The Euro Area and a Fiscal Union in the Context of Implicit Assumptions

English article in the proceedings discussing the inappropriateness of the introduction of fiscal union as a solution to the European debt and structural crisis.

Abstract

The Euro Area is still experiencing serious structural problems. Some analysts and policymakers share the idea that an establishment of a fiscal union would help with the sustainability of the monetary union. This paper deals with the question whether this notion is justifiable. The creation of such fiscal union works with many implicit assumptions, we identified 15 of them. We conclude that there is not a single assumption which would not be seriously challenged. In fact, many of them would not be fulfilled. Moreover, the very design of the monetary union is producing asymmetric shocks, which is an issue that is rarely analysed. Following this argument, we claim that the current EMU / EU needs to focus on a clear system design which would not require serious state interventions rather than trying to fix the system by establishing a fiscal union and making it more complicated.