REVISITING THE ECONOMIC CASE FOR FISCAL UNION IN THE EURO AREA

Giovanni Dell'ariccia, Helge Berger () and ,
Authors registered in the RePEc Author Service: Maurice Obstfeld

No 13813, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: After significant progress as an immediate result of the euro crisis, the drive to complete Europe’s Economic and Monetary Union (EMU) has decelerated. While there is a broad consensus in Europe that EMU needs further development, the exact nature and timing of the reform agenda remains controversial. This paper makes an analytical contribution to the ongoing discussion about the euro area’s institutional setup. An in-depth look at the remaining gaps in the euro’s architecture, and the trade-offs that repairing them would present, suggests the need for long-run progress along three mutually supportive tracks. First is more fiscal risk sharing, which will help enhance the credibility of the sovereign “no bailout†rule. Second is complementary financial sector reforms to delink sovereigns and banks. Third is more effective rules to discourage moral hazard. Helpfully, this evolution would ensure that financial markets provide more incentives for fiscal discipline than they do now. Introducing more fiscal union comes with myriad legal, technical, operational, and political problems, however, raising questions well beyond the domain of economics. These difficulties notwithstanding, without decisive progress to foster fiscal risk sharing, EMU will continue to face existential risks.

Keywords: Risk sharing; Banking union; Euro area; Esm; Optimal currency area (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-eec and nep-mon
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Revisiting the Economic Case for Fiscal Union in the Euro Area (2019)
Working Paper: Revisiting the Economic Case for Fiscal Union in the Euro Area (2018)
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