January 23, 2018 / 3:11 PM / in 7 months

EU Commission not using crisis early-warning tool well, EU auditors say

BRUSSELS (Reuters) - For political reasons, the European Commission is not using effectively a procedure intended to provide early warning of brewing economic crises, the European Court of Auditors said on Tuesday.

The European Union’s executive arm has never opened disciplinary action against any EU government for allowing economic imbalances to grow, even though it has the right to do so, the Auditors said in a report about the EU’s Macroeconomic Imbalances Procedure, overseen by the Commission.

“The European Commission is not implementing the Macroeconomic Imbalance Procedure (MIP) in a way which ensures effective prevention and correction of imbalances,” the Auditors said in a statement.

“The auditors conclude that the MIP is generally well-designed and based on good-quality analysis. But at some important stages, the process is political rather than technical,” the statement said.

The MIP process, started at the peak of the euro zone sovereign debt crisis in 2011, is meant to identify growing economic imbalances that could trigger a wider euro zone crisis.

If a country ignores the Commission’s recommendations to rectify the imbalances, it could, in theory, be fined 0.1 percent of its GDP.

But even though some countries have been running excessive imbalances for years, the Commission has never even recommended starting a disciplining procedure, the Auditors said.

France, Italy, Portugal, Croatia, Cyprus and Bulgaria, had various “excessive imbalances” in 2016 and 2017, according to the latest Commission report.

Germany, which had the world’s biggest current account surplus in 2017 and which has for years exceeded the EU ceiling, is classified by the Commission only as having “imbalances”, the same as equally export-oriented Netherlands.

“The systematic non-activation of the excessive imbalance procedure (EIP) has reduced the credibility and effectiveness of the MIP,” said Neven Mates of the European Court of Auditors.

“During our audit, the Commission produced little evidence which would explain why the College did not propose the activation of an EIP,” he said.

The auditors said that while the Commission identified the imbalances on the basis of clear technical criteria, it did not provide a clear assessment of their severity. It also said that the criteria by which the Commission made its final decisions were not transparent.

“The audit evidence suggests that a formal decision-making process is lacking at a political level,” the report said.

A Commission spokesperson said the EU executive took note of the report.

“We will take up this issue and the role of the Court of Auditors in the economic governance of the EU in the meeting that the College of Commissioners will have on 5 February with the Court of Auditors,” the spokesperson said.

Reporting By Jan Strupczewski, editing by Larry King

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