Macroeconomic Imbalances Procedure: has it worked in practice to improve the resilience of the euro area?

Abstract:

The main aim of the paper is to assess the contribution of the Macroeconomic Imbalance Procedure (MIP) to its original objectives. It analyses whether the European Union and the Euro Area are today better equipped to identify and prevent unsustainable macroeconomic developments in the future. It provides an overview of how the MIP has worked in practice. It presents some stylised trends in macro variables and how the procedure tracks them. It provides a counterfactual exercise on how the procedure would have helped to address the underlying problems in those Member States that required financial assistance during the financial and economic crisis. The main policy recommendations of the study are that some re-tooling of the MIP is necessary and that increasing its ownership at the national level is essential.