The surveillance of macroeconomic imbalances in the euro area

In the first decade of the euroís existence, many euro-area countries witnessed a build-up of macroeconomic imbalances. These vulnerabilities proved to be highly damaging once the financial crisis set in. The ongoing unwinding of the accumulated macroeconomic imbalances is a protracted process and the adjustment is proving to be particularly painful in terms of growth and employment. Against this background, the recently adopted Macroeconomic Imbalance Procedure (MIP) broadens the EU economic governance framework to include the surveillance of unsustainable macroeconomic trends. The aim of the MIP is to identify potential risks early on, prevent the emergence of harmful imbalances and correct the excessive imbalances that are already in place. It has a broad scope and encompasses both external imbalances (including competitiveness trends) and internal imbalances. While the design of the MIP builds on experience gained from the recent crisis, it is flexible enough to take on board new trends and developments as potential future crises may have different origins. Its objective is to ensure that appropriate policy responses are adopted in Member States in a timely manner to address the pressing issues raised by macroeconomic imbalances. In doing so, the MIP relies on a graduated approach that reflects the gravity of imbalances and can eventually lead to the imposition of sanctions on euro-area members should they repeatedly fail to meet their obligations. Implementation of the MIP started with the Commission publishing in February its first Alert Mechanism Report, which identifies a group of Member States for which more in-depth analysis is warranted. Following the completion of these indepth reviews, policy guidance will be issued where appropriate and further steps decided.