Game Change: An Analysis of the Origins of the Macroeconomic Imbalance Procedure

One of the most peculiar pieces of newer EU legislation on economic governance is the Macroeconomic Imbalance Procedure (MIP) set out in two regulations as part of the Six-Pack. While macroeconomic imbalances feature prominently in the literature on the economic causes of Eurozone troubles, the timing and design of the MIP has not yet been explained. Both the decision to address imbalances via central-level policy-making in the first place and the choice for a peculiar combination of a “scoreboard” consisting of indicators with “indicative thresholds” and semi-automatic enforcement appear puzzling, not least because they contradict the long-standing policy preferences of main drivers of EU economic policymaking, notably those of German and French governments, respectively. Employing game-theoretic reasoning, this paper explores how a crisis-triggered change in exogenous parameters altered the patterns of strategic interaction between important actors (primarily the aforementioned governments and the Commission). This change provided scope for a “cooperative” solution through (albeit asymmetrically) increasing actors’ costs associated with previously “dominant” strategies of unilateral policy responsibility and discretion. In this situation, notwithstanding different structural economic positions and policy paradigms, a compromise deal on extending and enforcing macroeconomic supervision by the Commission (and the Council) became a relatively more attractive, and ultimately feasible, alternative. While a new political equilibrium in this policy field materialized, future shocks may well alter the structure of the game yet again. The case study employs the analytic narrative method and uses as data sources primary documents, supplemented by interviews with individuals involved in the decision process.