Preventing and correcting macroeconomic imbalances

Over the past decade, the EU has registered serious gaps in competitiveness and major macroeconomic imbalances. A new surveillance and enforcement mechanism has been set up to identify and correct such issues much earlier: the Macroeconomic Imbalance Procedure (MIP), based on Article 121.6 of the Treaty. It will rely on the following main elements:

An early warning system: an alert system is established based on a scoreboard consisting of a set of ten indicators covering the major sources of macroeconomic imbalances. For each indicator, alert thresholds have been set to detect potential imbalances. The scoreboard and the thresholds are not applied mechanically and the scoreboard will be complemented by an economic reading. The composition of the scoreboard indicators may evolve over time. The aim of the scoreboard is to trigger in-depth studies which will do deep dive analyses to determine whether the potential imbalances identified in the early-warning system are benign or problematic. The Commission can organise missions, with the ECB if appropriate. The in-depth reviews shall be made public.

Preventive and corrective action: The new procedure allows the Commission and the Council to adopt preventive recommendations under article 121.2 of the Treaty at an early stage before the imbalances become large. There is also a corrective arm in more serious cases, and an excessive imbalance procedure (EIP) can be opened for a Member State. In cases of serious imbalances, the Member State concerned will have to submit a corrective action plan with a clear roadmap and deadlines for implementing corrective action. Surveillance will be stepped up by the Commission on the basis of regular progress reports submitted by the Member State concerned.

Rigorous enforcement: A new enforcement regime is established for euro area countries. The corrective arm consists of a two-step approach:

• An interest-bearing deposit can be imposed after one failure to comply with the recommended corrective action
• After a second compliance failure, this interest-bearing deposit can be converted into a fine (up to 0.1% of GDP)
• Sanctions can also be imposed for failing twice to submit a sufficient corrective action plan.

The decision-making process in the new regulations is streamlined by prescribing the use of reverse qualified majority voting to take all the relevant decisions leading up to sanctions. This semi-automatic decision-making procedure makes it very difficult for Member States to form a blocking majority.

Key Documents

• COM(2012) 68 final: Alert Mechanism Report 2012 [128 KB] : the economic reading of the scoreboard and recommendations for in-depth reviews.
• Statistical Annex of the Alert Mechanism Report [4 MB] : data on scoreboard and additional indicators.

Data

• Scoreboard data platform: Interactive database for the indicators of the scoreboard and additional 'reading' indicators
• Relevant legislation: the MIP is part of the 'six-pack' of legislative acts that strenghten the surveillance of economic fiscal policies.

Background documents

• Occasional Paper 92/2012: Scoreboard for the surveillance of macroeconomic imbalances : technical explanations on the scoreboard
• Staff working paper: Scoreboard for the surveillance of macroeconomic imbalances: envisaged initial design [59 KB] (8 Nov. 2011)