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Fiscal Federalism in Crisis: Lessons for Europe from the US

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  • Zsolt Darvas

    ()
    (Institute of Economics - Hungarian Academy of Science, Bruegel-Brusselss)

Abstract

The euro area is facing crisis, while the US is not, though the overall fiscal situation and outlook is better in the euro area than in the US, and though the US faces serious state-level fiscal crises. A higher level of fiscal federalism would strengthen the euro area, but is not inevitable. Current fiscal reform proposals (strengthening of current rules, more policy coordination and an emergency financing mechanism) will if implemented result in some improvements. But implementation might be deficient or lack credibility, and could lead to disputes and carry a significant political risk. Introduction of a Eurobond covering up to 60 percent of member states' GDP would bring about much greater levels of fiscal discipline than any other proposal, would create an attractive Eurobond market, and would deliver a strong message about the irreversible nature of European integration.

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File URL: http://econ.core.hu/file/download/mtdp/MTDP1021.pdf
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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1021.

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Length: 29 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:has:discpr:1021

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Keywords: federalism; redistribution; stabilisation; risk-sharing; crisis; euro-area governance reform; Eurobond;

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  1. Jakob von Weizsäcker & Jacques Delpla, 2010. "The Blue Bond Proposal," Policy Briefs 403, Bruegel.
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Cited by:
  1. Costain, James & de Blas, Beatriz, 2012. "The role of fiscal delegation in a monetary union: a survey of the political economy issues," Working Papers in Economic Theory 2012/11, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  2. Lannoo, Karel, 2011. "EU Federalism in Crisis," CEPS Papers 6498, Centre for European Policy Studies.
  3. Nils aus dem Moore, 2010. "Eine Wirtschaftsregierung für Europa? – Die EU braucht bessere governance, aber kein gouvernement économique," RWI Positionen, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 24, December.
  4. Zsolt Darvas, 2012. "The euro crisis: ten roots, but fewer solutions," Policy Contributions 755, Bruegel.

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