The Macroeconomic Imbalances Procedure - brief overview

1. The Macroeconomic Imbalances Procedure- brief overview ESTP Course Luxembourg 9-11 December 2014 Kirsten Wentzel & Dario Buono, MIP TF

2. Outline • Policy context • Scoreboard: Application and Indicators • Data sources and role of Eurostat • Dissemination issues and statistical challenges • 2014 Statistical Annex to the Alert Mechanism Report (AMR) – flashing indicators • 2014 In-Depth Reviews (IDR)

3. Policy context: The economic, financial and sovereign debt crisis EU policy initiatives: Six-Pack Regulation: enhanced economic policy coordination and surveillance, including MIP MIP: surveillance mechanism - part of European Semester - preventive and corrective arm

5. Macroeconomic Imbalances Procedure (MIP) • Scoreboard of relevant macro-economic and macro-financial indicators • currently 11 headline indicators • neither policy targets nor policy instruments • supplemented by economic judgment and country specific expertise • thresholds defined by the Commission • may evolve over time • annual exercise - results published in the Alert Mechanism Report (AMR)

6. Macroeconomic Imbalances Procedure Alert Mechanism Report (AMR) • starting point of MIP • Initial screening device • identifies countries for in-depth reviews • MIP scoreboard + economicreading

7. Macroeconomic Imbalances Procedure In-depth reviews (IDRS) • the Commission determines if imbalances exist • Not excessive: country-specific recommendations (preventive arm) • Excessive: Member State prepares a 'corrective action' roadmapIf failure to comply: sanctions • Programme countries not covered but under tight surveillance

8. MIP Headline Indicators Scoreboard Internal Imbalances • House price developments • Private sector credit flow • Private sector debt • General government debt • Unemployment rate + • Total financial sector liabilities (since second exercise) External Imbalances • Balance of Payments • Current account • Net international investment • Competitiveness • Real effective exchange rate (REER) • Share of world exports • Nominal unit labour cost

10. Data sources • Main providers: National Statistical Institutes and Eurostat • some BoP indicators co-produced by National Central Banks and the European Central Bank • REER indicators compiled by DG ECFIN • figure for global exports provided by the International Monetary Fund

11. The role of Eurostat • Ensure statistical support for the MIP • Produce and supply the relevant statistical data • Ensure high quality of data • Set up and implement a quality and monitoring framework for MIP relevant statistics • Provide methodological support in the process of choice and definition of indicators • Foster harmonisation and documentation of production processes

13. Statistical challenges • Comparability, Reliability, Consistency • Inventories and quality reports • Data for the last 10 years • Backward data calculation • Estimates (currentyear) • In 2014 • - ESA 2010 • - BPM6

14. The Statistical Annex 2014 • 11 headline indicators + • 28 auxiliary indicators (8 social indicators) -Activity rate - Long-term unemployment rate - Youth unemployment rate - % of young people not in employment, education or training - people at risk of poverty or social exclusion - At risk of poverty rate - Severely materially deprived people - People living in households with very low work intensity

15. 2013 scoreboard– flashing indicators

16. Number of flashing Indicators • All Member States: Min. one indicator beyond the thresholds • maximum number of flashing indicators: 6 out of 11 • For RO, under financial assistance programme, only 2 indicators are flashing: CA and NIIP • Some indicators not flashing: HPI yoy, private sector credit flow, total financial sector liabilities yoy

17. IDRs 2014 – countries overview • Covering 17 countries • Excessive Imbalances: HR, IT, Sl • Imbalances for 11 out of 17 • No imbalances : DK, MT, LU • Specific monitoring of policy implementation for: HR, IT, Sl and IE, ES and FR • SGP: for FR and SI risk of non-compliance with 2014 budgetary target

18. IDRs 2015 – countries overview • AMR 2015: 16 countries will be subject to IDRs • Follow-up on excessive imbalances: HR, IT and SI • Imbalances in need of policy action: IE, ES, FR, HU • Imbalances: BE, BG, DE, NL, FI, SE and UK • After completion of adjustment programme: PT, RO • No IDR at this stage: CZ, DK, EE, LV, LT, LU, MT, AT, PL and SK • Surveillance in context of adjustment programme: GR, CY

20. Reading of the MIP scoreboard • No single indicator can capture all potential risks: • - Analysis in connection with other scoreboard indicators • The number of flashes is not the key criteria • The scoreboard should be read also over time • The severity of a breach of a threshold can be considered • The auxiliary indicators play an important role 24

21. Conclusions - overview • MIP: surveillance mechanism • integrated part of the European Semester • prevention and correction of macroeconomic imbalances • early warning system based on scoreboard of indicators + economic reading • AMR starting point of MIP  In-Depth Reviews • preventive and corrective arm

22. Any questions? ESTAT-MIP@ec.europa.eu

23. Useful links • MIP websitehttp://epp.eurostat.ec.europa.eu/portal/page/portal/macroeconomic_imbalance_procedure/indicators • AMRhttp://ec.europa.eu/europe2020/pdf/2014/amr2014_en.pdf • IDR for Germanyhttp://ec.europa.eu/economy_finance/publications/occasional_paper/2014/pdf/ocp174_en.pdf • IDR for Maltahttp://ec.europa.eu/economy_finance/publications/occasional_paper/2014/pdf/ocp184_en.pdf