What are the prerequisites for a euro area fiscal capacity?

Abstract

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Introduction to “Economic and Financial Governance in the European Union after a decade of Economic and Political Crises.”

“…The last contribution, by Demertzis and Wolff (2020) highlights the question whether the current EMU governance structure has essentially been completed in the past decade. Specifically, their analysis looks at the institutional steps that would fix the issue of the "asymmetrical EMU" (Verdun 1996), that is, monetary union without a fiscal union (see also Howarth and Verdun 2020).…”

“…The crises also do not inform actors about how to reach decisions about the new governance structure. The finalité for EMU in Demertzis and Wolff (2020) includes fiscal union, besides monetary union and they argue that importance alone is not sufficient for reaching that end goal; hence the need for following a carefully designed sequence of steps towards a more symmetric EMU.…”

Fiscal federalism and a separate budget for the euro area

“…Assuming that without a fiscal union the monetary union is incomplete, Demertzis and Wolff [2016] postulate three steps to achieve more centralized budget functions in the euro area. The adoption of each of these three steps should be preceded by the fulfillment of certain preconditions.…”

Cooperative Monetary and Fiscal Policies in the Euro Area

“…Fiscal capacity building and investment initiatives into European infrastructure, research and development, climate, energy, migration, and security have therefore been suggested. In addition, it has been argued, that large scale investment projects in this direction may also be used for cyclical stabilization in the euro area (Demertzis and Wolff ). In fact, Benassy‐Quere, Ragot, and Wolff () point out those discretionary fiscal policies have been pro‐cyclical on average in the euro area between 1995 and 2008.…”