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A Single Fiscal Policy in the Euro Area: Vision or Utopia?

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  • Konrad Szelag

Abstract

EMU has a unique macroeconomic framework that combines a single monetary policy with coordinated national economic and fiscal policies. Since the coordination process has some serious weaknesses despite having been modified several times in recent years, the idea of a single economic/fiscal policy is being discussed as a potential alternative solution for the euro area. On the one hand, there are reasonable economic arguments in favor of a single fiscal policy, such as the need to formulate an aggregate fiscal stance for the euro area as a whole, the need to ensure sustainable macroeconomic stabilization within EMU, and the need for a kind of insurance against asymmetric shocks. On the other hand, establishing the context for a single fiscal policy would require significant changes to the present political, institutional, and macroeconomic design of the EU. Such a context could include full political union with a federal structure, and federal institutions, including an economic government or central fiscal authority for the euro area, with a much larger and restructured general budget at the EU level, and possible abandonment of the rule that the budget must be in balance every year. Currently, neither the political will nor the social support exists in the EU for transferring further national authority to a supranational, European level. Therefore, while it may be desirable, a single fiscal policy in the euro area can only be considered for the long run; it is not an option for the short or medium term.

Suggested Citation

  • Konrad Szelag, 2008. "A Single Fiscal Policy in the Euro Area: Vision or Utopia?," NBP Working Papers 46, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:46
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    File URL: http://www.nbp.pl/publikacje/materialy_i_studia/46_en.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    EMU; the euro area; economic policy coordination; fiscal policy; fiscal federalism; central/federal budget; federation; political union;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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