A fiscal union for the EMU?

Abstract

The dominant narrative presents the Economic and Monetary Union as an incomplete structure which, to operate stably, needs to be supplemented by a deeper fiscal integration. We study the general features of the recent proposals for a fiscal stabilisation mechanism, intended to smooth the effects of asymmetric shocks on Member States, from a multi-disciplinary viewpoint, combining economic, legal and political analyses. While possible to construct within the current Treaties, we find the proposals economically and politically fragile, and likely to be unenforceable. Our gravest concern however relates to the envisaged broad macroeconomic conditionality, which is largely unconnected to the stability aims of the mechanism but has potential to undermine the democratic legitimacy of some of the Member States’ most foundational societal choices.