The Macroeconomic Imbalance Procedure (MIP) is a set of European Union regulations designed to prevent and correct risky macroeconomic developments within EU member states, such as high current account deficits, unsustainable external indebtedness and housing bubbles. It was introduced by the EU in autumn 2011 amidst the economic and financial crisis, and entered into force on 13 December 2011. The MIP is part of the EU's "Sixpack" legislation, which aims to reinforce the monitoring and surveillance of macroeconomic policies in the EU and the euro area.
Procedure The first step of each yearly round of the MIP is the Alert Mechanism Report prepared by the European Commission. Based on a scoreboard of indicators, which are not interpreted mechanically, the Commission identifies the countries and issues which require In-Depth Reviews for further economic analysis. The Commission also takes into account relevant data beyond the scope of the scoreboard, when selecting countries for in-depth reviews. Based on these in-depth reviews, the Commission determines if imbalances exist; what the nature of the imbalances is; and judges whether they are persistent, aggravating or unwinding. Depending on the severity of the imbalances the Commission proposes a policy recommendation under either the 'preventive arm' or the 'corrective arm' of the MIP.
In the case of countries where an imbalance exists, but is not of an excessive nature, the follow-up to the in-depth review will take place under the preventive arm of the MIP. It is embedded in the European Semester (the EU's yearly cycle of economic policy coordination). This means that the MIP-relevant recommendation will be integrated in the package of proposals for Country-Specific Recommendations, which aim to provide guidance for national policy making.
If the Commission in their In-Depth Review find existence of an excessive imbalance, this might subsequently trigger an Excessive Imbalance Procedure (EIP) under the corrective arm of the MIP. The Commission's decision will be taken in the context of the additional analysis of the "National Reform Programme" and "Stability/Convergence Programme" submitted in April. If the Commission on this basis find the excessive imbalance soon will be mitigated by implementation of effective counter measures, they will refrain to open up an EIP, but the state will still be subject to "a specific and close monitoring of policy implementation" by a separate status report issued a half year later, which will conduct a real-time assessment of implemented action and establish peer pressure towards ensuring the promised reform action is taken by the Member State in concern. On the other hand, if an excessive imbalance that jeopardises the proper functioning of the Economic and Monetary Union is still found to exist by the end of the European Semester, not being properly rectified by the submitted programmes, the Commission will then (upon the same time of its publication of Country-Specific Recommendations) forward a special procedural recommendation to the Council for opening up an EIP. If the Council at its subsequent meeting decides to follow the Commission's recommendation to open up an EIP, the member state concerned will then have to submit a "corrective action plan" to the Council and Commission within a short notice, featuring a detailed roadmap for all specific policy actions with specific deadlines for implementing adequate measures satisfying the received Council recommendation. Surveillance will subsequently be stepped up by the Commission through regular progress reports drawn up by the member state concerned. The enforcement of the Excessive Imbalance Procedure is backed by sanctions for euro area member states (up to 0.1% of GDP), if they repeatedly fail to take agreed action or to deliver a sufficient "corrective action plan".
Since the entry into force of the EIP regulation on 13 December 2011, the Council however never has launched any Excessive Imbalance Procedure. Two main reasons exist for no launched EIP's. The first reason, was that all of the seven states identified to have excessive imbalance through 2013–15, succeeded to present sufficient counter measures when submitting their next year reform programme. The second reason, was that the most fragile and imbalanced "Programme countries" at the height of their imbalances received macroeconomic financial support from EFSM/EFSF/ESM/IMF or the EU Balance of Payments Programme, and thus were not covered at all by the Macroeconomic Imbalance Procedure and the Excessive Imbalance Procedure (instead being tightly monitored by their macroeconomic financial assistance programme). In 2013 the list of "Programme countries" included: Cyprus, Greece, Ireland, Portugal and Romania. In comparison, Spain was not considered to be a "Programme country" in 2013, due to only receiving financial assistance for bank recapitalizations and not any macroeconomic financial assistance.
Implementation The Macroeconomic Imbalance Procedure was triggered the first time with the publication of the Alert Mechanism Report in February 2012. Based on the analysis in the report, the European Commission carried out in-depth reviews for twelve EU member states. The countries included were: Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Hungary, Slovenia, Spain, Sweden and the United Kingdom. The analysis confirmed that these EU member states faced macroeconomic imbalances of different nature. But none were considered excessive, therefore no Excessive Imbalance Procedure was launched. The 'preventive arm' of the MIP was however activated, with the recommended policy responses to the imbalances being integrated in the set of Country-Specific Recommendations addressed to member states under the European Semester. These recommendations were endorsed by the European Council in June and subsequently adopted by the Council of Ministers in July 2012.
On 28 November 2012 the second Alert Mechanism Report was published. Based on the report, the Commission decided to review the progress in all of the twelve member states initially reviewed in 2012. They were therefore all selected again for an In-Depth Review. In addition, the Commission also started in-depth reviews for Malta and the Netherlands. On 10 April 2013, the Commission published the in-depth reviews and concluded that excessive imbalances exist in Spain and Slovenia. At its meeting on 14 May 2013, the Council of the European Union however stated that the European Commission should first review the national reform programmes of these countries, and on this basis it would then be assessed whether additional policy measures were necessary. The Slovenian Prime Minister stated on 23 May: On 29 May 2013, after the national reform programmes of Spain and Slovenia had been reviewed, the Commission found those programmes to be sufficient; and thus refrained from launching an Excessive Imbalance Procedure towards Spain and Slovenia.
In the third Alert Mechanism Report published in November 2013, the Commission announced a new round of in-depth reviews for the countries already under scrutiny, but widened these reviews to Germany, Croatia, and Luxembourg, as well as to Ireland immediately after exit from its assistance programme. In March 2014, the Commission concluded that it found no imbalances in Denmark, Malta and Luxembourg, while the remaining countries were experiencing imbalances. Imbalances in Spain were not considered excessive any more. Imbalances in Italy, Croatia, and Slovenia were however experienced as excessive, with decisions to be taken in June 2014 on subsequent steps under the MIP – meaning those three countries are in risk of facing the opening up of EIP's. The joint decision by the Commission and Council whether or not to open up EIP's, will be taken in conjunction with the publication of the Country-Specific Recommendations in the context of the European Semester. On 2 June 2014 the Commission announced for the three countries identified with excessive imbalance: "we have found that their national reform programmes appropriately address the main challenges we identified in March. That's why we are not proposing to launch the Excessive Imbalances Procedure for these three Member States. We will however monitor very closely the implementation of today’s detailed "Country Specific Recommendations", so as to provide the same support for the reform process in these countries, as we have over the past year for Spain and Slovenia, where progress has been very encouraging".