European integration is not limited to the rule of law or democratic institutions (although these remain cross-cutting themes of the negotiations). It also includes economic convergence between Ukraine and the EU.

One of the key economic steps envisaged under Chapter 17 “Economic and Monetary Policy” is the so-called macroeconomic imbalance check-up. In essence, this is an algorithm for identifying macroeconomic problems — such as excessive debt or price bubbles in certain markets—before a crisis erupts and emergency measures become necessary.

This was discussed in an exclusive article for European Pravda by Oleksandra Betliy, Senior Research Fellow at the Institute for Economic Research and Policy Consulting.

How useful is this procedure, and how can it bring Ukraine closer to the EU? Below we share the key takeaways from the column. The full article is available via the link.

The global economic and financial crisis of 2008 is a good example of why preventive action is always more effective than crisis firefighting. Had governments and central banks, as well as international financial institutions — including the IMF — paid greater attention to economic diagnostics and the correction of emerging negative trends, the 2008 crisis might not have occurred, or its consequences could have been far less severe.

Any economic crisis — especially one as large-scale as in 2008 — does not happen overnight. It matures over time in the form of hidden imbalances within the economy. Therefore, the likelihood of a crisis can be forecast, and measures can be introduced to prevent it or at least mitigate its negative effects.

It is crucial that governments, central banks, and international financial institutions emerge from crises stronger, draw lessons from them, and make efforts to minimize the conditions that could lead to similar crises in the future.

To avoid “putting out fires,” the European Union created its own early-warning system — the Macroeconomic Imbalance Procedure (MIP). As part of the EU accession negotiations (Chapter 17 “Economic and Monetary Policy”), Ukraine now needs to integrate this economic “check-up” into its public governance system, which should contribute to greater state resilience.

Macroeconomic imbalances are financial and structural trends in a member state’s economy that may negatively affect the stability of its own economy, the euro area, or the EU as a whole.

A typical example is a real estate bubble: housing prices rise too rapidly and without solid economic justification, indicating an overheated market. If such a bubble bursts, it can trigger a chain reaction across the economy — from problems in the construction sector to declining consumer demand.

Other imbalances may include a high share of foreign-currency-denominated household debt, excessive public debt relative to GDP, or excessive growth in imports.

The Macroeconomic Imbalance Procedure does not exist in isolation within the EU framework. It operates as part of the European Semester, an annual cycle of coordination of economic, fiscal, and social policies introduced in 2010.

This framework is essential, as the EU can function effectively only if the policies of its member states are coordinated and aligned.

The European Semester lasts one year and follows a clear timeline. In simplified terms, it includes the following stages:

• November-December (Autumn Package): the European Commission publishes a set of documents and defines priorities for the cycle;

• January-March: discussions at the level of the EU Council and strategic guidance from the European Council;

• April: member states submit their National Reform Programmes and budgetary plans;

• June-July: the EU Council adopts country-specific recommendations.

For Ukraine, joining this framework will require changes in the preparation of strategic documents, adjustments to the budgetary calendar, and closer coordination of its policies with the European Commission.

The Ukrainian government is already preparing the legal basis for introducing the Macroeconomic Imbalance Procedure, as this is necessary for greater economic resilience and aligns with Ukraine’s EU integration ambitions.

For Ukraine, implementing the MIP means moving away from “manual” economic management toward a system in which every government decision is assessed through the lens of sustainability.

We need to learn not only how to collect statistics for Eurostat, but also how to respond in a timely manner to early warning signals about potential problems generated by the economy itself.

Therefore, introducing elements of the Macroeconomic Imbalance Procedure today will already contribute to the resilience of Ukraine’s economy. After accession to the EU, it will also become an important element of the European Commission’s economic surveillance.

Of course, during the full-scale war — and for several years thereafter — some of Ukraine’s indicators will exceed threshold values by a wide margin. However, even such deviations must be analyzed in order to design measures that can bring Ukraine back to the status of a healthy economy.

Read the full article via the link.