dramatic changes over time
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
31
Economics
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, The pace of reforms
propelling France to number four in the reform league. The change started under then quickened in France
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 Progress in Italy after 2013 –
raised during their stints as prime ministers from 2014 to early 2018. For the five years but is it over now?
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 Significant gains in Austria
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 Stronger reform drive in the
drive in 2017. For the overall 2013-2017 period, it attains a score well above the Eurozone UK in 2017
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 Major loss of momentum in
2013-2017 period relative to the pace before include Estonia (number eight), Slovakia some countries
(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 Some healthy countries may
of reforms than the average EU member feature close to the bottom of the table with be becoming a bit
Germany at number 15 ahead of Denmark (number 16), Luxembourg (number 20) and complacent
Sweden (number 21). Of course, they need to watch the risk of complacency.
32
Economics
Fiscal sustainability
Table 8: Fundamental health: fiscal sustainability
Public expenditure Public debt Struct. pr. balance Structural balance Productive expend.Non-distort.
expend.Non-distort. tax rev.
Country Fiscal sustainability
% of GDP % of GDP % of GDP % of GDP % of public expend. % of tax revenue
2018 2007 2018 2007 2018 2018 2018 2018 2018 2018
Rank 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
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 Fiscal excesses can impair
to shocks. Although a high share of public expenditure in GDP can occasionally dampen the growth potential
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 The quality of a fiscal stance
debt ratio and its structural or primary structural balance. We include the share of public matters
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 Four small countries excel
(number two), Estonia (number three), Malta (number four) and Ireland (number five). in this ranking
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.
33
Economics
At the bottom of the ranking, France (number 28), Italy (number 27) and Belgium (number France, Italy and Belgium
26) face particularly severe fiscal challenges. Despite some recent progress, France still face severe fiscal challenges
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 A very mixed picture in
towards a high cash reserve of some €23bn), Greece (number 18) receives a score for fiscal Greece
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
Public expenditure Public debt Struc. pr. balance Structural balanceSpending & tax cuts
Country Fiscal adjustment
change ppt of GDP change ppt of GDP change ppt of GDP change ppt of GDP ppt of GDP
2013 2013 2013 2013
2013-2018 2013-2018 2013-2018 2013-2018 2013-2018
-2018 -2016 -2018 -2016
Rank 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
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
34
Economics
Countries that have lived beyond their means need to tighten their belts. Since 2011, we have Tracking the fiscal
tracked the fiscal adjustment of EU member countries in our regular Euro Plus Monitor adjustment…
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 … in the years since 2013
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 Gains for the Eurozone as a
four counts: helped by fiscal prudence and a return to economic growth, the region managed whole
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
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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 Ireland is the frontrunner
fiscal adjustment since 2013. The emerald isle excels on all fiscal counts. Beyond slashing its for fiscal adjustment
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 High government spending
at the bottom of the fiscal adjustment league. For France, Spain and Italy, this is largely holds back the score for
because of an increase in the ratio of public debt to GDP. The score for France is also held France
back significantly by a comparatively slow pace of reducing the share of government
spending in GDP.
Debt ratio
The significant fall in the Eurozone’s debt ratio is largely driven by its most weighty member Germany drives the
country, Germany, which cut its debt burden from 78.2% to 60.9% of its GDP. However, Eurozone’s fall in the debt
6
Ireland (debt ratio down from 119.7% to 84.2%), Malta (from 68.4% to 46.0%) and the ratio
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.
35
Economics
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 22 of 28 countries used the
their public debt burden at least somewhat. Unfortunately, the negative outliers include four good years to reduce their
weighty countries, namely France (debt burden up from 93.4% to 98.4%), Italy (from 129% to debt burden
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

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Public debt in percent of GDP. Source: Eurostat
Government expenditure
Reining in government expenditure is an essential part of any sustained fiscal repair; 26 EU Reining in expenditure is a
members reduced the share of government spending in GDP from 2013 to 2018 helped by an key aspect of fiscal repair
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 What makes sense for
GDP in the five years to 2018. Greece, Malta, Cyprus, Portugal, Slovenia, the Netherlands Germany need not make
and Spain also shine with scores well above average. Beyond the cases of Estonia and Latvia sense for France
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.
36
Economics
Chart 22: Public expenditure in Eurozone, Germany and France ... Chart 23: ... versus the UK, Sweden, Denmark and Finland
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Government expenditure in percent of GDP. Source: Eurostat Government expenditure in percent of GDP. Source: Eurostat
Structural fiscal balance

All in all, Europe has made further fiscal progress since 2013: 22 out of 28 EU member Further fiscal progress since
countries improved their structural fiscal balance. The major exceptions are Romania and 2013
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 Rome allowed itself some
past five years than Romania and Hungary, with a deterioration in its structural balance by fiscal slippage, however
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 The top of the league
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 Lower interest rates helped
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 Key differences between
Spain, both countries granted themselves some fiscal stimulus thereafter. While Spain’s turn Italy and Spain
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 Structural and structural
balance as well as the structural fiscal balance discussed above. The results are somewhat primary balance combined
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.
37
Economics
Quality of fiscal adjustment

Size matters. But it is not the only criterion. A sizeable fiscal adjustment can cause excessive Size matters – but so does
short-term pain and damage a country’s long-term growth potential if it is largely achieved quality
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 Ireland, Denmark and
changes, followed by Malta, Slovenia and Belgium. Even Romania and the UK attain scores Finland receive good grades
that are well above average because they have focused their otherwise mostly modest fiscal for quality
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.
38
Economics
Financial resilience
Table 10: Fundamental health: financial resilience
Redemp. in next 3y Debt held abroad Savings rate Private debt Bank assets NPL
Country Financial resilience
% of GDP % of GDP % of disp. income % of GDP % of GDP % of total loans
2018 2007 2018 2007 2018 2018 2018 2018 2018 2017/2018
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
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 Six sub-indicators of
sub-indicators: 1) debt redemptions over the next three years as a share of GDP, 2) public financial resilience
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 Looking at economic data –
the institutional changes that have given the Eurozone as well as the UK and other EU not at rules and institutions
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, Two steps: comparing 2018
we assign scores based on the data for 2018 and compare them to the scores countries would to 2007 – and to 2013
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 The results differ between
by the post-Lehman and euro crises, the overall score for the Eurozone in 2018 is similar to the two time horizons
that for 2007. The UK even looks slightly more fragile than in 2007. However, if we examine
39
Economics
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 Rise in non-performing
not indicate a stronger resilience to financial shocks than in 2007. The reason is simple. loans overshadows gains on
Modest improvements in most other areas relative to 2007 have been overshadowed by the other counts
7
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 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) Estonia, Germany and
ahead of Germany (number two), Sweden (number three), Slovenia (number four), the Czech Sweden look best placed to
Republic (number five) and Slovakia (number six). Its resilience allowed Slovenia to master its weather future shocks
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.
40
Economics
Table 11: Adjustment progress: financial adjustment

Redemp. in next 3y Debt held abroad Savings rate Private debt Bank assets NPL
Country Financial adjustment
change ppt of GDP change ppt of GDP chg. ppt of income change ppt of GDP change ppt of GDP chg. ppt of tot. loans
2013 2013 2013 2013
2013-2018 2013-2018 2013-2018 2013-2018 2013-2018 2013-2017/2018
-2018 -2016 -2018 -2016
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
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 2013

Turning from the analysis of the current situation relative to 2007 to the adjustment progress Encouraging results for the
since 2013, the results are more encouraging. The Eurozone and most of its member countries changes since 2017
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 Good news: less private
assets relative to GDP. While the private sector is repairing its balance sheet, banks have debt, less overextended
reduced their leverage. In addition, the share of public debt held abroad has declined. Part of banking system
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 However, the savings rate
fallen slightly to 12.0% in 2018, down from 12.4% in 2013. Of course, the savings rate, while has fallen slightly
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% NPLs are coming down –
in 2017 has been too slow to inspire confidence that the financial system has become but more progress is needed
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.
41
Economics
To some degree, the adjustment efforts made by the euro periphery in the wake of the euro Adjustment efforts of
crisis continue to shine through. For the years after 2013, Ireland (number one), Cyprus periphery continue to shine
(number two) and Portugal (number 11) are in the top half of the league for improving their through
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 UK score falls back to a
resilience largely because of a further drop in its household savings rate from 8.6% in 2013 to much lower savings rate
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 For the UK, shocks would
more in a serious plunge in the exchange rate than in protracted financial turbulence. After likely show up mostly in the
all, an aggressive central bank can defuse any domestic financial turbulence by buying assets exchange rate
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 debt

Having a comparatively low fiscal deficit does not suffice to maintain market confidence Foreign investors can be
when investors are nervous. At times when investors want to reduce exposure to countries more fickle than domestic
that have come under suspicion, the sheer need to roll over maturing debt can pose a major institutions
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 Highly indebted countries
bottom of this league table. As discussed above, the share of public debt held abroad has end up at the bottom for the
recently declined for most Eurozone members partly because of the bond purchase profile of their debt…
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 …whereas countries with
on this sub-criterion of our ranking for financial health. Unsurprisingly, they show little little debt do well
adjustment between 2013 and 2018. They have no need to worry about their debt profile in
the first place.
42
Economics
Private debt
Four small to medium-sized economies with comparatively big financial centres, namely Private debt is not yet much
Luxembourg, Cyprus, the Netherlands and Ireland, carry the biggest burden of private debt of an issue in some of the
(ie from households and non-financial corporates). On the opposite end of the scale, private less mature economies
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 Picture very mixed by
as a whole, the private debt ratio came down by 5.5ppt of GDP. While Portugal, Spain and country
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

ϮϭϬ ϭϴ
ƵƌŽǌŽŶĞ 'ĞƌŵĂŶǇ &ƌĂŶĐĞ /ƚĂůǇ hŶŝƚĞĚ<ŝŶŐĚŽŵ
ϭϲ
ϭϵϬ
ϭϰ
ϭϳϬ
ϭϮ
ϭϱϬ
ϭϬ
ϭϯϬ
ϴ
ƵƌŽǌŽŶĞ 'ĞƌŵĂŶǇ
ϭϭϬ ϲ
&ƌĂŶĐĞ /ƚĂůǇ
ϰ
ϵϬ
Private debt in percent of GDP. Source: Eurostat Households’ gross savings in percent of disposable income. Source: European
Commission
Household savings rate

Having a high level of private-sector debt can be mitigated by thrift – that is, by a high Thrift can mitigate risks
propensity to save money out of current income. For the Eurozone as a whole, the savings from debt
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 Highly negative savings
2018, these three countries remain the negative outliers, well below Lithuania (-1.2%). All rates in Romania, Greece
other countries in the sample had a positive gross household savings rate in 2018, according and Cyprus
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% Thrifty households at the
of gross income, Sweden (19.5%), Germany (17.9%), the Netherlands (15.4%), and France core
(13.7%).
Once again, the UK seems to be the odd one out among the more advanced economies in UK: the odd country out
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 sector

An oversized banking sector makes countries more vulnerable to shocks of confidence – the An oversized banking sector
more the financial system has outgrown the country’s potential safety net, which can hurt in a crisis
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
8
country to shocks. 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.
43
Economics
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, Many countries have
followed by Romania and Malta (see Table 10 on page 39). Looking at the change in the reduced the size of their
years since 2013 rather than at the level in 2018, Malta, Ireland, Cyprus, Luxembourg and banking sector
Portugal have reduced the size of their banking sectors most determinedly (see Table 11 on
page 41 – financial adjustment).
Non-
Non-performing loans
Non-performing loans are a serious hindrance to a country’s economic performance. They NPLs can impair the
make the banking system vulnerable to shocks and may even impair the transmission of the transmission of monetary
central bank’s monetary stimulus into the economy if the banks need to focus on repairing policy
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 Very diverse scores
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 By and large, most countries
separate conclusions. On average, the burden of non-performing loans is roughly as high as are on the right track
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 The NPL burden is mostly
non-performing loans in overall bank loans. Ireland, Romania, Slovenia, Bulgaria, Hungary coming down
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
ϭϰ ϰϱ
ƵƌŽǌŽŶĞ 'ĞƌŵĂŶǇ ^ƉĂŝŶ /ƌĞůĂŶĚ
ϰϬ
ϭϮ WŽƌƚƵŐĂů 'ƌĞĞĐĞ
&ƌĂŶĐĞ /ƚĂůǇ ϯϱ
ϭϬ
ϯϬ
ϴ Ϯϱ
ϲ ϮϬ
ϭϱ
ϰ
ϭϬ
Ϯ
ϱ
Ϭ Ϭ
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 Greek data likely to improve
despite some serious recent efforts to tackle the issue. In this respect, Greece is still suffering shortly
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
44
Economics
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 Still a big issue for Portugal
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.
45
Economics
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 EZ19
Overall assessment
The small Alpine republic deserves some special praise. No other mature core European economy has HEALTH ϲ͘Ϯ
adjusted better in the past five years than Austria. Austria benefits from significant pro-growth 1. External position ϱ͘ϴ
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. 2. Labour market ϲ͘ϴ
3. Regulations ϳ͘ϭ
2013-2018 key developments
Making good progress 4. Fiscal sustainability ϰ͘ϳ
• Strong reform drive 5. Financial resilience ϲ͘ϱ
• Gains in external position and fiscal sustainability
But rise in employment rate below average
ADJUSTMENT ϱ͘ϴ
1. External adjustment ϱ͘Ϯ
Strengths Weaknesses
• Low bank assets • Taxation not growth-friendly enough 2. Labour adjustment ϰ͘ϲ
• Growth-friendly mix of public spending • Depends on foreign creditors 3. Reforms ϴ͘ϱ
• Above-average business friendliness • Relatively high public expenditure
• Relatively high savings rate • Export ratio still below average 4. Fiscal adjustment ϱ͘ϰ
5. Financial adjustment ϱ͘ϯ
Detailed scores
2018 2007 2013-2018

AT AT EZ AT AT AT AT EZ AT
Rank Score Score Value Value Rank Score Score Value
HEALTH 13 6.2 5.9 ADJUSTMENT 5 5.8 5.3
1. External position 12 5.8 6.3 1. External adjustment 11 5.2 5.5

1.1 Current account % of GDP 11 6.2 6.4 2.3 3.8 1.1 Change in current account ppt of GDP 15 4.9 5.1 0.4
1.2 Net exports % of GDP 11 6.4 6.1 4.4 4.0 1.2 Change in net exports ppt of GDP 5 6.0 5.3 0.6
1.3 Exports % of GDP 16 4.9 6.3 58.4 51.5 1.3 Change in export ratio ppt of GDP 17 4.9 6.1 4.9
2. Labour market 12 6.8 5.8 2. Labour adjustment 24 4.6 5.9

2.1 Change in RULC % since 2005 15 4.9 5.4 101.8 98.4 2.1 Change in RULC % since 2013 13 6.5 6.6 -1.3
2.2 Change in NULC % since 2005 17 6.2 7.1 127.8 102.5 2.2 Change in NULC % since 2013 15 5.6 6.6 7.5
2.3 Employment rate % 8 8.2 5.6 73.0 69.9 2.3 Change in employment rate ppt 27 3.0 5.2 1.6
3. Regulations 9 7.1 6.0 3. Reforms 2 8.5 4.8

3.1 Ease of doing business 0-100 index 9 7.1 6.0 77.6 75.3 3.1 ---
3.2 --- 3.2 Reform drive 0-1 index 2 8.5 4.8 0.50
4. Fiscal sustainability 21 4.7 5.2 4. Fiscal adjustment 9 5.4 4.8

4.1 Government expenditure % of GDP 19 3.5 5.7 48.3 49.2 4.1 Change in government expenditure ppt of GDP 13 4.8 4.7 -3.3
4.2 Public debt % of GDP 18 5.9 5.2 73.8 65.0 4.2 Change in public debt ppt of GDP 7 5.5 5.2 -7.5
4.3 Structural primary balance % of GDP 14 4.7 5.4 0.6 -0.6 4.3 Change in structural primary balance ppt of GDP 18 5.6 5.0 0.2
4.4 Structural balance % of GDP 17 5.7 5.6 -0.6 -2.9 4.4 Change in structural balance ppt of GDP 16 6.0 5.2 1.1
4.5 Education/infrastruct. investment % of public expendit. 13 6.3 4.0 3.1 3.1 4.5 ---
4.6 Consumption/property taxes % of tax revenue 27 2.0 4.6 29.5 29.7 4.6 ---
4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 11 5.4 4.1 1.3
5. Financial resilience 11 6.5 6.1 5. Financial adjustment 14 5.3 5.2

5.1 Debt redempt. in next three years % of GDP 19 5.7 4.7 17.0 14.1 5.1 Change in redempt. in next three years ppt of GDP 20 3.4 5.6 0.1
5.2 Public debt held by foreigners % of GDP 21 3.4 6.3 59.7 67.4 5.2 Change in debt held by foreigners ppt of GDP 7 6.8 6.0 -11.3
5.3 Household savings rate % of disp. income 9 6.6 6.5 12.1 17.2 5.3 Change in household savings rate ppt of disp. income 16 4.5 4.7 -0.6
5.4 Private debt % of GDP 16 7.1 6.5 123 124 5.4 Change in private debt ppt of GDP 17 4.7 5 -5
5.5 Bank assets % of GDP 3 8.1 5.4 219 311 5.5 Change in bank assets ppt of GDP 9 7.1 5 -63
5.6 NPL % of total loans 13 8.2 6.9 3.0 2.0 5.6 Change in NPL ppt of total loans 16 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.
46
Economics
Belgium EZ19
Overall assessment
Occasional political paralysis in the past 10 years has left it lagging behind most other countries in HEALTH ϱ͘Ϯ
terms of adjustment effort and fiscal sustainability. The fundamental health score of this mature export- 1. External position ϲ͘ϰ
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. 2. Labour market ϰ͘ϵ
3. Regulations ϱ͘ϲ
Strong recent adjustment progress 4. Fiscal sustainability ϯ͘Ϭ
• Above-average reform drive 5. Financial resilience ϲ͘Ϭ
• 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)
ADJUSTMENT ϱ͘Ϯ
1. External adjustment ϱ͘ϳ
• 2nd highest export ratio • Low employment rate 2. Labour adjustment ϱ͘ϲ
• Low bank assets as share of GDP • High public debt and redemptions 3. Reforms ϰ͘ϴ
• Above-average savings rate • High government expenditure
• Moderate labour cost changes • Low productive public investment 4. Fiscal adjustment ϱ͘ϰ
• High private debt 5. Financial adjustment ϰ͘ϲ
Detailed scores
2018 2007 2013-2018

BE BE EZ BE BE BE BE EZ BE

1.1 Current account % of GDP 22 4.3 6.4 -1.3 2.0 1.1 Change in current account ppt of GDP 21 3.6 5.1 -1.0
1.2 Net exports % of GDP 16 4.9 6.1 1.9 2.9 1.2 Change in net exports ppt of GDP 9 5.3 5.3 -0.2



4.3 Structural primary balance % of GDP 16 4.4 5.4 0.4 3.0 4.3 Change in structural primary balance ppt of GDP 13 6.1 5.0 0.5

5.1 Debt redempt. in next three years % of GDP 22 5.2 4.7 19.3 35.0 5.1 Change in redempt. in next three years ppt of GDP 5 7.8 5.6 -7.9
5.4 Private debt % of GDP 22 4.5 6.5 189 135 5.4 Change in private debt ppt of GDP 28 0.4 5 20
47
Economics
Bulgaria EZ19
Overall assessment
One of the poorest EU countries, it benefits from strong EU support, low tax rates and growth in its HEALTH ϰ͘ϳ
export markets. Substantial labour cost rises are mostly part of healthy catching-up process. As its 1. External position ϰ͘ϵ
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. 2. Labour market Ϯ͘ϵ
3. Regulations ϰ͘ϴ
Adjustment progress slightly below Eurozone average 4. Fiscal sustainability ϲ͘Ϯ
• Employment rate surges despite strong labour cost incerases 5. Financial resilience ϰ͘ϱ
• 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 ADJUSTMENT ϱ͘Ϯ
1. External adjustment ϰ͘ϲ
• Very low public debt • Strong increase in labour costs 2. Labour adjustment ϱ͘ϵ
• Very low debt redemptions • Banking sector comparatively big 3. Reforms Ŷ͘Ă͘
• Below average public expenditure • Low productive public investment
• High current account surplus • Export ratio no longer rising fast 4. Fiscal adjustment ϰ͘Ϭ
• Low public debt 5. Financial adjustment ϲ͘ϰ
Detailed scores
2018 2007 2013-2018

BG BG EZ BG BG BG BG EZ BG

1.1 Current account % of GDP 8 7.3 6.4 4.6 -23.9 1.1 Change in current account ppt of GDP 3 7.6 5.1 3.3
1.2 Net exports % of GDP 26 1.7 6.1 -4.0 -15.7 1.2 Change in net exports ppt of GDP 25 2.8 5.3 -2.9

2.1 Change in RULC % since 2005 28 0.0 5.4 124.8 93.9 2.1 Change in RULC % since 2013 23 3.0 6.6 7.6
3. Regulations 22 4.8 6.0 3. Reforms n.a. n.a. 4.8

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

4.2 Public debt % of GDP 3 9.1 5.2 22.6 16.3 4.2 Change in public debt ppt of GDP 28 1.2 5.2 5.5
4.3 Structural primary balance % of GDP n.a. n.a. 5.4 n.a. n.a. 4.3 Change in structural primary balance ppt of GDP n.a. n.a. 5.0 n.a.
4.4 Structural balance % of GDP 12 7.0 5.6 0.1 1.9 4.4 Change in structural balance ppt of GDP 14 6.1 5.2 1.2
4.6 Consumption/property taxes % of tax revenue 17 4.6 4.6 n.a. n.a. 4.6 ---
4.7 --- 4.7 Sum of expenditure/tax cuts ppt of GDP 14 3.5 4.1 -0.2

5.2 Public debt held by foreigners % of GDP 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. 6.0 n.a.
5.3 Household savings rate % of disp. income 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. 4.7 n.a.
48
Economics
Croatia EZ19
Overall assessment
Croatia faces serious challenges with low score for fundamental health. It is trying to live up to the HEALTH ϰ͘ϰ
challenge – it is No.3 in the adjustment progress ranking. Labour cost falls and a more business 1. External position ϯ͘ϱ
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. 2. Labour market ϲ͘Ϭ
3. Regulations ϯ͘ϰ
Strong adjustment progress 4. Fiscal sustainability ϰ͘ϱ
• Big structural surplus is putting public finances slowly into order, but bad expenditure-tax cut mix 5. Financial resilience ϰ͘ϲ
• 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
ADJUSTMENT ϲ͘ϰ
1. External adjustment ϲ͘ϴ
• Labour cost adjustment • Low productive public investment 2. Labour adjustment ϵ͘ϭ
• High structural primary surplus • Employment rate up but still very low 3. Reforms Ŷ͘Ă͘
• Low private debt • Not very business friendly yet
• Current account surplus • High government expenditure 4. Fiscal adjustment ϰ͘ϳ
• High NPL ratios 5. Financial adjustment ϱ͘Ϭ
• High debt redemptions
Detailed scores
2018 2007 2013-2018

HR HR EZ HR HR HR HR EZ HR


2.2 Change in NULC % since 2005 4 8.4 7.1 106.2 104.5 2.2 Change in NULC % since 2013 2 9.5 6.6 -5.2


4.4 Structural balance % of GDP 6 9.0 5.6 1.1 -4.8 4.4 Change in structural balance ppt of GDP 1 10.0 5.2 4.1

5.2 Public debt held by foreigners % of GDP 13 6.3 6.3 30.0 n.a. 5.2 Change in debt held by foreigners ppt of GDP n.a. n.a. 6.0 n.a.
49
Economics
Cyprus EZ19
Overall assessment
The last Eurozone country to receive a bail-out (so far). EU/IMF programme accelerated the fiscal, HEALTH ϰ͘Ϯ
financial and labour cost adjustment efforts markedly. However, external adjustment remains limited. 1. External position ϭ͘ϯ
As other countries had a head start on adjustment, Cyprus stays near the bottom of the fundamental
health table. 2. Labour market ϳ͘ϱ
3. Regulations ϯ͘ϳ
Strong adjustment progress, but fundamental health still close to bottom of all countries 4. Fiscal sustainability ϲ͘ϵ
• Strong internal devaluation effort as labour costs have dropped 5. Financial resilience ϭ͘ϱ
• After belt-tightening, a structural surplus was achieved and debt redemptions are low
• But still high public debt ratio
• Financial resilience has improved significantly, but remains lowest in EU
• Only very small external adjustment means still long way to go ADJUSTMENT ϱ͘ϴ
1. External adjustment Ϯ͘ϴ
• Lowest government expenditure • Weak export position 2. Labour adjustment ϴ͘ϰ
• High structural (primary) surplus • Still highest current account deficit 3. Reforms Ϭ͘Ϭ
• Serious labour cost adjustment • Elevated public and private debt levels
• Low score for business friendliness 4. Fiscal adjustment ϰ͘ϴ
• Low productive public investment 5. Financial adjustment ϳ͘ϭ
• Very negative household savings rate
Detailed scores
2018 2007 2013-2018

CY CY EZ CY CY CY CY EZ CY

1.1 Current account % of GDP 28 1.5 6.4 -7.0 -15.5 1.1 Change in current account ppt of GDP 23 2.6 5.1 -2.1




5.3 Household savings rate % of disp. income 23 0.0 6.5 -6.4 6.2 5.3 Change in household savings rate ppt of disp. income 24 1.1 4.7 -4.7
50
Economics
Czech Republic EZ19

Overall assessment
The Switzerland of central eastern Europe as government, households and corporates are very HEALTH ϲ͘ϳ
conservative regarding their finances. It is No. 9 on fundamental health. The economy is very open, 1. External position ϳ͘ϭ
profiting from growth in export markets. It should become more business-friendly, however.
2. Labour market ϲ͘ϲ
3. Regulations ϱ͘Ϯ
Adjustment progress slipping and below average 4. Fiscal sustainability ϳ͘ϭ
• Financial system not improving by much, but remains resilient 5. Financial resilience ϳ͘ϱ
• Employment rate jumps despite strong labour costs gains
• External and fiscal adjustment scores positive
ADJUSTMENT ϰ͘ϴ
1. External adjustment ϱ͘ϳ
• 2nd highest productive investment • Strongly rising nominal labour costs 2. Labour adjustment ϲ͘Ϯ
• Low private and public indebtedness • Too much focus on distortionary taxes 3. Reforms ϯ͘ϲ
• High employment rate • Business friendliness can improve
• High structural (primary) surplus 4. Fiscal adjustment ϱ͘ϯ
• High export ratio 5. Financial adjustment ϯ͘ϰ
Detailed scores
2018 2007 2013-2018

CZ CZ EZ CZ CZ CZ CZ EZ CZ





5.2 Public debt held by foreigners % of GDP 6 8.5 6.3 16.5 12.5 5.2 Change in debt held by foreigners ppt of GDP 19 0.2 6.0 2.6
5.3 Household savings rate % of disp. income 13 6.0 6.5 10.9 12.0 5.3 Change in household savings rate ppt of disp. income 13 5.0 4.7 0.0
5.5 Bank assets % of GDP 11 6.5 5.4 138 103 5.5 Change in bank assets ppt of GDP 27 0.0 5 17
51
Economics
Denmark EZ19
Overall assessment
Wealthy Denmark's fundamental health score is well above the Eurozone average because of its top HEALTH ϳ͘Ϯ
marks for ease of doing business and solid scores for its robust financial system, strong labour market 1. External position ϲ͘Ϭ
and external competitiveness. It can comfortably afford to be in the middle for adjustment progress.
2. Labour market ϳ͘Ϯ
3. Regulations ϭϬ͘Ϭ
Adjustment progress slips, but fundamentally very strong 4. Fiscal sustainability ϱ͘ϵ
• Financial resilience further improves markedly 5. Financial resilience ϲ͘ϴ
• Reform drive slackens
• Labour adjustment below average, but labour market overall in great shape
• Fiscal sustainability strengthens further
ADJUSTMENT ϱ͘Ϭ
1. External adjustment ϯ͘ϯ
• Very business friendly • High private debt 2. Labour adjustment ϰ͘ϵ
• High employment rate • High government expenditure 3. Reforms ϯ͘Ϭ
• Low dependence on foreign investors • Strong rise in real labour costs
• Low public debt and redemptions • Low productive public investment 4. Fiscal adjustment ϳ͘ϭ
• Thrifty households 5. Financial adjustment ϲ͘ϳ
Detailed scores
2018 2007 2013-2018

DK DK EZ DK DK DK DK EZ DK

1.1 Current account % of GDP 6 7.9 6.4 5.9 1.4 1.1 Change in current account ppt of GDP 22 2.9 5.1 -1.9




52
Economics
Estonia EZ19
Overall assessment
A small open, highly dynamic catching-up economy. Having suffered its own financial crisis in HEALTH ϲ͘ϵ
2007/2008 and having responded strongly to that challenge, Estonia has reaped the benefits of 1. External position ϱ͘Ϯ
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. 2. Labour market ϰ͘ϵ
3. Regulations ϴ͘ϱ
Adjustment progress continues to weaken as pressure of crisis has passed 4. Fiscal sustainability ϳ͘ϱ
• External adjustment score much lower 5. Financial resilience ϴ͘ϯ
• 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
• Financial resilience up slightly ADJUSTMENT ϰ͘ϭ
1. External adjustment ϯ͘Ϯ
• Best in financial resilience • Fast rebound in unit labour costs 2. Labour adjustment ϰ͘ϳ
• Extremely comfortable fiscal position 3. Reforms ϱ͘ϯ
• Very business friendly
• Tax and spending policies well targeted 4. Fiscal adjustment Ϯ͘ϱ
• High employment rate 5. Financial adjustment ϰ͘ϵ
Detailed scores
2018 2007 2013-2018

EE EE EZ EE EE EE EE EZ EE

1.2 Net exports % of GDP 17 4.0 6.1 0.3 -9.8 1.2 Change in net exports ppt of GDP 22 3.7 5.3 -1.9
1.3 Exports % of GDP 14 5.6 6.3 85.5 62.4 1.3 Change in export ratio ppt of GDP 27 0.3 6.1 -2.3



4.1 Government expenditure % of GDP 13 6.0 5.7 39.7 34.2 4.1 Change in government expenditure ppt of GDP 28 2.1 4.7 1.2
4.3 Structural primary balance % of GDP 21 3.6 5.4 -0.1 -1.3 4.3 Change in structural primary balance ppt of GDP 22 3.9 5.0 -0.7
4.4 Structural balance % of GDP 14 6.8 5.6 -0.1 -0.9 4.4 Change in structural balance ppt of GDP 24 2.9 5.2 -0.8

5.3 Household savings rate % of disp. income 12 6.2 6.5 11.3 -0.3 5.3 Change in household savings rate ppt of disp. income 6 6.8 4.7 2.1
5.6 NPL % of total loans 7 9.5 6.9 1.9 2.3 5.6 Change in NPL ppt of total loans 24 4.5 5.1 0.0
53
Economics
Finland EZ19
Overall assessment
Although Finland has a below-average score for fundamental health, it started to adjust late. For the HEALTH ϱ͘ϳ
five years since 2013, overall adjustment efforts have been far too weak. Fortunately, we find some 1. External position Ϯ͘ϯ
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. 2. Labour market ϲ͘ϵ
3. Regulations ϴ͘ϭ
Insufficient adjustment progress for the overall 2013-2018 period 4. Fiscal sustainability ϰ͘ϴ
• Financial resilience drivers not impressive: NPL ratio and bank assets higher, savings rate lower 5. Financial resilience ϲ͘ϯ
• Not much external adjustment
• Fiscal repair started late
Some progress in the past two years
• Falling unit labour costs and lower government expenditure ADJUSTMENT ϰ͘ϰ
1. External adjustment ϯ͘ϳ
• Low NPL ratio • Weak export position 2. Labour adjustment ϲ͘ϰ
• Business friendly • Still excessive public expenditure 3. Reforms ϯ͘ϳ
• Still relatively high employment rate • Primary fiscal deficit
• Decent productive expenditure share • Household savings rate too low 4. Fiscal adjustment ϰ͘ϴ
• Employment rate rising only slowly 5. Financial adjustment ϯ͘ϰ
Detailed scores
2018 2007 2013-2018

FI FI EZ FI FI FI FI EZ FI

1.1 Current account % of GDP 23 4.1 6.4 -1.9 3.7 1.1 Change in current account ppt of GDP 16 4.9 5.1 0.4
1.2 Net exports % of GDP 22 2.9 6.1 -1.9 3.4 1.2 Change in net exports ppt of GDP 20 3.9 5.3 -1.7



4.3 Structural primary balance % of GDP 25 2.6 5.4 -0.7 1.9 4.3 Change in structural primary balance ppt of GDP 15 5.8 5.0 0.4
4.4 Structural balance % of GDP 18 5.4 5.6 -0.8 2.2 4.4 Change in structural balance ppt of GDP 19 4.8 5.2 0.4

54
Economics
France EZ19
Overall assessment
France faces serious challenges. Still below average for both fundamental health and post-2013 HEALTH ϰ͘ϴ
adjustment, it is finally trying to do better. Recent structural reforms are starting to show up in a rise in 1. External position ϰ͘ϭ
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. 2. Labour market ϱ͘ϭ
3. Regulations ϲ͘ϭ
Adjustment progress improves from low base as France is trying to do better 4. Fiscal sustainability Ϯ͘ϵ
• Reform responsiveness has risen strongly; this is starting to show up in some data 5. Financial resilience ϱ͘ϲ
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 ADJUSTMENT ϰ͘ϴ
1. External adjustment ϱ͘Ϭ
• Thrifty households • Second highest public expenditure 2. Labour adjustment ϰ͘ϴ
• Only takes 4 days to open a business • Primary deficit 3. Reforms ϳ͘ϭ
• Pro-reform government • Weak net exports
• High ratio of bank assets in GDP 4. Fiscal adjustment ϯ͘Ϯ
5. Financial adjustment ϯ͘ϳ
Detailed scores
2018 2007 2013-2018

FR FR EZ FR FR FR FR EZ FR

1.1 Current account % of GDP 18 4.8 6.4 -0.3 -0.1 1.1 Change in current account ppt of GDP 17 4.7 5.1 0.2



4.3 Structural primary balance % of GDP 26 2.5 5.4 -0.8 -1.3 4.3 Change in structural primary balance ppt of GDP 14 6.0 5.0 0.5

55
Economics
Germany EZ19
Overall assessment
Germany comes close to the top for its fundamentals with a strong labour market, solid public finances HEALTH ϳ͘ϯ
and an oversized external cushion. Well placed to cope with shocks, but this is at the risk of becoming 1. External position ϴ͘ϱ
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. 2. Labour market ϳ͘ϲ
3. Regulations ϲ͘ϳ
Adjustment progress low 4. Fiscal sustainability ϱ͘ϵ
• Export performance still strong, but less so than before 5. Financial resilience ϴ͘ϭ
• Government expenditure has not fallem by much
• Much lower public debt
Fundamental health at second highest level
ADJUSTMENT ϰ͘ϴ
1. External adjustment ϱ͘ϭ
• 2nd in financial resilience • Tax system too distortionary 2. Labour adjustment ϰ͘ϲ
• High household savings rate • Low productive public investment 3. Reforms ϯ͘Ϯ
• Stellar employment rate • Risk of further reform reversals
• Fiscal surplus, falling debt ratio 4. Fiscal adjustment ϰ͘ϵ
• Strong external position 5. Financial adjustment ϲ͘Ϭ
• Low NPL ratios and bank assets
Detailed scores
2018 2007 2013-2018

DE DE EZ DE DE DE DE EZ DE





56
Economics
Greece EZ19
Overall assessment
While still in a weak position, Greece has come a long way. Following Herculean efforts from 2010 to HEALTH ϯ͘ϱ
2013, Greece remains near the top of the league for adjustment progress since 2013. These efforts show 1. External position Ϯ͘ϯ
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. 2. Labour market ϰ͘ϭ
3. Regulations ϭ͘ϳ
Greece is close to the top of the league for adjustment efforts 4. Fiscal sustainability ϱ͘ϯ
• Further fall in unit labour costs 5. Financial resilience ϰ͘Ϭ
• 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 ADJUSTMENT ϲ͘Ϯ
1. External adjustment ϲ͘ϳ
• Highest fiscal (primary) surplus • Worst performer on health 2. Labour adjustment ϳ͘ϭ
• Reliance on less distortionary taxes • Worst public debt ratio 3. Reforms ϴ͘ϰ
• Very moderate labour cost changes • Lowest employment rate in EU
• Low ratio of bank assets/GDP • Still highly regulated economy 4. Fiscal adjustment ϯ͘ϵ
• Big correction in public expenditures • Huge burden of NPLs 5. Financial adjustment ϰ͘ϵ
• Export sector expands, but still small
Detailed scores
2018 2007 2013-2018

GR GR EZ GR GR GR GR EZ GR

1.2 Net exports % of GDP 21 3.2 6.1 -1.2 -13.0 1.2 Change in net exports ppt of GDP 4 6.4 5.3 1.1



4.3 Structural primary balance % of GDP 1 10.0 5.4 6.3 -4.4 4.3 Change in structural primary balance ppt of GDP 24 2.0 5.0 -1.8
4.4 Structural balance % of GDP 1 10.0 5.6 3.2 -9.1 4.4 Change in structural balance ppt of GDP 26 1.5 5.2 -1.6

5.2 Public debt held by foreigners % of GDP 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. 6.0 n.a.
5.3 Household savings rate % of disp. income 23 0.0 6.5 -6.2 6.5 5.3 Change in household savings rate ppt of disp. income 19 3.7 4.7 -1.5
57
Economics
Hungary EZ19
Overall assessment
This fast-growing, open economy with the lowest corporate tax rates in the EU is in danger of HEALTH ϱ͘ϴ
overheating in a few years due to double-digit wage growth and serious labour shortage. After a major 1. External position ϳ͘ϰ
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. 2. Labour market ϲ͘ϴ
3. Regulations ϰ͘ϵ
Adjustment progress drops 4. Fiscal sustainability ϯ͘ϵ
• Large drop in fiscal adjustment as structural deficit rises 5. Financial resilience ϱ͘ϵ
• External position still strong, but adjustment slipping
• Subdued reform drive
Fundamental health similar to Eurozone overall
• Big rise in employment rate despite strong nominal labour costs rises ADJUSTMENT ϰ͘ϳ
1. External adjustment ϯ͘ϰ
• High export ratio • High government expenditure 2. Labour adjustment ϳ͘ϲ
• Low private debt • Lots of debt redemptions 3. Reforms Ϯ͘ϵ
• Strong gain in employment • Big structural primary deficit
• Focus on consumption/property taxes • High NPL ratio 4. Fiscal adjustment Ϯ͘ϴ
5. Financial adjustment ϲ͘ϲ
Detailed scores
2018 2007 2013-2018

HU HU EZ HU HU HU HU EZ HU

1.1 Current account % of GDP 16 5.2 6.4 0.5 -7.1 1.1 Change in current account ppt of GDP 26 1.5 5.1 -3.3




58
Economics
Ireland EZ19
Overall assessment
A star performer. Its small, open, highly competitive and fast-expanding economy has completed an HEALTH ϳ͘Ϯ
impressive post-crisis turnaround. It combines solid fundamentals with the best adjustment efforts, and 1. External position ϵ͘ϵ
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. 2. Labour market ϳ͘ϱ
3. Regulations ϳ͘ϱ
Best performer on adjustment progress 4. Fiscal sustainability ϳ͘ϯ
• Highest scores for external, fiscal and financial efforts 5. Financial resilience ϯ͘ϴ
• 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) ADJUSTMENT ϳ͘ϴ
1. External adjustment ϴ͘Ϭ
• 3rd healthiest economy • High private debt 2. Labour adjustment ϴ͘ϲ
• Best external position • Depends on foreign creditors 3. Reforms ϱ͘ϰ
• Big labour cost adjustment • Oversized banking system
• Lowest government expenditure • Public debt falling fast but still high 4. Fiscal adjustment ϵ͘ϵ
• Business friendly 5. Financial adjustment ϳ͘Ϯ
Detailed scores
2018 2007 2013-2018

IE IE EZ IE IE IE IE EZ IE





59
Economics
Italy EZ19
Overall assessment
Severely challenged economy. Thanks to some serious reforms during and right after the euro crisis, HEALTH ϯ͘ϵ
Italy comes in at No. 14 in our league for adjustment progress. For a country close to the bottom in 1. External position ϱ͘Ϭ
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. 2. Labour market ϯ͘ϲ
3. Regulations ϯ͘ϴ
On the wrong track again after some clear post-2011 progress 4. Fiscal sustainability ϯ͘Ϭ
• Thanks to its 2013-2017 reforms, Italy scores well above average in reform drive 5. Financial resilience ϰ͘ϯ
• 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
ADJUSTMENT ϱ͘Ϭ
1. External adjustment ϱ͘ϱ
• High primary surplus • High public debt and redemptions 2. Labour adjustment ϱ͘ϱ
• Low bank assets • Low productive public investment 3. Reforms ϱ͘ϯ
• Current account surplus • Low employment rate (no change)
• Low private sector indebtedness • High structural deficit 4. Fiscal adjustment ϯ͘ϰ
• High NPLs 5. Financial adjustment ϱ͘Ϭ
• Still highly regulated economy
Detailed scores
2018 2007 2013-2018

IT IT EZ IT IT IT IT EZ IT




4.3 Structural primary balance % of GDP 9 6.7 5.4 1.8 1.6 4.3 Change in structural primary balance ppt of GDP 25 1.5 5.0 -2.1

60
Economics
Latvia EZ19
Overall assessment
This dynamic Baltic growth star escaped its 2007 crisis by taking the tough medicine of a serious HEALTH ϱ͘ϱ
adjustment programme. A boost in exports led to a bounceback. Not as strong as neighbouring 1. External position Ϯ͘ϴ
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. 2. Labour market ϯ͘ϵ
3. Regulations ϴ͘Ϭ
Adjustment progress mixed 4. Fiscal sustainability ϲ͘ϲ
• Strongest structural reform drive in the EU 5. Financial resilience ϲ͘Ϯ
• Financial resilience improving (higher savings rate, lower bank assets)
• Labour cost adjustment over
• Fiscal slippage continuing
Fundamental health slightly below Eurozone average ADJUSTMENT ϱ͘ϲ
1. External adjustment ϰ͘ϴ
• Very business friendy • Strong uptrend in labour costs 2. Labour adjustment ϰ͘Ϭ
• Strong reform drive • Current account still in deficit 3. Reforms ϭϬ͘Ϭ
• Small government, low debt • Export ratio low for economy's size
• Tax/spending policies well targeted • Structural fiscal deficit 4. Fiscal adjustment Ϯ͘ϴ
• Low private debt • Low household savings rate 5. Financial adjustment ϲ͘ϭ
Detailed scores
2018 2007 2013-2018

LV LV EZ LV LV LV LV EZ LV




4.1 Government expenditure % of GDP 11 6.2 5.7 38.4 34.0 4.1 Change in government expenditure ppt of GDP 27 2.4 4.7 0.7

61
Economics
Lithuania EZ19
Overall assessment
One of the Baltic tigers, Lithuania remains in excellent shape. By turning around its previous external HEALTH ϳ͘Ϭ
deficits, it has overtaken of Estonia in both of our rankings. Having successfully concluded its post- 1. External position ϱ͘ϳ
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. 2. Labour market ϲ͘Ϭ
3. Regulations ϴ͘ϰ
Adjustment progress among the lowest in the sample 4. Fiscal sustainability ϴ͘Ϭ
• Financial resilience not improving: negative savings rate and only marginally lower private debt 5. Financial resilience ϲ͘ϲ
• 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 ADJUSTMENT ϰ͘ϰ
1. External adjustment ϰ͘ϲ
• Very business friendly • Negative household savings rate 2. Labour adjustment ϱ͘Ϭ
• Low private debt • Strong labour cost increases 3. Reforms Ŷ͘Ă͘
• Low bank assets
• Low public expenditure and debt 4. Fiscal adjustment ϰ͘ϰ
• High productive public investment 5. Financial adjustment ϯ͘ϱ
Detailed scores
2018 2007 2013-2018

LT LT EZ LT LT LT LT EZ LT





5.3 Household savings rate % of disp. income 22 0.8 6.5 -1.2 -4.1 5.3 Change in household savings rate ppt of disp. income 22 2.0 4.7 -3.6
62
Economics
Luxembourg EZ19
Overall assessment
A small open, healthy economy with a strong external position and solid public finances. Being a HEALTH ϲ͘ϯ
financial hub helps to generate tax revenues. Close to the bottom of our adjustment progress ranking, 1. External position ϵ͘ϭ
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. 2. Labour market ϱ͘ϭ
3. Regulations ϭ͘ϳ
Adjustment progress lowest in EU 4. Fiscal sustainability ϵ͘Ϭ
• Smallest rise in employment rate, strong increase in labour costs 5. Financial resilience ϲ͘ϰ
• Fiscal adjustment below Eurozone average
• Financial sector remains huge
• No pronounced reform drive
Fundamental health still satisfactory ADJUSTMENT ϯ͘ϯ
1. External adjustment ϱ͘Ϭ
• Highest export ratio • Extremely high private sector debt 2. Labour adjustment ϯ͘ϳ
• Most comfortable fiscal position • Low score for business friendliness 3. Reforms Ϭ͘ϳ
• Highest household savings rate • Strong rise in labour costs
• Tax and spend policies well targeted 4. Fiscal adjustment ϯ͘Ϯ
• Lowest NPL ratios 5. Financial adjustment ϯ͘ϴ
Detailed scores
2018 2007 2013-2018

LU LU EZ LU LU LU LU EZ LU





63
Economics
Malta EZ19
Overall assessment
Star performer. Small open economy which has improved significantly. Malta has jumped into the top HEALTH ϲ͘ϯ
10 in terms of fundamental health; its adjustment second only to that of Ireland in the past five years. 1. External position ϵ͘ϳ
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. 2. Labour market ϳ͘ϯ
3. Regulations Ϭ͘ϭ
Adjustment progress improves strongly 4. Fiscal sustainability ϳ͘ϰ
• External adjustment boosted by much higher net exports 5. Financial resilience ϲ͘ϵ
• Fiscal and labour cost adjustment scores also rise
• Substantial progress on downsizing the banking sector and making financial system more resilient
Fundamental health improves
ADJUSTMENT ϳ͘ϴ
1. External adjustment ϲ͘ϳ
• Strong current account surplus • Lowest ease of doing business score 2. Labour adjustment ϵ͘ϲ
• Lowest foreign debt ownership • Large banking sector 3. Reforms Ŷ͘Ă͘
• Strong fiscal position • Distortionary tax share too high
• High export ratio • Low productive public investment 4. Fiscal adjustment ϴ͘ϭ
5. Financial adjustment ϲ͘ϵ
Detailed scores
2018 2007 2013-2018

MT MT EZ MT MT MT MT EZ MT

1.3 Exports % of GDP 8 9.1 6.3 145.3 125.6 1.3 Change in export ratio ppt of GDP 28 0.0 6.1 -9.5




64
Economics
Netherlands EZ19
Overall assessment
Star performer. Tops our list for fundamental health. Best marks for external position and labour HEALTH ϳ͘ϱ
market. Some room for improvement in private sector indebtedness. One of the few countries with 1. External position ϵ͘ϵ
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. 2. Labour market ϳ͘ϵ
3. Regulations ϲ͘Ϭ
Solid adjustment progress across the board 4. Fiscal sustainability ϳ͘Ϯ
• Fiscal sustainability improves even further 5. Financial resilience ϲ͘ϲ
• 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 ADJUSTMENT ϱ͘ϳ
1. External adjustment ϱ͘ϱ
• Top performer on fundamentals • High private sector indebtedness 2. Labour adjustment ϲ͘Ϭ
• Highest employment rate • Above-average size of banking sector 3. Reforms ϰ͘ϭ
• High current account surplus
• High productive public investment 4. Fiscal adjustment ϲ͘ϳ
• High household savings rate 5. Financial adjustment ϲ͘ϭ
Detailed scores
2018 2007 2013-2018

NL NL EZ NL NL NL NL EZ NL





65
Economics
Poland EZ19
Overall assessment
This dynamic catching-up economy still has low labour costs and benefits from EU grants to overhaul HEALTH ϱ͘ϵ
its infrastructure. Its health score is in line with Eurozone average. There are demographic challenges 1. External position ϱ͘ϴ
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. 2. Labour market ϱ͘ϴ
3. Regulations ϲ͘ϲ
Adjustment progress below Eurozone average 4. Fiscal sustainability ϱ͘ϯ
• Reform drive slackens 5. Financial resilience ϱ͘ϴ
• Financial sector indebtedness rising
• Current account almost balanced, much stronger export ratio
• Employment rate improves strongly from low level
ADJUSTMENT ϰ͘ϴ
1. External adjustment ϲ͘ϰ
• Well targeted public investment • Low household savings rate 2. Labour adjustment ϲ͘ϴ
• Low private debt levels • High structural deficit 3. Reforms Ϯ͘ϴ
• Most debt held locally
4. Fiscal adjustment ϰ͘Ϯ
5. Financial adjustment ϯ͘ϴ
Detailed scores
2018 2007 2013-2018

PL PL EZ PL PL PL PL EZ PL




4.3 Structural primary balance % of GDP 20 3.6 5.4 -0.1 -0.7 4.3 Change in structural primary balance ppt of GDP 9 6.8 5.0 0.9

66
Economics
Portugal EZ19
Overall assessment
Still in the bottom third of the fundamental health league. As it remains one of the stronger adjustment HEALTH ϰ͘ϵ
performers, it should continue to move up. By and large it has remained on the right track even after 1. External position ϯ͘Ϭ
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. 2. Labour market ϳ͘ϳ
3. Regulations ϲ͘Ϭ
Adjustment progress above average 4. Fiscal sustainability ϰ͘ϳ
• Among top 3 for rise in employment rate 5. Financial resilience ϯ͘ϭ
• Financial resilience score up
• Positive fiscal dynamics
But reform drive has slackened significantly over last two years
ADJUSTMENT ϱ͘ϰ
1. External adjustment ϰ͘ϰ
• Low unit labour cost increases • 2nd lowest productive expenditure 2. Labour adjustment ϴ͘ϱ
• One of the highest primary surpluses • Very high public debt 3. Reforms Ϯ͘Ϭ
• Low share of distortionary taxes • One of the lowest export ratios
• High debt redemptions 4. Fiscal adjustment ϲ͘Ϯ
• High NPLs 5. Financial adjustment ϲ͘Ϭ
• Loss of reform momentum
Detailed scores
2018 2007 2013-2018

PT PT EZ PT PT PT PT EZ PT





67
Economics
Romania EZ19
Overall assessment
As a dynamic catching-up economy, Romania has been quite successful on many economic counts in HEALTH ϰ͘ϴ
the past few years. However, it shows clear signs of excess. Instead of using fast GDP growth to build 1. External position Ϯ͘ϵ
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. 2. Labour market ϱ͘ϯ
3. Regulations ϱ͘ϱ
Adjustment progress has slipped significantly 4. Fiscal sustainability ϱ͘ϰ
• Fast rise in labour costs 5. Financial resilience ϱ͘Ϯ
• Export ratio has significantly increased, but current account deficit has become excessive again
• Structural fiscal deficit widened significantly
ADJUSTMENT ϰ͘ϯ
1. External adjustment ϰ͘Ϭ
• Lowest private debt • Highest net export deficit 2. Labour adjustment ϯ͘ϭ
• Real labour costs low • Structural balance weakest in EU 3. Reforms Ŷ͘Ă͘
• Well targeted public investments • High bank assets
• Low public debt • Nominal labour cost rise too fast 4. Fiscal adjustment ϯ͘ϯ
• Low government expenditure • Low household savings rate 5. Financial adjustment ϳ͘Ϭ
• Weak employment rate
Detailed scores
2018 2007 2013-2018

RO RO EZ RO RO RO RO EZ RO





5.3 Household savings rate % of disp. income 23 0.0 6.5 -6.0 -18.9 5.3 Change in household savings rate ppt of disp. income 11 6.2 4.7 1.4
68
Economics
Slovakia EZ19
Overall assessment
A catching-up economy with the highest car production per capita globally, benefiting from euro HEALTH ϱ͘ϵ
membership and fast export growth to western Europe. There is room for improvement. Slovakia has 1. External position ϲ͘ϵ
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. 2. Labour market ϰ͘ϱ
3. Regulations ϱ͘ϰ
Post-2013 adjustment progress well below average 4. Fiscal sustainability ϱ͘Ϯ
• Export ratio higher, but current account deficit widening 5. Financial resilience ϳ͘Ϯ
• 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
ADJUSTMENT ϰ͘Ϯ
1. External adjustment ϯ͘ϲ
• 2nd lowest bank assets to GDP ratio • High share of distortionary taxes 2. Labour adjustment ϲ͘Ϭ
• Low public debt redemptions • Big increase in real labour costs 3. Reforms ϰ͘Ϯ
• High export ratio • Weak structural (primary) balance
• High net exports • Employment rate rising but still low 4. Fiscal adjustment ϯ͘ϯ
• Low private debt 5. Financial adjustment ϯ͘ϳ
Detailed scores
2018 2007 2013-2018

SK SK EZ SK SK SK SK EZ SK





69
Economics
Slovenia EZ19
Overall assessment
Small, dynamic catching-up economy. One of the star performers with above-average scores for both HEALTH ϲ͘ϴ
fundamental health and adjustment progress. External position and financial resilience look solid. Its 1. External position ϴ͘Ϭ
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. 2. Labour market ϲ͘ϰ
3. Regulations ϱ͘ϯ
Good adjustment efforts 4. Fiscal sustainability ϲ͘ϲ
• External adjustment improving strongly 5. Financial resilience ϳ͘ϲ
• Fiscal sustainability up
• Financial system more resilient
Fundamental health improved
• Reform drive slowed ADJUSTMENT ϱ͘ϲ
1. External adjustment ϳ͘ϲ
• Low bank assets • High % of debt held abroad 2. Labour adjustment ϳ͘ϴ
• Low private debt • Ease of doing business below average 3. Reforms Ϭ͘Ϭ
• High current account surplus
• High primary surplus 4. Fiscal adjustment ϱ͘ϵ
• High household savings rate 5. Financial adjustment ϲ͘ϲ
Detailed scores
2018 2007 2013-2018

SI SI EZ SI SI SI SI EZ SI

1.2 Net exports % of GDP 5 8.9 6.1 9.0 -2.5 1.2 Change in net exports ppt of GDP 3 7.7 5.3 2.5




70
Economics
Spain EZ19
Overall assessment
A mostly mature economy forced to undergo major adjustment in the wake of a real estate and HEALTH ϱ͘ϯ
banking crisis. Reforms and fiscal rebalancing have shown results. While the reform drive has petered 1. External position ϰ͘ϴ
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. 2. Labour market ϱ͘ϭ
3. Regulations ϲ͘ϵ
Adjustment progress slips 4. Fiscal sustainability ϰ͘ϱ
• Reform drive weakens 5. Financial resilience ϱ͘Ϯ
• Scores of fiscal sustainability not improving by much
Progress in labour and financial adjustment
ADJUSTMENT ϱ͘ϭ
1. External adjustment ϰ͘ϰ
• Strong labour cost adjustment • High debt redemptions 2. Labour adjustment ϳ͘ϵ
• Relatively low public expenditure • Employment rate rising but still low 3. Reforms ϰ͘ϲ
• Turnaround in current account • Still high structural fiscal deficit
• Low productive public investment 4. Fiscal adjustment ϯ͘ϭ
5. Financial adjustment ϱ͘ϯ
Detailed scores
2018 2007 2013-2018

ES ES EZ ES ES ES ES EZ ES

1.1 Current account % of GDP 15 5.5 6.4 0.9 -9.6 1.1 Change in current account ppt of GDP 18 4.0 5.1 -0.6




71
Economics
Sweden EZ19
Overall assessment
Sweden is among the top group of EU economies in terms of fundamental health. Its once excellent HEALTH ϲ͘ϵ
position has declined from number one in 2007 to number seven as its economy has become slightly 1. External position ϱ͘Ϯ
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. 2. Labour market ϳ͘ϰ
3. Regulations ϴ͘Ϯ
Second lowest adjustment progress 4. Fiscal sustainability ϱ͘ϳ
• Reform drive and external adjustment scores low 5. Financial resilience ϳ͘ϴ
• 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
ADJUSTMENT ϯ͘ϴ
1. External adjustment ϯ͘ϯ
• High employment rate • Too much focus on distortionary taxes 2. Labour adjustment ϱ͘ϰ
• Lowest NPL ratios • High private sector debt levels 3. Reforms Ϭ͘ϲ
• Thrifty households • High government expenditure
• Business friendly • Reform drive well below average 4. Fiscal adjustment ϰ͘ϯ
• Low debt redemptions 5. Financial adjustment ϱ͘Ϯ
Detailed scores
2018 2007 2013-2018

SE SE EZ SE SE SE SE EZ SE





72
Economics
United Kingdom EZ19

Overall assessment
A solid, mature economy with a flexible labour market, light-touch regulation and London as a tax HEALTH ϲ͘Ϯ
revenue generator. It has enough policy headroom to deal with a shock. Its score for fundamental 1. External position Ϯ͘ϵ
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. 2. Labour market ϳ͘ϭ
3. Regulations ϵ͘Ϭ
Adjustment progress neither strong nor weak 4. Fiscal sustainability ϲ͘ϯ
• Helped by a weaker currency the current account defcit has come down a little 5. Financial resilience ϱ͘ϴ
• 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 ADJUSTMENT ϰ͘ϴ
1. External adjustment ϰ͘Ϯ
• Focus on non-distortionary taxes • High current account deficit 2. Labour adjustment ϱ͘ϳ
• Very business friendly • Low savings rate 3. Reforms ϱ͘ϴ
• Low NPL ratios • Still high structural fiscal deficit
• Small government • Low score for financial adjustment 4. Fiscal adjustment ϱ͘ϰ
• High employment rate 5. Financial adjustment Ϯ͘ϵ
Detailed scores
2018 2007 2013-2018

UK UK EZ UK UK UK UK EZ UK





73
Economics
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.
74
Economics
Notes on key components

Cut-off date for data: 7 May 2019.
1) External position
ʀ Current account balance, in percent of GDP. Source: Eurostat
R Health: 2018 versus 2007
R Adjustment: Change from 2013 to 2018 and from 2013 to 2016 (for comparison)
ʀ Net exports of goods and services, in percent of real GDP. Source: Eurostat
R Adjustment: Change from 2013 to 2018 and from 2013 to 2016 (for comparison)
ʀ Exports of goods and services in percent of real GDP. Source: Eurostat, Berenberg
calculations
R 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.
R 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

ʀ Unit labour costs, in real and nominal terms (2005=100). Source: European Commission
R Adjustment: Cumulative increase 2013-2018 and 2013-2016 (for comparison)
ʀ Employment rate, in percent of all 15-64 year-olds. Source: Eurostat
R Adjustment: Cumulative change from 2013 to 2018 and from 2013 to 2016 (for
comparison)
3) Regulations and reforms

ʀ 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
ʀ 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

ʀ Government expenditure, in percent of GDP. Source: Eurostat, Berenberg calculations
R 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
R Adjustment: Score based on average annual rise relative to starting point. 2013-2018
and 2013-2016 (for comparison)
ʀ Government debt, in percent of GDP. Source: Eurostat
R Adjustment: Change in debt ratio from 2013 to 2018 and from 2013 to 2016 (for
comparison)
75
Economics
ʀ Structural (primary) balance, in percent of GDP. Source: IMF

R Adjustment: Change in balance from 2013 to 2018 and from 2013 to 2016 (for
comparison)
ʀ 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
ʀ 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
ʀ 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

ʀ Government debt redemptions in the next three years, in percent of GDP. Source:
Bloomberg, Eurostat
R Health: Redemptions 2019-2021 versus 2010-2012 (no earlier data available)
R Adjustment: Change in redemptions ratio 2019-2021 over 2014-2016 and for 2017-
2019 over 2014-2016 (for comparison)
ʀ Government debt held by foreigners, in percent of GDP. Source: IMF, Berenberg
calculations
R Health: Score based on deviation of public debt held abroad from adjusted norm
based on GDP (size). 2018 versus 2010 (no earlier data available)
R Adjustment: Score based on average annual rise relative to starting point, from 2013
to 2018 and from 2013 to 2016 (for comparison)
ʀ Household savings rate, gross, in percent of disposable income. Source: European
Commission
R Adjustment: change from 2013 to 2018 and from 2013 to 2016 (for comparison)
ʀ Private debt, in percent of GDP. Source: European Commission
R Health: 2017/2018 versus 2007
R Adjustment: Change from 2013 to 2017/2018 and from 2013 to 2016 (for comparison)
ʀ Bank assets, in percent of GDP. Source: ECB, Eurostat, Berenberg calculations
R Health: Score based on deviation of bank assets from adjusted norm based on GDP
per capita (income), 2018 versus 2007
R Adjustment: Score based on average annual change relative to starting point for 2013
to 2018 and for 2013 to 2016 (for comparison)
ʀ Non-performing loans, in percent of total loans. Source: Eurostat, IMF
R Health: 2017 or 2018 (latest available) versus 2008 (no earlier data available)
R Adjustment: Change in NPL ratio from 2013 to 2017 or 2018 and from 2013 to 2016
(for comparison)
76
Economics
References and additional reading

ʀ European Commission. Spring 2019 Economic Forecast: Growth continues at a more
moderate pace (Brussels: European Commission, 2019)
ʀ International Monetary Fund (IMF). Fiscal Monitor April 2019: Curbing corruption
(Washington, DC: IMF, 2019)
ʀ Organisation for Economic Co-operation and Development (OECD). Going for growth
2018: An opportunity that governments should not miss (Paris: OECD, 2018).
ʀ World Bank. Doing Business 2019: Training for reform (Washington, DC: World Bank,
2018)
Full editions of The Euro Plus Monitor

ʀ Schmieding, Holger. The 2015 Euro Plus Monitor: More Progress, New Risks
(London/Brussels: Berenberg/Lisbon Council, 2015)
ʀ Schmieding, Holger, and Florian Hense. The 2016 Euro Plus Monitor: Coping with the
Backlash (London/Brussels: Berenberg/Lisbon Council, 2016)
ʀ -------------. The 2017 Euro Plus Monitor: Into a higher gear (London/Brussels:
Berenberg/Lisbon Council, 2017)
ʀ Schmieding, Holger, Paul Hofheinz, Jörn Quitzau, Anna Rossen and Christian Schulz. The
2011 Euro Plus Monitor: Progress Amid the Turmoil (London/Brussels:
ʀ Schmieding, Holger, and Christian Schulz. The 2014 Euro Plus Monitor: Leaders and
Laggards (London/Brussels: Berenberg/Lisbon Council, 2014)
ʀ Schmieding, Holger, Christian Schulz and Paul Hofheinz. The 2012 Euro Plus Monitor:
The Rocky Road to Balanced Growth (London/Brussels: Berenberg/Lisbon Council, 2012)
ʀ -----------. The 2013 Euro Plus Monitor: From Pain to Gain (London/Brussels:
77
Economics
Disclaimer
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.
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This document has been prepared exclusively by Joh. Berenberg, Gossler & Co. KG. Although Berenberg Capital Markets
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does not constitute research of Berenberg Capital Markets LLC. In addition, this document is meant exclusively for
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This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1
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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
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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
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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
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Donald Tait +44 20 3753 3031 George McWhirter +44 20 3753 3163 Carl Murdock-Smith +44 20 3207 7918
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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
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EQUITY SALES
SPECIALIST 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
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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
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MEDIA & TELECOMS Katie Ferry +44 20 3753 3041 SWITZERLAND, AUSTRIA & ITALY Ross Mackay +44 20 3207 7866
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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
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SALES Eleni Papoula +44 20 3465 2741 COO Office Suzy Khan +44 20 3207 7915
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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
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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 TRADING
Luke 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
79
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CONSTRUCTION INDUSTRIAL MATERIALS ECONOMICS
Robert 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
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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 TRADING
SPECIALTY 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
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European Progress Monitor

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European Progress Monitor

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Economics

European Progress Monitor:

ATLAS ALPHA • THOUGHT LEADERSHIP • ACCESS • SERVICE

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

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

Chart 1: Mixed progress – the rebound in employment

I. Key conclusions 5

Fundamental health and recent adjustment progress 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

Notes on key components 75

References and additional reading 77

I. Key conclusions

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

Fundamental health and recent adjustment progress

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

Chart 5: Adjustment progress indicator (reform countries highlighted)

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

A note on political populism

II. Fundamental health

Key findings of the fundamental health indicator

&ƵŶĚĂŵĞŶƚĂů ǆƚĞƌŶĂů >ĂďŽƵƌ ZĞŐƵůĂƚŝŽŶƐ &ŝƐĐĂů &ŝŶĂŶĐŝĂů

III. Adjustment progress

Key findings of the adjustment progress indicator

other countries. Even France (number 19 on cumulative post-2013 adjustment progress)

ZĞĨŽƌŵͲϱ /ƚĂůǇ KƚŚĞƌƵƌŽǌŽŶĞ

IV. Five pillars of analysis: results in detail

Ϭ ϱϬ ϭϬϬ ϭϱϬ ϮϬϬ ϮϱϬ Ϭ ϭϬ ϮϬ ϯϬ ϰϬ ϱϬ ϲϬ

Exports in percent of GDP. Source: Eurostat

Table 4: Adjustment progress: external adjustment

Share of exports in GDP

Table 6: Adjustment progress: labour adjustment

Regulations and reforms

Ease of doing business

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

Fiscal adjustment since 2013

Chart 20: Structural deficits falling in most countries

ͲϭϬ Ͳϳ͘ϱ Ͳϱ ͲϮ͘ϱ Ϭ Ϯ͘ϱ ϱ Ͳϳ͘ϱ Ͳϱ ͲϮ͘ϱ Ϭ Ϯ͘ϱ

Structural fiscal balance in percent of GDP. Source: IMF

Chart 21: Public debt ratios falling or at least stabilising

ƵƌŽǌŽŶĞĞǆ'ĞƌŵĂŶǇ ^ƉĂŝŶ hŶŝƚĞĚ<ŝŶŐĚŽŵ

Public debt in percent of GDP. Source: Eurostat

ƵƌŽǌŽŶĞ 'ĞƌŵĂŶǇ &ƌĂŶĐĞ

Structural fiscal balance

Quality of fiscal adjustment

Table 11: Adjustment progress: financial adjustment

Financial adjustment since 2013

Profile of public debt

Chart 24: Private debt Chart 25: Household savings rate

Household savings rate

Size of the banking sector

V. Results by country

2018 2007 2013-2018

HEALTH 13 6.2 5.9 ADJUSTMENT 5 5.8 5.3

1. External position 12 5.8 6.3 1. External adjustment 11 5.2 5.5

2. Labour market 12 6.8 5.8 2. Labour adjustment 24 4.6 5.9

&ƵŶĚĂŵĞŶƚĂů ǆƚĞƌŶĂů >ĂďŽƵƌ ZĞŐƵůĂƚŝŽŶƐ &ŝƐĐĂů &ŝŶĂŶĐŝĂů

ZĞĨŽƌŵͲϱ /ƚĂůǇ KƚŚĞƌƵƌŽǌŽŶĞ

ƵƌŽǌŽŶĞĞǆ'ĞƌŵĂŶǇ ^ƉĂŝŶ hŶŝƚĞĚ<ŝŶŐĚŽŵ

ƵƌŽǌŽŶĞ 'ĞƌŵĂŶǇ &ƌĂŶĐĞ