Macroeconomic Imbalance Procedure: Well-designed but not implemented effectively - Main contents

The European Commission is not implementing the Macroeconomic Imbalance Procedure (MIP) in a way which ensures effective prevention and correction of imbalances, according to a new report from the European Court of Auditors i. The auditors conclude that the MIP is generally well-designed and based on good-quality analysis. But at some important stages, the process is political rather than technical.

Country-specific recommendations issued by the Commission are a key tool to address macroeconomic imbalances. However, very few of these have been substantially implemented, say the auditors. Although their implementation is the responsibility of Member States, there are several weaknesses in the way the Commission formulates them that also contribute to this lack of implementation.

The recommendations do not stem from identified imbalances and analysis of possible policy options to reduce these within a reasonable timeframe, say the auditors. Instead, various reforms stemming from the Europe 2020 agenda are identified as relevant to reducing imbalances. As a result, some recommendations are related to macroeconomic imbalances only vaguely, if at all. This makes it harder to get public support in Member States for remedial action. In addition, MIP recommendations do not consider fiscal policy despite its relevance to external imbalances and competitiveness.

The auditors note that the Commission has never recommended activating the excessive imbalance procedure, a strict system of monitoring that includes the option of sanctions for euro-area Member States. This is despite several Member States having been identified with excessive imbalances over a prolonged period.

“The systematic non-activation of the excessive imbalance procedure (EIP) has reduced the credibility and effectiveness of the MIP” said Neven Mates, the Member of the European Court of Auditors responsible for the report. “During our audit, the Commission produced little evidence which would explain why the College did not propose the activation of an EIP.”