Monitoring Macroeconomic Imbalances: Is EU SurveillanceMore Effective than IMF surveillance?

The paper examines the macroeconomic imbalance procedure (MIP) with the purpose of assessing its potential effectiveness compared to International Monetary Fund (IMF) surveillance. The comparison reveals that the MIP performs better than the Fund’s surveillance in terms of the provision of clear and practical advice, knowledge of domestic polities and ease of activating sanctions. Neither the MIP nor the IMF, however, provide for mechanisms to prevent political considerations from interfering with the activation of sanctions and the distribution of the burden of adjustment. The MIP also does not attenuate problems of asymmetric treatment that create the conditions for public backlashes. Its single-country focus and the limited integration of macroeconomic and financial analysis are further factors that may undermine the effectiveness of the MIP. In the conclusions, the paper reflects on the factors that may help explain the limited incorporation of the lessons available from the Fund’s experience into the MIP.