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TheStreet Open House

EU Warns Of Imbalances In Spain, Slovenia

The Commission also warned that Slovenia, whose economy is about 29 times smaller than Spain's, faces a "substantial" risk from high corporate debt, bad loans and deteriorating public finances.

Markets have started worrying about Slovenia because of the nation's shaky banks, also reeling from a burst real estate bubble and unpaid property loans. While its overall public debt load of 48 percent of its GDP is below the EU average of 85 percent, the country of 2 million is already facing difficulties refinancing its debt, with its borrowing costs increasing steadily over the past months.

That has fueled fears it could soon find itself unable to afford to raise money on the international bond markets and become the sixth country among the 17 EU countries that use the euro â¿¿ after Greece, Portugal, Ireland, Spain and Greece â¿¿ to seek a rescue loan package.

The Commission identified 11 other countries in its report with deficit and debt problems, but said their problems were not as bad as Spain and Slovenia's. The countries were: Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom.

However, Rehn did warn that France, the second-largest economy in the EU, must strengthen its reform effort to regain competitiveness, and show "decisive action" to tackle its growing debt burden.

"There are too main challenges for France: the deterioration of its exports performance ... and the elevated level of public debt," he said.

The "high and increasing" debt burden is weakening France's position to react to any adverse shocks, thereby endangering the domestic economy and even the eurozone as a whole, it warned.

"France's public sector indebtedness represents a vulnerability, not only for the country itself but also for the euro area as a whole," the report said.

France's debt is set to exceed 93 percent of its GDP by the end of this year, the Commission said.

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