Policy brief 7 – The three dimensions of macroeconomic unbalances

Policy Brief 7 already available: The three dimensions of macroeconomic unbalances (in Portuguese), by Henrique Lopes Valença. This Policy Brief is the fifth edition of our series of original publications around the European Semester, and more specifically the Stability Program and the National Reform Program.

The European Semester is a process of political dialogue between the European Commission and the member states which consists in an exchange of drafts, programmes and recommendations regarding the implementation of public policies and institutional reforms. For this, two particular documents are relevant in this dialogue: the Stability Program and National Reform Program.

The Stability Program is the main document on fiscal policy and the sustainablity of public finances in the medium term. The budgetary targets set each year in this document, in conjunction with macroeconomic forecasts that underlie them, are used by the European Commission staff when assessing the compliance of EU member states with the main medium-term fiscal rules.

On the other hand, the National Reform Program is broader in its scope and should reflect a strategic vision for public policy and institutional reform.

In this policy brief, Henrique Lopes Valença develops a critical analysis of the European Commission’s 2016 Country Report. Starting with this report, and the argument that pins macroeconomic unbalances on the difference between production structures in the different European economies, Henrique suggests this argument should not merely consider said structures in isolation.

The author underlines the existence and interaction of a specific set of conditions in three dimensions: the aforementioned differences, the spread of a dubious diagnosis of these economies’ troubles, and limitations associated with the European economic integration process.