Annex II. Fiscal Policy in Europe

The Delors report on European Economic and Monetary Union proposed that fiscal as well as monetary policy should be subject to centralised control. The committee is concerned that individual governments would not feel constrained to observe fiscal prudence, and that some of the consequences of a fiscal expansion would fall on other members of the Community. In particular, if exchange rates between member states were fixed and interest rates on equivalent assets were the same everywhere, a fiscal expansion in one country would lead to a rise in prices everywhere, and some of the financial cost would be paid by the rest of the Community because the home country's balance of payments would deteriorate.