The MIP allows the Commission and the Council to adopt preventive recommendations under article 121.2 of the Treaty. There is also a corrective arm, and an excessive imbalance procedure (EIP) can be opened for a Member State in cases of severe or excessive imbalances that may jeopardise the proper functioning of the Economic and Monetary Union. In this case, the Member State concerned will have to submit a corrective action plan with a clear roadmap and deadlines for implementing corrective action.
The Macroeconomic Imbalance Procedure rests on two pieces of legislation: The first regulation sets out the details of the surveillance procedure and covers all the Member States. The second regulation establishes the enforcement mechanism including the potential use of sanctions and is only applicable for the euro area Member States. The overall design follows the implicit logic of the Stability and Growth Pact with a "preventive" arm and a stronger "corrective" arm for more serious cases.
The procedure relies on an alert mechanism identifying Member States which show signs of potential emerging macroeconomic imbalances that require in-depth analysis. The objective is to identify macroeconomic imbalances at the early stage of their emergence so that necessary policy actions can be taken in due time and thus prevent the development of severe imbalances which are damaging for the Member State concerned and risk jeopardising the functioning of the Economic and Monetary Union. The alert mechanism is thus is a "filter" to identify countries and issues for which more in-depth analysis is required. Policy conclusions follow only after the in-depth studies, as described below.
The alert mechanism consists of an indicator-based scoreboard complemented by an economic reading thereof presented in an annual Alert Mechanism Report (AMR). The economic reading of the scoreboard indicators implies that there is no automaticity involved (i.e. a "flash" for an indicator does not lead to an automatic conclusion that an in-depth review is warranted). Other relevant information can also be taken into account (which is explicitly expressed in the regulation).
The conclusions of the AMR are then discussed by the Council and the Eurogroup, enabling the Commission to get appropriate feedback from Member States. On this basis, the Commission decides for which countries it will prepare country-specific in-depth reviews. The in-depth reviews aim at assessing the extent of the potential imbalances. The in-depth reviews are based on solid economic reasoning and may involve missions to the Member State concerned. They take into account the broad economic context. Economic spillovers in an EU context are taken into consideration, whether negative or positive. The degree of adjustment capacity of the Member State to revert the imbalance is of crucial importance when assessing the potential for wider negative implications. If, on the basis of this analysis, the situation is considered unproblematic, the Commission will not propose any further steps. If the Commission however considers that macroeconomic imbalances exist, it will come forward with proposals for policy recommendations for the Member State(s) concerned. In the preventive arm these are part of the integrated package of recommendations under the European semester. If the Commission instead considers that there are severe or excessive imbalances that may jeopardise the proper functioning of the Economic and Monetary Union, it may recommend to the Council to open an Excessive Imbalance Procedure (EIP) which falls under the corrective arm of the new procedure.
Figure 1: Overview of the two-step approach
The corrective arm and effective enforcement
Figure 2 below provides an overview of the corrective arm, including enforcement which applies only to euro area Member States. While in principle decisions are taken by the Council by qualified majority voting, the shaded boxes in the figure indicate Council decisions that are taken by reverse qualified majority voting (RQMV), which implies that there needs to be a majority against taking the step (as opposed to the normal approach where a decision needs the backing of a qualified majority). In case of RQMV, a novelty for many of the key enforcement decisions across the six-pack, a Council decision on a Commission recommendation is deemed to be adopted by the Council unless it decides, by qualified majority, to reject the recommendation within ten days of the Commission adopting it. The aim of this voting rule is to increase the automaticity of the decision-making process.
In case the in-depth review points to severe or excessive imbalances in a Member State that may jeopardise the proper functioning of the Economic and Monetary Union, the Council may declare the existence of an excessive imbalance and adopt a recommendation asking the Member State to present corrective actions within a specified deadline. Then, and this is a key feature in this new procedure, the Member State is obliged to present a corrective action plan (CAP) setting up a roadmap to implement corrective policy actions. The CAP should be a detailed plan for corrective actions with specific policy measures and implementation timetable.
As regards the content of the CAP it is clear that the policy response to macroeconomic imbalances has to be tailored to the circumstances of the Member State concerned and where needed will cover the main policy areas, including fiscal and wage policies, labour markets, product and services markets and the financial sector. Moreover, efficiency and credibility derive from consistent approaches across policy strands. As described above, to this end the procedure is embedded into the European Semester, i.e. the annual policy cycle for country surveillance. This is particularly important since policy remedies to address imbalances to a very large extent cover policies (e.g. labour markets, product markets and fiscal) that may also be subject to other surveillance processes.
After submission of the CAP by the Member State, the Council assesses the CAP with two possible outcomes as illustrated by Figure 2:
Then, once a sufficient CAP is in place, the Council assesses whether or not the Member State concerned has taken the recommended actions according to the set deadlines. Two outcomes are possible: