Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the prevention and correction of macroeconomic imbalances
Date: 2010-10-07
Institutions: European Commission
Subjects: Community budget, Member States' contribution, budget policy, budgetary equilibrium, own resources

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EUROPEAN COMMISSION 

Brussels, 29.9.2010 
COM(2010) 527 final 

2010/0281 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on the prevention and correction of macroeconomic imbalances 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

The  emergence  of  large  macroeconomic  imbalances,  including  wide  and  persistent 
divergences in competitiveness trends, proved highly damaging to the European Union, and in 
particular to the euro, when the crisis struck. In the years preceding the crisis, low financing 
costs fuelled misallocation of resources, often to less productive uses, feeding unsustainable 
levels  of  consumption,  housing  bubbles  and  accumulation  of  external  and  internal  debt  in 
some  Member  States.  It  is  therefore  important  to  develop  a  new  structured  procedure  for 
prevention and correction of adverse macroeconomic imbalances in every Member State. 

In  its  communication  and  report  on  ‘EMU@10:  successes  and  challenges  after  10 years  of 
Economic  and  Monetary  Union’1  the  Commission  proposed  a  broad  policy  agenda  with  the 
aim of improving the functioning of the EMU. It stressed, in particular, the need to broaden 
economic surveillance in order to detect and address macroeconomic imbalances at an early 
stage.  Enhanced  surveillance  was  seen  as  particularly  warranted  in  the  areas  of  external 
competitiveness  and  current  account  balances,  where  noticeable  divergences  between 
Member States had emerged since the launch of the euro. In order to address these challenges, 
in  July  2008  the  Euro  Group  agreed  to  initiate  a  regular  review  of  developments  in 
competitiveness within the euro area that has been fruitful. 

Europe 2020 sets out an ambitious and comprehensive strategy towards smart sustainable and 
inclusive growth for the EU economy. Against the background of the crisis it sets a new focus 
on  addressing  Europe's  weaknesses  in  the  surveillance  of  macro-financial  and  structural 
challenges. Taking account of the deep economic and financial inter-linkages within the euro 
area  and  their  impact  on  the  single  currency,  Europe  2020  calls  for  the  development  of  a 
specific policy framework for the euro area to tackle broader macroeconomic imbalances2. A 
mechanism  embedded  in  legislation  monitoring  sources  of  macroeconomic  imbalances  and 
ensuring appropriate corrective action when necessary is required from that perspective. The 
necessary  linkage  between  preventive  and  corrective  action  is  crucial  to  avoid  painful 
economic adjustment when imbalances grow out of control. 

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES 

Against  the  background  of  a  crisis  on  an  unprecedented  scale  and  beyond  the  urgent  action 
that  was  taken  to  deal  with  the  immediate  needs,  the  Commission  reacted  quickly  with  an 
ambitious yet realistic agenda of reforms. This took the form of two communications to the 
European Parliament and the Council, issued on 12 May and 30 June 2010 respectively. By 
choosing public legal documents as a channel of communication, the Commission was eager 
to demonstrate its commitment to dialogue with Member States, the European Parliament and 
all other stakeholders, while at the same time delivering practical proposals for action. 

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European Economy No 2/2008, European Commission, DG Economic and Financial Affairs. 
The  Commission  made  the  case  for  deeper  and  broader  economic  coordination  in  the  euro  area 
repeatedly  in  the  past,  including  in  the  2009  Annual  Statement  on  the  Euro  Area  and  the  2008 
Communication  on  "EMU@10:  successes  and  challenges  after  10  years  of  Economic  and  Monetary 
Union". 

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In  its  communication  of  12  May  2010,  the  Commission  set  out  a  multi-pillar  approach  to 
reinforcing  economic  policy  coordination.  The  communication  stressed  the  case  for  making 
full use of the surveillance instruments available under the Treaty. Where necessary, existing 
instruments should be amended and supplemented. The communication called for reinforcing 
compliance  with  the  Stability  and  Growth  Pact  and  extending  economic  surveillance.  To 
achieve this, establishment of a ‘European semester’ for economic policy coordination would 
allow  Member  States  to  benefit  from  early  coordination  at  European  level.  Finally,  the 
communication  set  out  the  principles  that  should  underpin  a  robust  framework  for  crisis 
management for euro-area Member States. Overall, most of the proposals applied to the EU as 
a whole, but euro-area issues would be approached by means of more demanding rules. 

In  the  meantime,  tensions  on  financial  markets  heightened  and  on  9 May  2010,  based  on  a 
proposal from the Commission, an extraordinary Ecofin Council decided on establishment of 
a  European  stabilisation  mechanism  and  agreed  on  a  strong  commitment  to  faster  fiscal 
consolidation where warranted. 

On 30 June 2010, the European Commission adopted an updated communication specifying 
in  greater  detail  the  principles  for  economic  surveillance  set  out  in  the  communication  of 
12 May. It focused on implementation and enforcement issues. It stressed that the EU needed 
stronger macro-economic country surveillance, integrating all relevant economic policy areas. 
Macroeconomic  imbalances  should  be  looked  at  jointly  with  fiscal  policy  and  growth-
enhancing  reforms  in  the  framework  of  Europe  2020.  Enhanced  surveillance  was  to  be 
anchored  in  the  concept  of  a  ‘European  semester’  and  to  be  accompanied  by  an  array  of 
sanctions to prevent or correct excesses that could jeopardise the financial stability of the EU 
and  the  euro  area.  On  the  fiscal  side,  both  the  preventive  and  the  corrective  parts  of  the 
Stability  and  Growth  Pact  should  be  reinforced.  A  broad  outline  to  address  the 
macroeconomic imbalances between Member States was also presented. 

The  Commission  contributed,  in  the  form  of  the  above-mentioned  communications,  to  the 
work  of  the  Task  Force  on  economic  governance  chaired  by  the  President  of  the  European 
Council and established by the March European Council. The Task Force acknowledged that 
imbalances were a particular problem, especially for members of the euro area. The need for 
more thorough monitoring of macroeconomic developments by a small set of key indicators 
was  recognised,  in  particular  via  a  warning  mechanism.  Overall,  it  was  agreed  that 
macroeconomic  surveillance  should  function  alongside  the  budget  surveillance  under  the 
Stability and Growth Pact. 

The European Council followed closely the work of the Task  Force. First  orientations were 
contained  in  the  conclusions  of  the  17  June  European  Council,  which  agreed  on  the 
development  of  a  scoreboard  for  early  detection  of  unsustainable  or  dangerous  trends.  The 
conclusions of the European Council of 16 September 2010 welcomed the development of a 
new  macro-surveillance  framework  to  monitor  and  correct  unsustainable  competitiveness 
divergences and imbalances in timely manner. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

The fully fledged mechanism for the prevention and correction of macroeconomic imbalances 
is  made  up  of  two  draft  proposals  for  regulations.  This  first  proposal  sketches  out  the 
excessive imbalance procedure (EIP), while the second focuses on the associated enforcement 
measures. Both are described in succession in this explanatory memorandum. 

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This  first  proposal  sets  out  to  provide  a  framework  for  identifying  and  addressing 
macroeconomic  imbalances,  including  deteriorating  competitiveness  trends.  As  such,  it 
complements  the  macrostructural  country  surveillance  process  provided  for  under  Europe 
2020. 

The  EIP  is  a  completely  new  element  of  the  economic  surveillance  process.  It  comprises  a 
regular assessment of risks of imbalances, including an alert mechanism, coupled with rules 
designed to allow corrective action in case of adverse macroeconomic imbalances extending 
beyond fiscal policy. The EIP applies to every Member State. 

Surveillance  starts  with  an  alert  mechanism  that  aims  to  identify  Member  States  with 
potentially problematic levels of macroeconomic imbalances. The alert mechanism consists of 
a scoreboard (Article 3) backed up by judgmental analysis. The scoreboard is designed to be 
transparent, reasonably simple and underpinned by economic rationale. For that purpose, a set 
of indicators aims to ensure timely identification of imbalances emerging in different parts of 
the  economy.  The  set  of  indicators  should  be  broad  enough  to  cover  any  possible  case  of 
major imbalance and to make sure that it is sufficiently sensitive to detect imbalances early 
on. The scoreboard will be made up of several indicators for each Member State. 

Alert  thresholds  will  be  set  and  announced  for  each  indicator  to  increase  transparency  and 
accountability.  For  some  indicators,  thresholds  will  be  symmetric;  they  will  detect  both 
excessively high levels and excessively low levels of the variable. It is, however, important to 
bear  in  mind  that  indicators  should  not  be  regarded  as  either  policy  targets  or  policy 
instruments. For instance, a current account deficit of 3 % may be considered acceptable in a 
converging country with strong investment needs but not in a more advanced country with a 
rapidly  ageing  population.  The  thresholds  should  therefore  be  seen  as  indicative  values  to 
guide  the  assessment,  but  should  not  be  interpreted  in  a  mechanical  way;  they  should  be 
supplemented by economic judgment and country-specific expertise. 

The Commission will release the indicators composing the scoreboard, their respective values 
and their associated underlying methodologies in a separate document in order to provide full 
transparency  on  the  functioning  of  the  alert  mechanism.  The  composition  of  the  scoreboard 
could evolve over time, in line with changing threats to macroeconomic stability or advances 
in data availability. Possible indicators would most likely include both external and internal 
ones. Measures of the external position (e.g. current accounts and external debt) and price or 
cost  competitiveness  (e.g.  real  effective  exchange  rates)  would  facilitate  the  detection  of 
external  imbalances.  The  use  of  internal  indicators  (e.g.  private  and  public  sector  debt)  is 
justified  on  the  ground  that  external  imbalances  necessarily  have  internal  counterparts.  The 
monitoring  of  internal  indicators  can  also  be  justified  on  its  own  sake  on  the  ground  that 
internal imbalances can have repercussions on other Member States, particularly via financial 
contagion.  Combined,  these  indicators  would  cover  much  of  the  analytical  needs  for  a 
preliminary assessment of possible imbalances. 

The Commission will release the results of the scoreboard regularly and attach a Commission 
report putting into perspective any potentially conflicting signals from the various indicators 
on it (Article 4). On the basis of all available information, the Commission will compile a list 
of Member States deemed at risk of imbalances. Early discussion of this within the Council 
and the Euro Group will enable the Commission to obtain appropriate feedback from Member 
States  and  ensure  the  transparency  of  the  Commission’s  deliberations.  Following  such 
discussions, for Member States where the alert mechanism indicates possible imbalances or a 
risk thereof, the Commission will provide country-specific in-depth reviews (Article 5). The 

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in-depth  review  will  consist  of  a  detailed  investigation  of  the  underlying  problems  in  the 
Member State identified. The review may be undertaken, where needed, in conjunction with 
surveillance missions to the country concerned. Any early warnings or recommendations from 
the European Systemic Risk Board will be taken into account, along with the policy intentions 
of the Member State under review, as reflected in its Stability and Convergence Programme 
and  National  Reform  Programme.  As  a  result  of  this  in-depth  Commission  analysis,  three 
different outcomes are possible, as provided for in Articles 6 and 7: 

–  If  the  macroeconomic  imbalances  are  considered  unproblematic,  the  Commission  will 

propose that no further steps are taken. 

–  If  the  Commission  considers  that  macroeconomic  imbalances  (or  a  risk  thereof)  exist 
following  the  in-depth  review,  it  will  recommend  to  the  Council  to  adopt  the  necessary 
preventive  recommendations  to  the  Member  State  concerned  in  accordance  with  Article 
121(2)  of  the  Treaty.  Consistent  with  the  Broad  Economic  Policy  Guidelines  and 
depending  on  the  nature  of  the  imbalance,  the  preventive  recommendations  may  address 
challenges across a range of policy areas. 

–  If the in-depth review points to severe imbalances or imbalances that jeopardise the proper 
functioning of the Economic and Monetary Union in a specific Member State, the Council 
may, on a recommendation from the Commission, adopt recommendations in accordance 
with  Article  121(4)  of  the  Treaty  declaring  the  existence  of  an  excessive  imbalance  and 
recommending  the  Member  State  concerned  to  take  corrective  action  within  a  specified 
deadline and to present its policy intentions in a corrective action plan. Member States with 
excessive imbalances within the meaning of the EIP would be subjected to stepped-up peer 
pressure.  These  ‘EIP  recommendations’  should  be  made  public;  they  should  be  more 
detailed and prescriptive than the ‘preventive’ recommendations provided for in Article 6. 
Depending  on  the  nature  of  the  imbalance,  the  policy  prescriptions  could  potentially 
address fiscal, wage, macrostructural and macroprudential policy aspects under the control 
of government authorities. 

Following the opening of an EIP, the Member State concerned will be under an obligation to 
adopt a corrective action plan within a specific timeframe, as provided for in Article 8, to set 
out  a  roadmap  of  implementing  policy  measures.  The  corrective  action  plan  would  confirm 
the determination of the Member State concerned to work towards resolving its imbalances. 
Within  two  months  after  submission  of  a  corrective  action  plan  and  on  the  basis  of  a 
Commission  report,  the  Council  shall  assess  the  corrective  action  plan.  If  considered 
sufficient,  on  the  basis  of  a  Commission  proposal,  the  Council  shall  adopt  an  opinion, 
endorsing it. If the actions taken or envisaged in the corrective action plan or their timetable 
for  implementation  are  considered  insufficient  to  implement  the  recommendations,  the 
Council shall, on the basis of a Commission proposal, invite the Member State to amend its 
corrective  action  plan  within  a  new  deadline.  The  flexibility  embedded  in  the  procedure 
should enable the Council to set the appropriate deadline when issuing EIP recommendations, 
taking  into  account  the  scale  and  urgency  of  imbalances  and  the  capability  of  policies  to 
address the situation. Unlike fiscal policy, not all policy levers are under the direct control of 
national governments when it comes to resolving imbalances. Furthermore, corrective policies 
may have a delayed impact on imbalances, depending on their nature. For instance, during the 
ten  years  preceding  the  crisis  in  2008,  the  euro  area  experienced  a  steady  divergence  in  the 
competitive  position  and  the  current  account  balances  of  its  Member  States.  Correction  of 
competitiveness  and  external  imbalances  requires  significant  changes  in  relative  prices  and 
costs and reallocation of demand and supply between the non-tradable sector and the export 

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sector. The economy of many euro-area Member States is shaped by a relatively high level of 
labour and product market rigidities which – in the absence of appropriate reforms – is likely 
to  lengthen  the  period  of  adjustment.  In  all  cases,  the  Commission  will  monitor 
implementation  of  corrective  action  by  the  Member  States  concerned,  who  have  to  submit 
regular progress reports, as provided for in Article 9. If economic circumstances change, the 
EIP recommendations may be amended on the basis of a Commission recommendation. 

On the basis of a Commission recommendation, the Council will conclude whether or not the 
Member State concerned has taken the recommended corrective action. Article 10 sets out the 
conditions  for  this  assessment.  If  the  Council  decides  that  the  Member  State  concerned  has 
taken appropriate action, the procedure will be placed in abeyance. Abeyance means that the 
Member  State  is  making  satisfactory  progress  with  corrective  action.  However,  due  to  the 
possibly long lags between adoption of corrective action and its effect on the ground, effective 
resolution of macroeconomic imbalances might take some time. The Member State concerned 
will be subject to periodic reporting and surveillance until the EIP is effectively closed. 

Eventually,  sustained  and  successful  corrective  action  will  help  to  resolve  imbalances.  As 
provided for in Article 11, the excessive imbalance procedure will be closed once the Council 
concludes, on the basis of a recommendation by the Commission, that the Member State is no 
longer experiencing excessive imbalances. 

If the Member State concerned has not taken appropriate action, it will remain subject to the 
excessive  imbalance procedure. The Council  would have  to adopt revised  recommendations 
with  a  new  deadline  –  likely  to  be  shorter  –  for  taking  corrective  action.  For  euro-area 
Member States the enforcement mechanism could ultimately lead to the sanctions described 
in the regulation on enforcement measures to correct excessive macroeconomic imbalances in 
the euro area. Furthermore, insufficient compliance with the recommendations based  on the 
surveillance of imbalances could also be considered an aggravating factor in the assessment of 
the  fiscal  situation  under  the  Stability  and  Growth  Pact,  creating  self-reinforcing  synergies 
between various policy strands at enforcement level. 

The second proposal for a regulation addresses enforcement of measures to correct excessive 
macroeconomic imbalances. It accompanies this EIP regulation, focusing on enforcement for 
euro-area Member States. It specifies that if a Member State repeatedly fails to act on Council 
recommendations  to  address  excessive  macroeconomic  imbalances,  it  will  have  to  pay  a 
yearly  fine,  until  the  Council  establishes  that  corrective  action  has  been  taken.  Repeated 
failure is defined as failure to address Council recommendations by the new deadline set in 
accordance with Article 10(4) of Regulation (…). Moreover, the Member State will also have 
to pay a yearly fine if it repeatedly fails to provide the Council and the Commission with a 
corrective action plan that is sufficient to address the recommendations of the Council. In this 
case, repeated failure is defined as failure to provide a sufficient corrective action plan by the 
new deadline set in accordance with Article 8(2) of Regulation (…). The yearly fine will give 
euro-area Member States the necessary incentive to address the recommendations or to draw 
up a sufficient corrective action plan even after the first fine has been paid. 

To ensure equal treatment between Member States, the fine should be identical for all euro-
area  Member  States  and  equal  to  0.1 %  of  the  GDP  of  the  Member  State  concerned  in  the 
preceding  year.  As  a  rule,  the  Commission  will  propose  the  maximum  amount  of  the  fine 
provided for and this proposal will be considered adopted, unless the Council decides to the 
contrary by qualified majority within ten days of the Commission adopting its proposal. The 

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Council  may  amend  the  Commission  proposal  by  acting  unanimously,  in  accordance  with 
Article 293(1) of the Treaty. 

The Council may decide, on the basis of a Commission proposal, to cancel or to reduce the 
fine. The Commission could make a proposal to this end following assessment of a reasoned 
request by the Member State and this would reverse the burden of proof for application of the 
sanction.  Furthermore,  the  Commission  could  also  make  a  proposal  to  the  same  end  on  the 
basis  of  exceptional  economic  circumstances,  as  defined  in  the  Stability  and  Growth  Pact 
(SGP) (Regulation (EC) No 1467/97). 

Council  decisions  concerning  such  fines  will  be  made  only  by  the  members  representing 
Member  States  whose  currency  is  the  euro.  The  vote  of  the  member  of  the  Council 
representing the Member State concerned by the decisions will not be taken into account. 

The fines provided for in this proposal for a regulation constitute other revenue, as referred to 
in Article 311 of the Treaty. In line with the practice established in the corrective part of the 
SGP (Regulation (EC) No 1467/97), this revenue will be distributed between Member States 
whose currency is the euro and which are not involved in an excessive imbalance procedure 
within  the  meaning  of  Regulation  (…),  and  not  involved  in  an  excessive  deficit  procedure 
within the meaning of Regulation (EC) No 1467/1997, in proportion to their share of the total 
GNI of the eligible Member States. 

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2010/0281 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on the prevention and correction of macroeconomic imbalances 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(6) thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Economic and Social Committee3, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

The coordination of the economic policies of the Member States within the Union, as 
provided  for  by  the  Treaty,  should  entail  compliance  with  the  guiding  principles  of 
stable prices, sound public finances and monetary conditions and a sustainable balance 
of payments. 

There  is  a  need  to  build  upon  the  experience  gained  during  the  first  decade  of 
functioning of the economic and monetary union. 

In  particular,  surveillance  of  the  economic  policies  of  the  Member  States  should  be 
broadened  beyond  budgetary  surveillance  to  prevent  excessive  macroeconomic 
imbalances  and  help  the  Member  States  affected  devise  corrective  plans  before 
divergences  become  entrenched.  This  broadening  of  the  economic  surveillance 
framework should go in parallel with deepening of fiscal surveillance. 

To  help  address  such  imbalances,  a  procedure  laid  down  in  detail  in  legislation  is 
necessary. 

It  is  appropriate  to  supplement  the  multilateral  surveillance  referred  to  in  Article 
121(3)  and  (4)  of  the  Treaty  with  specific  rules  for  detection,  prevention  and 
correction of macroeconomic imbalances. 

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OJ C , , p. . 

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(6) 

(7) 

(8) 

(9) 

This  procedure  should  rely  on  an  alert  mechanism  for  early  detection  of  emerging 
macroeconomic imbalances. It should be based on use of an indicative and transparent 
scoreboard combined with economic judgment. 

The  scoreboard  should  consist  of  a  limited  set  of  economic  and  financial  indicators 
relevant  to  detection  of  macroeconomic  imbalances,  with  corresponding  indicative 
thresholds.  The  composition  of  the  scoreboard  may  evolve  in  time,  inter  alia  due  to 
evolving  threats  to  macroeconomic  stability  or  enhanced  availability  of  relevant 
statistics. 

The  crossing  of  one  or  more  indicative  thresholds  need  not  necessarily  imply  that 
macroeconomic imbalances are emerging, as economic policy-making should take into 
account inter-linkages between macroeconomic variables. Economic judgment should 
ensure  that  all  pieces  of  information,  whether  from  the  scoreboard  or  not,  are  put  in 
perspective and become part of a comprehensive analysis. 

Based  on  the  multilateral  surveillance  procedure  and  the  alert  mechanism,  the 
Commission  should  identify  the  Member  States  to  be  subject  to  an  in-depth  review. 
The in-depth review should encompass a thorough analysis of sources of imbalances 
in the Member State under review. It should be discussed within the Council and the 
Euro Group for the Member States whose currency is the euro. 

(10)  A  procedure  to  monitor  and  correct  adverse  macroeconomic  imbalances,  with 
preventive and corrective elements, will require enhanced surveillance tools based on 
those  used  in  the  multilateral  surveillance  procedure.  This  may  include  enhanced 
surveillance  missions  by  the  Commission  to  Member  States  and  additional  reporting 
by  the  Member  State  in  case  of  severe  imbalances,  including  imbalances  that 
jeopardise the proper functioning of the economic and monetary union. 

(11)  When assessing imbalances, account should be taken of their severity, of the degree to 
which  they  may  be  considered  unsustainable  and  of  the  potential  negative  economic 
and  financial  spillovers  to  other  Member  States.  The  economic  adjustment  capacity 
and the track record of the Member State concerned as regards compliance with earlier 
recommendations  issued  under  this  Regulation  and  other  recommendations  issued 
under  Article  121  of  the  Treaty  as  part  of  multilateral  surveillance,  in  particular  the 
broad  guidelines  for  the  economic  policies  of  the  Member  States  and  of  the  Union, 
should also be considered. 

(12) 

If macroeconomic imbalances are identified, recommendations should be addressed to 
the Member State concerned to provide guidance on appropriate policy responses. The 
policy  response  of  the  Member  State  concerned  to  imbalances  should  be  timely  and 
should  use  all  available  policy  instruments  under  the  control  of  public  authorities.  It 
should be tailored to the specific environment and circumstances of the Member State 
concerned and cover the main economic policy areas, potentially including fiscal and 
wage  policies,  labour  markets,  product  and  services  markets  and  financial  sector 
regulation. 

(13)  The  early  warnings  and  recommendations  by  the  European  Systemic  Risk  Board  to 
Member States or the Union address risks of a macrofinancial nature. These may also 
warrant appropriate follow-up action in the context of the surveillance of imbalances. 

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(14) 

If  severe  macroeconomic  imbalances  are  identified,  including  imbalances  that 
jeopardise  the  proper  functioning  of  economic  and  monetary  union,  an  excessive 
imbalance procedure should be initiated that may include issuing recommendations to 
the Member State, enhanced surveillance and monitoring requirements and in respect 
of  Member  States  whose  currency  is  the  euro,  the  possibility  of  enforcement  in 
accordance with Regulation (EU) No […/…]4 in the event of sustained failure to take 
corrective action. 

(15)  Any Member State placed under the excessive imbalance procedure should establish a 
corrective  action  plan  setting  out  details  of  its  policies  designed  to  implement  the 
Council  recommendations.  The  corrective  action  plan  should  include  a  timetable  for 
implementation of the measures envisaged. It should be endorsed by the Council on a 
report from the Commission. 

(16)  Since  an  effective  framework  for  detection  and  prevention  of  macroeconomic 
imbalances cannot be sufficiently achieved by the Member States because of the deep 
trade  and  financial  inter-linkages  between  Member  States  and  the  spillover  effect  of 
national economic policies on the Union and the euro area as a whole and can be better 
achieved  at  Union  level,  the  Union  may  adopt  measures  in  accordance  with  the 
principle of subsidiarity, as set out in Article 5 of the Treaty on European Union. In 
accordance  with  the  principle  of  proportionality,  as  set  out  in  the  same  Article,  this 
Regulation does not go beyond what is necessary to achieve those objectives, 

HAVE ADOPTED THIS REGULATION: 

CHAPTER I 
SUBJECT MATTER AND DEFINITIONS 

Article 1 
Subject matter 

This  Regulation  sets  out  detailed  rules  for  the  detection,  prevention  and  correction  of 
macroeconomic imbalances within the Union. 

For the purposes of this Regulation: 

Article 2 
Definitions 

(a) 

(b) 

‘imbalances’ means macroeconomic developments which are adversely affecting, or 
have  the  potential  adversely  to  affect,  the  proper  functioning  of  the  economy  of  a 
Member State or of economic and monetary union, or of the Union as a whole. 

‘excessive  imbalances’  means  severe  imbalances,  including  imbalances  that 
jeopardise the proper functioning of economic and monetary union. 

4 

OJ L […], […], […]. 

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CHAPTER II 
DETECTION OF IMBALANCES 

Article 3 
Scoreboard 

1.  The  Commission  shall,  after  consultation  with  Member  States,  establish  an  indicative 
scoreboard as a tool to facilitate early identification and monitoring of imbalances. 

2.  The  scoreboard  shall  be  made  up  of  an  array  of  macroeconomic  and  macrofinancial 
indicators for Member States. The Commission may set indicative lower or upper thresholds 
for these indicators to serve as alert levels. The thresholds applicable to Member States whose 
currency is the euro may be different from those applicable to the other Member States. 

3. The list of indicators to be included on the scoreboard and the thresholds for the indicators 
shall be made public. 

4. The Commission shall regularly assess the appropriateness of the scoreboard, including the 
composition of indicators, the thresholds set and the methodology used, and shall adapt it if 
necessary  to  preserve  or  enhance  its  capability  to  detect  emerging  imbalances  and  monitor 
their  development.  Changes  in  the  underlying  methodology  and  composition  of  the 
scoreboard and the associated thresholds shall be made public. 

Article 4 
Alert mechanism 

1. The Commission shall update the values for the indicators on the scoreboard at least on a 
yearly basis for each Member State. The updated scoreboard shall be made public. 

2.  The  release  of  the  updated  scoreboard  shall  be  accompanied  by  a  Commission  report 
containing an economic and financial assessment putting the movement of the indicators into 
perspective,  drawing  if  necessary  on  any  other  economic  and  financial  indicator  relevant  to 
detection of imbalances. The report shall also indicate whether the crossing of lower or upper 
thresholds in one or more Member States signifies the possible emergence of imbalances. 

3. The report shall identify Member States that the Commission considers to be affected by, or 
at risk of, imbalances. 

4. As part of the multilateral surveillance in accordance with Article 121(3) of the Treaty, the 
Council shall discuss and adopt conclusions on the Commission report. The Euro Group shall 
discuss the report as far as it relates, directly or indirectly, to Member States whose currency 
is the euro. 

Article 5 
In-depth review 

1. Taking  account of the discussions in the Council and the Euro Group, as provided for in 
Article  4(4),  the  Commission  shall  prepare  an  in-depth  review  for  each  Member  State  it 
considers affected by, or at risk of, imbalances. This assessment shall include an evaluation of 

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whether  the  Member  State  in  question  is  affected  by  imbalances,  and  of  whether  these 
imbalances constitute excessive imbalances. 

2. The in-depth review shall be made public. It shall take into account, in particular: 

(a) 

(b) 

(c) 

as appropriate, whether the Member State under review has taken appropriate action 
in  response  to  Council  recommendations  or  invitations  adopted  in  accordance  with 
Articles  121  and  126  of  the  Treaty  and  under  Articles  6,  7,  8  and  10  of  this 
Regulation; 

the policy intentions of the Member State under review, as reflected in its Stability or 
Convergence Programme and National Reform Programme; 

any  early  warnings  or  recommendations  from  the  European  Systemic  Risk  Board 
relevant to the Member State under review. 

Article 6 
Preventive action 

1.  If,  on  the  basis  of  its  in-depth  review  referred  to  in  Article  5  of  this  Regulation,  the 
Commission  considers  that  a  Member  State  is  experiencing  imbalances,  it  shall  inform  the 
Council accordingly. The Council, on a recommendation from the Commission, may address 
the  necessary  recommendations  to  the  Member  State  concerned,  in  accordance  with  the 
procedure set out in Article 121(2) of the Treaty. 

2.  The  Council  shall  inform  the  European  Parliament  of  its  recommendations.  The  Council 
recommendations shall be made public. 

3.  The  Council  shall  review  these  recommendations  annually  and  may  amend  them  if 
appropriate in accordance with paragraph 1. 

CHAPTER III 
EXCESSIVE IMBALANCE PROCEDURE 

Article 7 
Opening of the excessive imbalance procedure 

1. If, on the basis of the in-depth review referred to in Article 5, the Commission considers 
that  the  Member  State  concerned  is  affected  by  excessive  imbalances,  it  shall  inform  the 
Council accordingly. 

2. The Council, on a recommendation from the Commission, may adopt recommendations in 
accordance  with  Article  121(4)  of  the  Treaty  declaring  the  existence  of  an  excessive 
imbalance  and  recommending  the  Member  State  concerned  to  take  corrective  action.  Those 
recommendations shall set out the nature of the imbalances and specify the corrective action 
to  be  taken  in  detail  and  the  deadline  within  which  the  Member  State  concerned  must  take 
such  corrective  action.  The  Council  may,  as  provided  for  in  Article  121(4)  of  the  Treaty, 
make its recommendations public. 

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Article 8 
Corrective action plan 

1. Any Member State for which an excessive imbalance procedure is opened shall submit a 
corrective action plan to the Council and the Commission within a deadline to be defined in 
the recommendations in accordance with Article 7. The corrective action plan shall set out the 
specific and concrete policy actions the Member State concerned has implemented or intends 
to implement and shall include a timetable for implementation thereof. 

2.  Within  two  months  after  submission  of  a  corrective  action  plan  and  on  the  basis  of  a 
Commission  report,  the  Council  shall  assess  the  corrective  action  plan.  If  considered 
sufficient,  on  the  basis  of  a  Commission  proposal,  the  Council  shall  adopt  an  opinion, 
endorsing it. If the actions taken or envisaged in the corrective action plan or their timetable 
for  implementation  are  considered  insufficient  to  implement  the  recommendations,  the 
Council shall, on the basis of a Commission proposal, invite the Member State to amend its 
corrective  action  plan  within  a  new  deadline.  The  amended  corrective  action  plan  shall  be 
examined according to the procedure laid down in this paragraph. 

3. The corrective action plan, the Commission report and the Council invitation referred to in 
paragraph 2 shall be made public. 

Article 9 
Monitoring of corrective action 

1. The Commission shall monitor implementation of the recommended corrective action and 
of the corrective action plan by the Member State concerned. For this purpose, the Member 
State  shall  report  to  the  Council  and  the  Commission  at  regular  intervals  in  the  form  of 
progress reports whose frequency shall be established by the Council in the recommendation 
referred to in Article 7(2). 

2. Member States’ progress reports shall be made public by the Council. 

3.  The  Commission  may  carry  out  surveillance  missions  to  the  Member  State  concerned  to 
monitor implementation of the corrective action plan. 

4.  If  economic  circumstances  change,  the  Council,  on  a  recommendation  from  the 
Commission,  may  amend  the  recommendations  adopted  under  Article  7  in  accordance  with 
the  procedure  laid  down  in  the  same  Article.  The  Member  State  concerned  shall  submit  a 
revised  corrective  action  plan  that  shall  be  assessed  in  accordance  with  the  procedure  laid 
down in Article 8. 

Article 10 
Assessment of corrective action 

1.  On  the  basis  of  a  Commission  report,  the  Council  shall  conclude  whether  or  not  the 
Member State concerned has taken the recommended corrective action. 

2. The Commission’s report shall be made public. 

3.  The  Council  conclusions  shall  be  adopted  by  the  deadline  set  by  the  Council  in  its 
recommendations adopted in accordance with Article 7. 

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4.  Where  it  concludes  that  the  Member  State  has  not  taken  the  recommended  corrective 
action,  the  Council,  on  a  recommendation  from  the  Commission,  shall  adopt  revised 
recommendations in accordance with Article 7, on a recommendation from the Commission, 
setting another deadline for corrective action by when another assessment in accordance with 
this Article shall be conducted. 

5. Where the Council concludes that the Member State has taken the recommended corrective 
action, the excessive imbalance procedure shall be held in abeyance. 

6.  The  state  of  abeyance  of  the  procedure  for  Member  States  concerned  shall  be  reviewed 
regularly by the Council in accordance with the procedure set out in paragraphs (1) to (5).  

Article 11 
Closing of the excessive imbalance procedure 

The  excessive  imbalance  procedure  shall  be  closed  once  the  Council,  on  a  recommendation 
from  the  Commission,  concludes  that  the  Member  State  is  no  longer  affected  by  excessive 
imbalances. 

CHAPTER IV 
FINAL PROVISIONS 

Article 12 
Entry into force 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, […] 

For the European Parliament 
The President 

For the Council 
The President 

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