Macroeconomic surveillance

Over the past decade, the EU has experienced major macroeconomic imbalances (which emphasised the negative effects of the financial crisis that began in 2008) and serious divergences in competitiveness (which prevented the effective use of common monetary policy measures). In 2011 the Macroeconomic Imbalance Procedure (MIP) was set up – a surveillance and enforcement procedure aimed at facilitating early identification and correction of such imbalances in Member States, paying specific attention to those imbalances with potential spill-over effects on other Member States.

Legal basis

  • Article 3 of the Treaty on European Union (TEU);
  • Articles 119, 121 and 136 of the Treaty on the Functioning of the European Union (TFEU).

Objectives

The Macroeconomic Imbalance Procedure (MIP) is a surveillance and enforcement mechanism that aims to prevent and correct macroeconomic imbalances within the EU. The surveillance undertaken is part of the European Semester for economic coordination (4.1.4).

This surveillance relies on:

  1. An Alert Mechanism Report (AMR), which is prepared by the Commission and is based on a scoreboard of indicators and thresholds. The scoreboard indicators refer to external imbalances (current accounts, net international investment position, real effective exchange rate, changes in export shares, unit labour cost) and internal imbalances (house prices, private sector credit flow, private sector debt, public debt, unemployment rate and changes in financial sector liabilities, as well as other indicators relating to employment and unemployment). Each indicator is associated with a threshold which signals that a specific problem might arise; some thresholds are differentiated for euro-area and non-euro-area Member States. If a Member State exceeds several thresholds, the Commission performs an in-depth review, i.e. further economic analysis aimed at determining whether macroeconomic imbalances are likely to emerge, or already exist, and whether existing imbalances have been corrected;
  2. Preventive recommendations. If, on the basis of the outcomes of the in-depth review, the Commission finds that macroeconomic imbalances exist, it must inform Parliament, the Council and the Eurogroup. The Council, on a recommendation from the Commission, may address the necessary recommendations to the Member State concerned, in accordance with the procedure set out in Article 121(2) of the TFEU. These preventive MIP recommendations form part of the country-specific recommendations addressed to each Member State in July each year by the Council as part of the European Semester;
  3. Corrective recommendations within the Excessive Imbalance Procedure (EIP). If, on the basis of the in-depth review, the Commission finds that the Member State concerned is affected by excessive imbalances, it must inform Parliament, the Council, the Eurogroup, the relevant European Supervisory Authorities and the European Systemic Risk Board (ESRB). The Council, on a recommendation from the Commission, may, in accordance with Article 121(4) of the TFEU, adopt a recommendation establishing the existence of an excessive imbalance and recommending that the Member State concerned take corrective action. The Council’s recommendation must set out the nature and implications of the imbalances and specify a set of policy recommendations to be followed and a deadline within which the Member State concerned must submit a corrective action plan;
  4. Corrective action plans. The Member State for which an EIP is opened must submit a corrective action plan within a deadline to be specified in the Council’s recommendation. The Council, on the basis of a Commission report, must assess the corrective action plan within two months of its submission;
  5. Assessment of corrective action. On the basis of a Commission report, the Council must assess whether the Member State concerned has taken the recommended corrective action. Where it considers that the Member State has not taken such action, the Council, on a recommendation from the Commission, must adopt a decision (based on reverse qualified majority voting (QMV)) establishing non-compliance, together with a recommendation setting new deadlines for taking corrective action. In this case, the Council must inform the European Council;
  6. Potential financial sanctions. Euro-area Member States that do not follow up on recommendations made under the EIP may be subject to gradual sanctions, ranging from an interest-bearing deposit to annual fines. The interest-bearing deposit or fine should amount to 0.1% of national GDP.

Achievements

Since the MIP inception in 2012, the number of Member States:

  • subject to an in-depth-review increased from 12 to 19 between 2012 and 2016, but declined to 13 in 2017;
  • considered as experiencing imbalances rose from 12 to 16 between 2012 and 2015, but fell back down to 12 in 2017;
  • considered as experiencing excessive imbalances increased from 0 to 6 between 2012 and 2017.

The Commission has not yet proposed launching the Excessive Imbalance Procedure, despite the Council and the European Central Bank having called for the procedure to be used to its full potential, with the corrective arm applied where appropriate.

All countries with imbalances are subject to specific monitoring, which is tighter for countries with excessive imbalances and involves dialogues with the national authorities, expert missions and regular progress reports. This should also help monitor the implementation of the country-specific recommendations in the Member States concerned.

In 2017, and based on the in-depth-reviews, the Commission concluded that:

  • 6 Member States have ‘excessive macroeconomic imbalances’: Bulgaria, France, Croatia, Italy, Portugal, and Cyprus;
  • 6 Member States have ‘macroeconomic imbalances’: Germany, Ireland, Spain, the Netherlands, Slovenia and Sweden;
  • 15 Member States are at risk of ‘macroeconomic imbalances’: Belgium, the Czech Republic, Denmark, Estonia, Latvia, Lithuania, Luxembourg, Hungary, Malta, Austria, Poland, Romania, Slovakia, Finland and the United Kingdom;
  • 1 Member State, Greece, is under surveillance in the context of a macroeconomic adjustment programme.

Role of the European Parliament

With the entry into force of the Treaty of Lisbon, Parliament has become a co-legislator in setting rules for multilateral surveillance (Article 121(6) of the TFEU).

The legislative acts relating to macroeconomic surveillance establish the Economic Dialogue. In order to enhance the dialogue between the institutions of the Union — in particular Parliament, the Council and the Commission — and to ensure greater transparency and accountability, the competent committee of Parliament may invite the President of the Council, the Commission, the President of the European Council and/or the President of the Eurogroup to discuss their decisions or present their activities within the European Semester. As part of this dialogue, Parliament may also provide an opportunity to participate in an exchange of views with a Member State which is the subject of a Council recommendation under the EIP.

In late autumn, Parliament expresses its opinion on the ongoing European Semester cycle (including the country-specific recommendations adopted by the Council), also taking into account the outcome of a joint meeting with representatives of the competent committees of national parliaments.

Under the MIP, the Commission cooperates with Parliament and the Council in defining the set of macroeconomic indicators to be included in the scoreboard used for monitoring possible macroeconomic imbalances in the Member States.

Parliament promotes the involvement of national parliaments through annual meetings with members of the relevant committees of those parliaments. Furthermore, and in line with the legal and political arrangements of each Member State, the national parliaments should be duly involved in the European Semester and in the preparation of stability programmes, convergence programmes and national reform programmes, in order to increase the transparency and ownership of, and accountability for, the decisions taken.

Alice Zoppè

07/2017