FAQ - Macroeconomic Imbalance Procedure
Frequently asked questions
The Macroeconomic Imbalance Procedure (MIP) is a surveillance mechanism that aims to identify potential macroeconomic risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in place. It is a system for monitoring economic policies and detecting potential harms to the proper functioning of the economy of a Member State, of the Economic and Monetary Union, or of the Union as a whole, e.g. real estate bubbles, banking crises or competitiveness losses. The rules on the economic governance (introduced through the Six Pack Regulation, the Two Pack Regulation and the Treaty on Stability, Coordination and Governance) are grounded in the European Semester, the EU's annual cycle of economic policy guidance and surveillance. The MIP contains a number of sequential steps, having the Alert Mechanism Report (AMR) as a starting point.
Regulation No 1176/2011 on the prevention and correction of macroeconomic imbalances defines a macroeconomic imbalance as ‘any trend giving rise to macroeconomic developments which are adversely affecting, or have the potential to adversely affect, the proper functioning of the economy of a Member State or of the Economic and Monetary Union, or of the Union as a whole’, while excessive imbalances are ‘severe imbalances that jeopardise or risk jeopardising the proper functioning of the Economic and Monetary Union’.
In general, any deviation from a desirable level can be considered as an imbalance. However, not all imbalances are detrimental or require policy interventions as they may be part of an economy's dynamic adjustment. Imbalances that require close monitoring and possibly policy interventions relate to developments that could imply threats to macroeconomic stability. For example, having a large and persistent current account deficit could be considered an imbalance when reflecting an excess of imports over exports related to competitiveness problems.
Information on the legal basis defining the MIP is available on the Eurostat web section.
- To produce and supply the relevant statistics and indicators
- To produce the Statistical Annex (SA) of the Alert Mechanism Report
- To ensure high quality standards for data
- To set up and implement a quality management and monitoring framework for MIP relevant statistics
- To provide methodological support in the framework of MIP relevant statistics
- To contribute to the definition and choice of indicators to support the decisions of the policy-makers
Eurostat produces and disseminates harmonised statistics that comply with high-quality standards. This is guaranteed through a Code of practice applicable to the European Statistical System, a legal framework and a communication on quality of statistics. The macroeconomic statistics underlying the MIP indicators are subject to a specific quality framework: additional information is available on the page on quality in the MIP web section.
Questions on the Alert mechanism report (AMR)
The Alert Mechanism Report (AMR) is the starting point of the yearly cycle of the Macroeconomic Imbalance Procedure (MIP), and identifies the Member States for which further analysis (in the form of an in-depth review) is deemed necessary in order to conclude on the possible existence and the nature of potential imbalances. In this regard, the AMR is an initial screening device, based on a scoreboard of indicators with indicative thresholds, plus a set of auxiliary indicators. The in-depth reviews determine whether imbalances or excessive imbalances exist in the Member States. In the cases when specific monitoring is necessary, the Commission carries it out through regular technical missions and progress reports. The AMR is not a mechanical exercise with an automatic interpretation of the results of scoreboard. It is not because a Member State reports an indicator beyond the indicative threshold that an in-depth review is launched as the Commission considers the complete economic picture and bases its findings on sound economic judgment. The AMRs are published on the European Commission’s website.
The AMR is the first stage in the yearly cycle of the MIP. The AMR analyses all EU Member States except those that are eventually benefiting from official financial assistance (‘programme countries’), since the surveillance of these countries’ imbalances and the monitoring of corrective measures will continue in the context of their economic adjustment programmes.
Questions on the MIP Scoreboard
The MIP's alert mechanism consists of an indicator-based scoreboard complemented by an economic reading presented in an annual Alert Mechanism Report (AMR). The scoreboard consists of a set of fourteen indicators covering the major sources of macroeconomic imbalances. The aim of the scoreboard is to trigger in-depth analysis, which will show whether the potential imbalances identified in the early-warning system are benign or problematic. Data used in the AMR are 'frozen' close to the publication date of the report.
The choice of indicators in the scoreboard focuses on the most relevant dimensions of macroeconomic imbalances and competitiveness losses, with a particular focus on the smooth functioning of the euro area. For this reason, the scoreboard consists of indicators that monitor external imbalances, competitiveness positions, internal imbalances, and labour market.
Given that the scoreboard needs to detect potentially harmful imbalances and competitiveness losses at an early stage of their emergence, a combination of stock and flow indicators able to capture both short-term rapid deteriorations as well as long-term gradual accumulation of imbalances have been chosen. The European Commission has set indicative thresholds for each indicator. The economic reading of the scoreboard indicators implies that there is no automaticity involved and that any other relevant information could be taken into account. For example, overpassing one or more indicative thresholds does not necessarily imply that macroeconomic imbalances are emerging.
The composition of the MIP scoreboard indicators may evolve over time and it is regularly reviewed in the context of LIME working group of the Economic Policy Committee. For more information on the design and technical explanations on the scoreboard, see the DG ECFIN publication: Scoreboard for the surveillance of macroeconomic imbalances (Occasional Paper 92/2012).
The MIP scoreboard includes fourteen headline indicators for the identification and monitoring of external and internal macroeconomic imbalances. Since 2015, three (previously auxiliary) indicators for labour market have been added to the headline MIP scoreboard: the change in activity rate, long-term unemployment rate and youth unemployment rate. The AMR 2016 (page 2) details the rationale behind the choice of these specific indicators, whose main purpose was to complement the information provided by the already existing headline indicator for unemployment rate.
The indicators in the scoreboard allow an early identification of imbalances that emerge over the short term as well as of imbalances that arise due to structural and long-term trends.
Indicative thresholds have been set for each indicator. For the time being the design of the scoreboard is:
External imbalances and competitiveness
- 3 year average of the current account balance as a percentage of GDP, with indicative thresholds of +6% and –4%;
- net international investment position (NIIP) as a percentage of GDP, with an indicative threshold of –35%;
- 5 year percentage change of export market shares measured in values, with an indicative threshold of –6%;
- 3 year percentage change in nominal unit labour cost (NULC), with indicative thresholds of +9% for euro area countries and +12% for non-euro area countries.
- 3 year percentage change in real effective exchange rates (REER) based on HICP deflators, relative to 42 other industrial countries; indicative thresholds of +/–5% for euro area countries and +/–11% for non-euro area countries.
- private sector debt (consolidated) as a percentage of GDP, with an indicative threshold of 133%;
- private sector credit flow (consolidated) as a percentage of GDP, with an indicative threshold of 14%;
- year-on-year percentage change in deflated house prices, with an indicative threshold of 6%;
- public sector debt as a percentage of GDP with an indicative threshold of 60%;
- 3 year average of unemployment rate, with an indicative threshold of 10%;
- year-on-year percentage change in total financial sector liabilities of the financial sector (non-consolidated), with an indicative threshold of 16.5%.
- youth unemployment rate as 3 year change in percentage points (pp), with an indicative threshold of 0.2 pp;
- long-term unemployment rate as 3 year change in pp, with an indicative threshold of 0.5 pp;
- activity rate as 3 year change in pp, with an indicative threshold of –0.2 pp.
For each indicator, alert thresholds have been defined to detect potential imbalances. They have been set at prudent levels, which on one hand avoids excessive numbers of 'false alarms' and on the other are not set so stringently that they only identify problems once they are entrenched. To this end, thresholds have generally been established via a statistical approach based on the distributions of the indicators' values, by identifying the thresholds as the lower and/or upper quartiles of the distributions: such thresholds are generally consistent with the values found in the empirical literature.
For more information on the design and technical explanations on the scoreboard, see the DG ECFIN publication: Scoreboard for the surveillance of macroeconomic imbalances (Occasional Paper 92/2012).
Does the economic reading of the scoreboard take into account only the fourteen scoreboard indicators? What are the auxiliary indicators used for?
In addition to the scoreboard indicators, the economic reading also takes into account a set of complementary additional (auxiliary) indicators, as stipulated in Article 4.4 of Regulation (EU) No 1176/2011 and outlined in the AMR. The auxiliary indicators are useful for the interpretation of the scoreboard indicators, as they allow a better understanding of the macroeconomic risks and help identifying relevant policy measures. However, there are no thresholds set for the auxiliary indicators.
The list of MIP scoreboard and additional indicators was drafted and is regularly reviewed in the context of LIME working group of the Economic Policy Committee. The initial list of auxiliary indicators followed the main categories of imbalances included in the MIP scoreboard: external imbalances and competitiveness, internal imbalances, employment indicators. Since 2013, indicators on social issues, risk of poverty and social exclusion, are also a part of the auxiliary set. In 2018, the set of auxiliary indicators has been modified in order to take advantage of the improved quality of statistics on balance of payments and banking sectors data (notably NPLs - non-performing loans), and to update the scoreboard in such a way as to include variables widely used in the AMR analysis and in countries' in-depth reviews. The indicators that were thus included in the 2019 AMR are:
- NIIP excluding non-defaultable instruments (% of GDP) which is replacing the Net external debt
- Consolidated banking leverage, domestic and foreign entities (asset-to-equity multiple) which is replacing the Financial sector leverage
- Household debt, consolidated (incl. Non-Profit institutions serving households - NPISH, % of GDP)
- Gross non-performing loans, domestic and foreign entities (% of gross loans)
In parallel and in order to keep the scoreboard relevant and parsimonious, two auxiliary indicators (Ten-year change of nominal unit labour cost and Non-consolidated private-sector debt) were dropped out from the Statistical Annex. However, the relevant tables can still be found on the MIP data tree on the Eurostat's website.
The MIP list of scoreboard and auxiliary indicators is published and updated on the Eurostat web section.
Questions on MIP indicators; source data and underlying methodology
- Eurostat MIP dedicated web section – The site presents up-to-date statistics on the scoreboard and auxiliary indicators. The data refer to the EU Member States. The web section provides access to Eurostat source data sets, available legislation, Alert Mechanism Reports, methodology, and quality framework.
- DG ECFIN MIP dedicated web section – The site contains information on the MIP framework and macroeconomic surveillance, legislative acts, Alert Mechanism Reports, In-depth reviews and other key documents.
The headline and auxiliary indicators are disseminated on Eurostat dedicated section. The data published on Eurostat page are regularly updated and may differ from those used for the AMR.
To download data sets from Eurostat dedicated section you have to:
- Open the MIP dedicated section and go to sub-section ‘Scoreboard’
- You have to select:
- ‘MIP indicators’ – for the headline indicators
- ‘MIP auxiliary indicators’ – for the auxiliary indicators
- You have to select a country from the drop down menu
- Select “Download data for country”
Eurostat is the source for the basic data for majority of the headline indicators.
Table 1 — MIP scoreboard indicators
|Indicator||Unit||Thresholds||Data source||Statistical domain|
|External imbalances and competitiveness||Current account balance (% of GDP)||3 year average||–4/6%||Eurostat||BoP/NA|
|Net international investment position||% of GDP||–35%||Eurostat/ECB||BoP/NA|
|Real effective exchange rate||3 year % change||+/–5% (EA) & +/–11%||DG ECFIN|
|Export market shares||5 year % change||–6%||Eurostat/IMF||BoP|
|Nominal unit labour cost (ULC) (2010=100)||1 year % change||9% (EA) & 12%||Eurostat||NA|
|Internal Imbalances||House prices index (2015=100), deflated||1 year % change||6%||Eurostat||Price statistics/NA|
|Private sector credit flow, consolidated||% of GDP||14%||Eurostat||NA (FA)|
|Private sector debt, consolidated||% of GDP||133%||Eurostat||NA (FA)|
|General government sector gross debt (EDP)||% of GDP||60%||Eurostat||GFS|
|Unemployment rate (%)||3 year average||10%||Eurostat||EU-LFS|
|Total financial sector liabilities, non-consolidated||1 year % change||16.5%||Eurostat||NA (FA)|
|Employment indicators||Activity rate - % of total population aged 15-64||3 year change in pp||–0.2 pp||Eurostat||EU-LFS|
|Long-term unemployment rate - % of active population aged 15-74||3 year change in pp||0.5 pp||Eurostat||EU-LFS|
|Youth unemployment rate - % of active population aged 15-24||3 year change in pp||2 pp||Eurostat||EU-LFS|
Note: NA - National Accounts; BoP – Balance of Payments; FA – Financial Accounts; GFS – Government Finance Statistics; EU-LFS – Labour Force Survey/Labour Market Statistics; pp – percentage points
Table 2 — MIP auxiliary indicators
|Indicator||Unit||Data source||Statistical domain|
|Real GDP||1 year % change||Eurostat||NA|
|Gross fixed capital formation||% of GDP||Eurostat||NA|
|Gross domestic expenditure on R&D||% of GDP||Eurostat||Business Statistics/NA|
|Current plus capital account (Net lending-borrowing)||% of GDP||Eurostat||BoP/NA|
|Net international investment position excluding non-defaultable instruments||% of GDP||Eurostat||BoP/ NA|
|Foreign direct investment in the reporting economy – net inward flows||% of GDP||Eurostat||BoP/NA|
|Foreign direct investment in the reporting economy - stocks||% of GDP||Eurostat||BoP/NA|
|Net trade balance of energy products||% of GDP||Eurostat||International Trade/NA|
|Real effective exchange rates – euro area trading partners||3 year % change||DG ECFIN|
|Export performance against advanced economies||5 year % change||Eurostat/OECD||BoP|
|Terms of trade||5 year % change||Eurostat||NA|
|Export market share - in volume||1 year % change||Eurostat /IMF|
|Labour productivity||1 year % change||Eurostat||NA|
|Gross non-performing loans, domestic and foreign entities||% of gross loans||ECB||CBD|
|Unit labour cost performance relative to euro area||10 year % change||DG ECFIN|
|House price index (2015=100) - nominal||3 year % change||Eurostat||Price statistics|
|Residential construction||% of GDP||Eurostat||NA|
|Household debt, consolidated (incl. NPISH)||% of GDP||Eurostat||NA (FA)|
|Consolidated banking leverage||Total asset/ total equity||ECB||CBD|
|Employment||1 year % change||Eurostat||NA|
|Activity rate||% of total population aged 15-64||Eurostat||EU-LFS|
|Long term unemployment rate||% of active population aged 15-74||Eurostat||EU-LFS|
|Youth unemployment rate||% of active population aged 15-24||Eurostat||EU-LFS|
|Young people neither in employment nor in education and training||% of total population aged 15-24||Eurostat||EU-LFS|
|People at risk of poverty or social exclusion||% of total population||Eurostat||EU-SILC|
|People at risk of poverty after social transfers||% of total population||Eurostat||EU-SILC|
|Severely materially deprived people||% of total population||Eurostat||EU-SILC|
|People living in households with very low work intensity||% of total population aged 0-59||Eurostat||EU-SILC|
Note: NA - National Accounts; BoP – Balance of Payments; FA – Financial Accounts; EU-LFS – Labour Force Survey/Labour Market Statistics; EU-SILC – Statistics on Income and Living Conditions.
What is the revision policy applied to the data used for the calculation of the scoreboard indicators?
The latest major data revisions were due to the changes in the underlying statistical methodology - the introduction of ESA 2010 and BPM6.
The revision policies generally vary in the different domains; more information can be found in the metadata files of the MIP indicators.
Information on methodology and methods related to the production on MIP indicators are published in the metadata files, accessible through the ‘M’ icon from the MIP Scoreboard or the MIP data tree. There are metadata files available for each domain of MIP. Metadata are produced in ESMS (Euro-SDMX Metadata Structure) format. For more information, see the methodology section.
Seasonal adjustment of infra-annual time-series or removal of regular seasonal influences is made in order to understand more clearly the economic phenomenon that the indicator is measuring. By filtering out seasonal effects, the resulting series brings into greater focus the long-term trend and business cycle components of the indicator. Seasonally adjusted series may facilitate comparisons over time. MIP indicators are annual, but quarterly information can be used as complementary and it is shown on the MIP website. Further information on seasonal adjustment can be found in the ESS Guidelines on Seasonal Adjustment.
For the calculation of the Nominal unit labour cost (NULC) the number of employees and employed persons is calculated according to the domestic concept used in national accounts. The same applies to the employment figures available as a MIP auxiliary indicator.
The ESA 2010 distinguishes two employment concepts depending on the geographical coverage: resident persons in employment (i.e. the national scope of employment) and employment in resident production units irrespective of the place of residence of the employed person (i.e. domestic scope).
The unit labour cost (ULC) is defined as the ratio of labour costs to labour productivity.
Nominal ULC (NULC) = (D1 / EEM) / (B1GQ / ETO)
D1 = Compensation of employees, all industries, current prices,
EEM = Employees, all industries, in persons,
B1GQ = Gross domestic product at market prices in millions NAC, chain-linked volumes reference year 2010,
ETO = Total employment, all industries, in persons.
The scoreboard indicator is the percentage change over three years of nominal unit labour cost, calculated using the formula: [(ULCt – ULCt-3) / ULCt-3] * 100.
For the purpose of the Excessive Deficit Procedure (EDP) in the Economic and monetary union (EMU), as well as for the Growth and Stability Pact, the current Protocol 12, annexed to the 2012 consolidated version of the Treaty on the Functioning of the European Union, provides a complete definition of government debt: ‘Debt means total gross debt at nominal value outstanding at the end of the year and consolidated between and within the sectors of general government’. This definition is supplemented by Council Regulation (EC) No 479/2009, as amended by the Commission Regulation (EU) No 220/2014 (which has only updated references to ESA 2010 instruments) specifying the components of government debt with reference to the definitions of financial liabilities in ESA2010.
In this context, the stock of government debt in the Excessive Deficit Procedure (EDP debt) is equal to the sum of liabilities, at the end of year, of all units classified within the general government sector (S.13) in the following categories: AF.2 (currency and deposits) + AF.3 (debt securities) + AF.4 (loans).
The MIP headline indicator is calculated as: GGGDt / GDPt * 100.
The data sourcing from the financial national accounts can be presented in consolidated and non-consolidated terms. Consolidation is a method of presenting the accounts for a set of units as if they constituted one single entity (unit, sector, or subsector). It involves eliminating transactions and reciprocal stock positions and associated other economic flows among the units being consolidated. When data are presented in non-consolidated terms, it takes into account transactions within the same sector.
The MIP Scoreboard indicator Total financial corporations sector liabilities is presented in non-consolidated terms, while the Private sector credit flow and Private sector debt are consolidated.
GDP is used as a denominator for the calculation of some of the headline and auxiliary indicators. The variable used is GDP at market prices, sourcing from the National accounts (the source data table is nama_10_gdp). The headline indicators using GDP or other data from the national accounts as a denominator or as a basis for compilation of the indicator are:
- Current account balance;
- Net international investment position;
- Nominal unit labour cost;
- Private sector credit flow (consolidated);
- Private sector debt (consolidated);
- Financial sector corporations liabilities (non-consolidated);
- General government gross debt;
- House price index (for this indicator, the deflator is retrieved from nama_10_gdp and corresponds to the private consumption expenditure. It consists of expenditure incurred for the direct satisfaction of individual or collective needs by private households or non-profit institutions serving households (such as religious societies, sports and other clubs, political parties, etc.).
The European System of National and Regional Accounts (ESA) sets down the harmonised methodology that must be used for the production of national accounts data in the EU. It is crucial to have such a methodological rulebook in the EU, in order to ensure that statistics on Member States' economies are compiled in a consistent, comparable, reliable and up-to-date way. ESA 2010 is the most recent internationally compatible EU accounting framework for a systematic and detailed description of an economy. The ESA 2010 was published in the Official Journal on 26 June 2013 and it was implemented in September 2014.
The ESA 2010 differs in scope as well as in concepts from its predecessor ESA 95 reflecting developments in measuring modern economies, advances in methodological research and the needs of users. The structure of the ESA 2010 is consistent with the worldwide guidelines on national accounting set out in the System of National Accounts 2008 (2008 SNA). In order to support the application manuals and handbooks were published by Eurostat.
The Balance of Payments (BoP) is a statistical statement that systematically summarises, over a given period of time, all the transactions of an economy with the rest of the world. The balance of payments records all economic transactions undertaken between the residents and non-residents of a country during a given period. A transaction is defined as an economic flow that reflects the creation, transformation, exchange, transfer, or extinction of economic value and involves changes in ownership of goods and/or financial assets, the provision of services, or the provision of labour and capital. If a country has received money, this is known as a credit, and if a country has paid or given money, the transaction is counted as a debit.
In accounting terms, the BOP is always zero, meaning that credits and debits balance. However, there might be imbalances of the individual accounts of the BOP. Thus, the BOP can tell the observer if a country has a deficit or a surplus on the individual accounts and from which part of the economy the imbalances are stemming.
The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction.
The sixth edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6) provides guidance on the recording of cross-border transactions and positions according to a set of internationally agreed guidelines, and provides greater clarity and details on an expanded range of international activities. The BPM6 takes into account globalization (for example, currency unions, cross-border production processes, complex international company structures, and issues associated with labor mobility, such as remittances) and builds on the growing interest in examining vulnerability using balance sheet data (for example, greater elaboration of balance sheet components). The BPM6 makes the international investment position (IIP) more central to the framework than its previous version, BPM5. It contains increased and updated guidance on new financial instruments and financial activities linked to innovation. The full range of changes may be found on the IMF website, see Appendix 8. Changes from BPM5.
For more information see:
Broad policy framework
The Alert Mechanism Report (AMR) is the starting point of the annual cycle of the Macroeconomic Imbalance Procedure (MIP). The AMR identifies the Member States for which further analysis (in the form of an in-depth review) is necessary in order to decide whether an imbalance in need of policy action exists.
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 Commission publishes a single analytical economic assessment (in-depth reviews (IDRs)) per Member State. The purpose of the IDRs is to assess whether imbalances and excessive imbalances exist in the Member States identified in the AMR. Since 2015, the IDRs are published as a part of the respective Country Reports. The IDRs do not automatically lead to a recommendation or the identification of imbalances. The Commission's analysis could result in one of three different scenarios shown by the graph below.
If, on the basis of an in-depth review, 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 concerned Member State(s). 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 jeopardize 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.
Under the MIP, the Commission may carry out ‘specific monitoring’ on implementation of reforms. As part of this ‘specific monitoring,’ the Commission conducts additional technical missions to the Member States and reports to the ECOFIN Council. There are typically two such exercises per year, one in the autumn and one in the winter. The reports are made public after the Council process is over. For more information see the web page on EU economic governance - monitoring, prevention, correction.
The Alert Mechanism Report (AMR) identifies the Member States for which further analysis (in the form of an in-depth review) is necessary in order to decide whether an imbalance in need of policy action exists. The Commission publishes a single analytical economic assessment per Member State analysing their economic situation, their reform agendas and whenever deemed relevant on the basis of the AMR, possible imbalances faced by the Member State.
The in-depth reviews look particularly at external financial sustainability; the drivers of external competitiveness; developments related to the deleveraging of private sector balance sheets; private and public indebtedness; housing and mortgage market developments; and financial sector stability. In-depth reviews encompass a thorough analysis of sources of imbalances in the Member State under review, taking into account country-specific economic conditions. They consider a wide set of available data and other relevant information. The IDRs also take account of the euro area dimension of macroeconomic imbalances and possible policy challenges for the euro area as a whole.
It is only on the basis of the country reports that the Commission concludes whether imbalances ̶ and potentially excessive imbalances ̶ exist and put forward the appropriate policy recommendations. Since 2015 the IDRs are published as a part of the respective Country Reports.
The reports are feeding into the analysis underpinning next year’s country-specific recommendations under the 'European Semester' of economic policy coordination. The in-depth reviews and progress reports are published here.
There are no fines or sanctions foreseen under the preventive arm of the MIP. As regards the corrective arm, i.e. if an Excessive Imbalance Procedure is launched, the situation is different: in this case financial sanctions (up to 0.1% of GDP) are foreseen for euro area Member States if they repeatedly fail to deliver a sufficient corrective action plan or to take agreed action. It is important to note that it is the failure to take adequate measures that could be sanctioned, not the fact that the imbalance has not disappeared.
The European Semester is a policy coordination tool, developed to ensure stronger economic governance and better policy coordination at the EU level. The rules have been introduced through the Six Pack Regulation, the Two Pack Regulation and the Treaty on Stability, Coordination and Governance.
The European Semester was introduced in 2010 and it ensures that Member States discuss their budgetary and economic plans with their EU partners at specific times throughout the year. This allows them to comment on each other's plans and enables the Commission to give policy guidance well in advance, before decisions are made at national level.
The European Semester has a clear timeline. Each policy cycle starts in November with the Commission's Annual Sustainable Growth Strategy (where the general economic priorities for the EU are defined and policy guidance for the following year is provided) and the Alert Mechanism Report.
For more information see the European Commission's page.
The implementation of the MIP is embedded in the European Semester, with the aim of ensuring consistency with other economic surveillance tools. The Annual Sustainable Growth Strategy, which appears at the same time as the AMR, elaborates on the interlinkages between the correction of macroeconomic imbalances under the MIP, and the urgent challenges of promoting growth, fighting unemployment, ensuring sustainable fiscal policies and restoring lending.
In general, the risks are higher for current account deficits than for current account surpluses because the former raise concerns about the sustainability of the external debt of a country. However, this does not mean that surpluses cannot be the result of inefficiencies or constitute an imbalance, especially when they are large. Surveillance under the MIP covers both current account deficits and current account surpluses, as reflected in the thresholds. The asymmetry in the thresholds reflects the fact that the risks related to deficits are higher, as the threshold is –4% of GDP for current account deficits and 6% of GDP for surpluses.