Reconciling insurance with market discipline: A blueprint for a European fiscal union

Mathias Dolls, Clemens Fuest, Friedrich Heinemann and Andreas Peichl

No 15-044, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This contribution develops a blueprint for a European fiscal union. The proposal addresses the shortcomings of most other reform designs which do not offer a solution for insolvent or noncooperative euro countries. We suggest a design which combines fiscal insurance with an orderly procedure to restructure the debt of an insolvent euro member. We show that fiscal insurance and a sovereign insolvency procedure are no contradiction but, on the contrary, mutually enforcing: An effective fiscal insurance helps to limit the stability risks involved in the implementation of an insolvency regime for sovereigns. And vice versa, a well-defined insolvency procedure reduces the danger that a fiscal capacity motivated as an insurance against transitory asymmetric shocks degenerates into a permanent transfer system. Moreover, we show that both elements are a helpful complement for the functioning of the European banking union and the new European fiscal governance.

Keywords: sovereign insolvency procedure; European unemployment insurance; euro area debt crisis (search for similar items in EconPapers)
JEL-codes: H12 H87 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eec and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Reconciling Insurance with Market Discipline: A Blueprint for a European Fiscal Union (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:15044

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