The Macroeconomic Imbalance Procedure at the Heart of EU Economic Governance Reform

Andrew Watt,Willi Koll

doi:10.1007/s10272-022-1028-7

Abstract

While the euro officially came into being in 1999, it was the introduction of euro notes and coins 20 years ago in January 2002 that made the common currency a tangible reality for European citizens. The circle of member states has since grown from 11 to 19, and a growing section of the population no longer has any personal experience with a “national” currency, yet the debate on the legal and institutional framework underpinning the common currency has never gone away.

Highlights

Substantial reforms were introduced in the wake of the neardeath experience of the euro crisis
Taking its cue from the Stability and Growth Pact (SGP), under the Macroeconomic Imbalance Procedure (MIP) a member state with imbalances is subject to surveillance under a preventive arm and, eventually, the Excessive Imbalance Procedure (EIP), as a corrective arm, which in the case of euro area members can lead to sanctions
The MIP follows a country-by-country approach that pays too little attention to defining an overall macroeconomic policy stance for the euro area, and clearly identifying the role to be played by different member states within that overall frame (European Commission, 2020, 18; European Parliament, 2021, §50; Bénassy-Quéré and Wolff 2020, 11)

Summary

Willi Koll and Andrew Watt

The Macroeconomic Imbalance Procedure at the Heart of EU Economic Governance Reform. The European Commission had launched an economic governance review process at the start of 2020, but this was swept aside by the pandemic. A number of important new initiatives were taken, e.g. the Green Deal, the European Instrument for Temporary Support to Mitigate Unemployment Risks in an Emergency (SURE) programme, the pandemic emergency purchase programme (PEPP), and the Recovery and Resilience Facility (Watt, 2020; Watzka and Watt, 2020). “the correction of macroeconomic imbalances has been interrupted and new vulnerabilities are emerging, highlighting the importance of preventing and addressing risks and divergences in a timely way” (European Commission, 2021, 9). In this article we focus on an underdiscussed, but, we argue, crucial aspect of the economic governance framework and its necessary reform: the “macroeconomic imbalances” between member states. Much more so than sticking to (arbitrary) targets for government deficits and debts

The Macroeconomic Imbalance Procedure

Strengthening and reforming the MIP process

Relationship between reform of fiscal rules and of MIP

Conclusion