The Quarterly Report series features concise research by European Commission staff on economic and financial topics relating to the euro area.

In its focus section, the April 2012 edition of the Quarterly Report presents an in-depth examination of the Macroeconomic Imbalance Procedure (MIP), a surveillance tool for macroeconomic imbalances that was created as part of the recent 'six-pack' of economic governance reforms. The MIP is designed to identify potential macroeconomic risks early on, to prevent the emergence of harmful imbalances, and to correct excessive imbalances already present. It does so by ensuring that appropriate policy responses are adopted in Member States to address the underlying problems, and it is backed by an enforcement mechanism comprising financial sanctions. In May, the Commission will present in-depth reviews for countries identified on the basis of a 10-point scoreboard as warranting detailed examination.

A special topic is dedicated to the role of taxes in fiscal consolidation processes. It seeks to elucidate the design of growth-friendly consolidations, investigating in particular the scope for revenue measures (rather than expenditure reductions alone) to contribute to fiscal consolidations. It suggests that any rise in the tax burden should be contingent on country-specific circumstances, and should fall on tax categories least detrimental to growth. The report also examines trends in the external financing of current account positions in euro-area Member States, revealing that official forms of external financing such as EU/IMF programme lending and ECB liquidity transfers have counterbalanced the potentially disruptive outflows of private capital from a number of countries. A final topic assesses the exposure of the euro area to sovereign credit default swaps (CDS). It finds that market participants' exposure related to euro-area Member States has been stable during the crisis, and that the systemic importance of CDS exposure appears relatively limited. While full market transparency is still lacking, numerous regulatory improvements at the EU level have greatly reduced the potential for unreported or purely speculative CDS trading.