The current economic and financial crisis can be explained partly by economic imbalances between Member States and within the private sector. To prevent and correct those imbalances at an earlier stage, Parliament proposes a new early warning mechanism as part of the package on economic governance. We asked some MEPs to explain further.
Why does it matter if member states' economies differ?
"Given that we share the same currency, if we end up in a situation in which we have social imbalances in one country, it will impact everyone's economy," Belgian Green Philippe Lamberts said.
Greek GUE/NGL member Nikolaos Chountis notes "when you are a member of an economic and monetary union, which faces huge structural problems, every macroeconomic imbalance (either surplus or deficit), implies extreme socioeconomic inequalities. For example it is employees in the peripheral countries, who are affected by the austerity measures, and workers in Germany, who have had to deal, for decades now, with salary stagnation."
But are those imbalances to blame for the current crisis in the euro-zone?
"No single factor can be seen as the cause for the crisis, but the macroeconomic imbalances in member states have contributed to the poor state of public finances in certain countries," according to Carl Haglund, who drafted the report on enforcement measures to correct excessive macroeconomic imbalances in the euro area. "For example, Portugal has struggled with low competitiveness for years and this has contributed to the situation the country is in today. In other countries the roots of the problems can be found in irresponsible lending and unsustainable public finances."
"The crisis results from many factors: housing bubbles in Ireland and Spain; divergences in productivity, for example between Germany and Greece. Labour costs are just a small part of the picture but played a big role for the Germany’s surpluses," said Mr Lamberts.
"Constant monitoring of different indicators of macroeconomic development in the member states, such as house prices, export trends, public and private debt levels would be helpful," said Italian Christian Democrat Herbert Dorfmann. "We will be able to see if something is going wrong."
Mr Haglund sees the surveillance framework "as a tool for the future, aiming at reversing problematic trends before they lead to great economic difficulties. Rightly-targeted measures can prevent imbalances or reverse unsustainable trends."
Elisa Ferreira, who is guiding the report on the prevention and correction of macroeconomic imbalances through the EP, said, "When the Commission assesses a country's performance it must take into account social factors such as the level of unemployment and investment in education."
"Requiring member states to address their macroeconomic imbalances is not about imposing measures that hurt countries or their citizens and punishing those already under a lot of pressure," said Mr Haglund. "It is more harmful if excessive macroeconomic imbalances are not dealt with, as they can have a drastic effect on the economy as a whole."
What about countries with big surpluses like Finland or Germany?
Countries with current account surpluses must also be included in the checks on economic stresses between countries, Ms Ferreira said. "These countries need to be closely monitored because their surpluses often reflect weaknesses in domestic demand."
Mr Lamberts said, "we can prevent such imbalances by making sure that productivity and development fall more into line between member states, but also in the way wages and power are distributed. In Germany, the price of labour has been kept artificially low. Much of the surplus has been produced at the expense of workers."
"We have to recognise that we are collectively responsible, in different ways, to different extents, but no one can claim to be perfect and say that it is all someone else's fault," he added.