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Brussels, 28 November 2012
Alert Mechanism Report: Underpinning macroeconomic adjustment in the EU
The European Commission today kicks off the second annual cycle of the Macroeconomic Imbalance Procedure (MIP) 2013 with the publication of the Alert Mechanism Report (AMR). The report calls for in-depth reviews of developments related to the accumulation and unwinding of macroeconomic imbalances in 14 EU Member States: Belgium, Bulgaria, Denmark, Spain, France, Italy, Cyprus, Hungary, Malta, the Netherlands, Slovenia, Finland, Sweden and the United Kingdom.
Olli Rehn, Vice-President for Economic and Monetary Affairs and the Euro, said: "The EU is going through a difficult process of unwinding macroeconomic imbalances that built up in the decade before the crisis. A lot has already been done and reforms are bearing fruit. But the rebalancing process is far from complete and will shape the economic landscape for several years to come. Through the Macroeconomic Imbalance Procedure, the Commission provides guidance to Member States to ensure the adoption of adequate policies to tackle imbalances and lay the foundation for sustainable growth and job creation."
The analysis in the AMR is based on a scoreboard of eleven macroeconomic indicators that focus on developments in competitiveness, indebtedness, asset prices, adjustment and interlinkages with the financial sector. Using this scoreboard as a starting point, the Commission assesses the macroeconomic situation by drawing on additional information and indicators and taking due account of country-specific circumstances. In the AMR, the Commission identifies Member States whose macroeconomic situation needs further scrutiny through an in-depth review, the outcome of which is not pre-judged. Only after the in-depth reviews next spring will the Commission conclude whether imbalances or excessive imbalances exist, and propose appropriate policy recommendations.
The AMR presents evidence that the adjustment of macroeconomic imbalances is progressing. Current account deficits are narrowing in the countries with the largest external imbalances, supported by gradually improving export performance and competitiveness gains, and the correction in the housing market is on-going. However, this process of rebalancing, which is a prerequisite for sustainable growth in the long run, still has a long way to go. In the short term it will continue to weigh on growth and employment in several countries. The adjustment underway contains both cyclical and structural elements, though the structural correction appears to predominate in most countries. In parallel with the adjustment in Member States with large current accounts deficits, the external balances of several Member States in surplus have been declining, albeit at a slower pace. The increasing weight of domestic demand in the economic activity of the surplus countries and relatively dynamic wage increases suggest that the contribution of surplus countries to rebalancing might grow in the coming years.
The 14 Member States for which the Commission will initiate an in-depth review face different challenges and potential risks. For twelve of them, an in-depth analysis was already carried out in the MIP 2012, and imbalances – of different nature and severity – were found to exist. These countries received policy guidance through the country-specific recommendations under the European Semester (MEMO/12/388) in May. The Commission considers that it is useful to take a closer look again at the risks involved and progress underway in unwinding imbalances in these Member States. In the case of Malta and the Netherlands, it will be the first time that an in-depth review under the MIP is carried out.
Countries which are subject to surveillance under economic adjustment programmes supported by official financing are not assessed in the AMR. This concerns Ireland, Greece, Portugal and Romania. This approach avoids duplication of procedures and reporting obligations and is consistent with what is foreseen in the Commission's so-called "two-pack" proposal, which focuses on surveillance mechanisms in the euro area. Spain is discussed in the AMR, as the official financing being provided is specific for the recapitalisation of banks. Cyprus and Hungary are also discussed as negotiations for financial assistance have not yet been concluded.
The conclusions of the Alert Mechanism Report will be discussed in the Eurogroup and ECOFIN Council. The Commission is also transmitting the report to the European Parliament.
The country-specific in-depth reviews will be prepared by the Commission and are expected to be published in the spring in the context of the European Semester.
The Macroeconomic Imbalance Procedure was introduced with the so-called "six-pack" legislation that entered into force on 13 December 2011 (MEMO/11/898) with the aim of strengthening fiscal and macroeconomic surveillance in the EU. Surveillance under the MIP forms part of the "European Semester", which ensures integrated and forward-looking EU economic policy coordination.
The MIP has a preventive and a corrective arm. The preventive arm allows the Commission and the Council to adopt recommendations at an early stage before imbalances become excessive. In more serious cases, the corrective arm applies and triggers an Excessive Imbalance Procedure. In order to ensure the enforcement of the latter, financial sanctions can be imposed on euro area Member States.
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