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Revisiting the Economic Case for Fiscal Union in the Euro Area

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  • Helge Berger
  • Giovanni Dell'Ariccia
  • Maurice Obstfeld

Abstract

The paper makes an analytical contribution to the revived discussion about the euro area’s institutional setup. After significant progress during the euro crisis, the drive to complete Europe’s Economic and Monetary Union (EMU) had stalled, and the way forward will benefit from an in-depth look at the conceptual issues raised by the evolution and architecture of Europe, and the tradeoffs involved. A thorough look at the underlying economic issues suggests that in the long run, EMU will benefit from progressing along three mutually supporting tracks: introduce more fiscal risk sharing, helping to make the sovereign “no bailout” rule credible; complementary financial sector reforms to delink sovereigns and banks; and more effective rules to discourage moral hazard. This evolution would ensure that financial markets provide incentives for fiscal discipline. Introducing more fiscal union comes with myriad legal, technical, operational, and political problems, raising questions well beyond the remit of economics. But without decisive progress to foster fiscal risk sharing, EMU will continue to face existential risks.

Suggested Citation

  • Helge Berger & Giovanni Dell'Ariccia & Maurice Obstfeld, 2018. "Revisiting the Economic Case for Fiscal Union in the Euro Area," IMF Departmental Papers / Policy Papers 18/03, International Monetary Fund.
  • Handle: RePEc:imf:imfdep:18/03
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    References listed on IDEAS

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    Cited by:

    1. Beetsma, Roel & Cima, Simone & Cimadomo, Jacopo, 2018. "A minimal moral hazard central stabilisation capacity for the EMU based on world trade," CEPR Discussion Papers 12600, C.E.P.R. Discussion Papers.
    2. repec:eee:jmacro:v:57:y:2018:i:c:p:210-230 is not listed on IDEAS
    3. Zareh Asatryan & Xavier Debrun & Annika Havlik & Friedrich Heinemann & Martin G. Kocher & Roberto Tamborini, 2018. "Which Role for a European Minister of Economy and Finance in a European Fiscal Union?," EconPol Policy Reports 6, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

    Sweden; Switzerland; United Kingdom; Monetary unions; Spain; Italy; Fiscal policy; France; Germany; Greece; Austria; Belgium; Czech Republic; Denmark; Economic integration; Europe; European Economic and Monetary Union; European Monetary Union; Euro area; currency union; fiscal union; fiscal risk sharing; governance; bailout; fiscal rules; General; Financial Aspects of Economic Integration; International Policy Coordination and Transmission; Intergovernmental Relations; Governmental Loans and Credits;

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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