Economic, Monetary and Fiscal Policies
Fiscal Integration in the Eurozone: Economic Effects of Two Key Scenarios (Mathias Dolls, Clemens Fuest, Dirk Neumann and Andreas Peichl)
Mathias Dolls, Clemens Fuest, Dirk Neumann and Andreas Peichl Fiscal Integration in the Eurozone: Economic Effects of Two Key Scenarios Introduction The debt crisis in Europe initiated a debate about deeper fiscal integration in the Economic and Monetary Union (EMU). The 2008–09 economic crisis has shown that some euro area (EA)1 member states were unable to sufficiently stabilize their economies. This was especially true for some Southern European countries where limited access to private credit markets even led to destabilizing effects due to statutory tax increases and benefit cuts (see e.g. Bertola 2013). In the current policy debate in Europe, the view is widespread that the European currency union will not survive unless it is complemented by a ‘fiscal union’. Options discussed range from enforced budget rules to the development of an own ‘fiscal capacity’ for the EMU. In October 2012, the former President of the European Council, Herman van Rompuy, argued: ‘Strengthening discipline alone is … not sufficient. In the longer term, there is a need to explore the option to go beyond the current steps to strengthen economic governance by developing gradually a fiscal capacity for the EMU. Such a fiscal capacity could take several forms and various options would need to be explored’.2 Subsequently, ex-EU Commissioner 1 In the following we equivalently use ‘EA’, ‘EMU’ and ‘Eurozone’ to refer to the cur- rent 17 member states of the European currency union and thus, only to those EMU members who have already introduced the Euro. 2 ‘Towards...
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