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

Author

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  • Dolls, Mathias
  • Fuest, Clemens
  • Heinemann, Friedrich
  • Peichl, Andreas

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.

Suggested Citation

  • Dolls, Mathias & Fuest, Clemens & Heinemann, Friedrich & Peichl, Andreas, 2015. "Reconciling insurance with market discipline: A blueprint for a European fiscal union," ZEW Discussion Papers 15-044, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:15044
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    References listed on IDEAS

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    1. Buchanan, James M., 1994. "Lagged implementation as an element in constitutional strategy," European Journal of Political Economy, Elsevier, vol. 10(1), pages 11-26, May.
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    7. Mathias Dolls & Clemens Fuest & Dirk Neumann & Andreas Peichl, 2018. "An unemployment insurance scheme for the euro area? A comparison of different alternatives using microdata," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 273-309, February.
    8. Dolls, Mathias & Fuest, Clemens & Neumann, Dirk & Peichl, Andreas, 2013. "Fiscal integration in the eurozone: Economic effects of two key scenarios," ZEW Discussion Papers 13-106, ZEW - Leibniz Centre for European Economic Research.
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    15. Dolls, Mathias & Fuest, Clemens & Neumann, Dirk & Peichl, Andreas, 2014. "An Unemployment Insurance Scheme for the Euro Area," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100572, Verein für Socialpolitik / German Economic Association.
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    1. repec:zbw:svrwjg:201819 is not listed on IDEAS
    2. Thirion, Gilles, 2017. "European Fiscal Union: Economic rationale and design challenges," CEPS Papers 12160, Centre for European Policy Studies.
    3. Mathias Dolls & Clemens Fuest & Dirk Neumann & Andreas Peichl, 2018. "An unemployment insurance scheme for the euro area? A comparison of different alternatives using microdata," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 273-309, February.
    4. Ernesto Longobardi & Antonio Pedone, 2018. "On some recent proposals of public debt restructuring in the Eurozone," Chapters,in: Debt Default and Democracy, chapter 6, pages 84-123 Edward Elgar Publishing.
    5. Andrea Brandolini & Francesca Carta & Francesco D'Amuri, 2016. "A Feasible Unemployment-Based Shock Absorber for the Euro Area," Journal of Common Market Studies, Wiley Blackwell, vol. 54(5), pages 1123-1141, September.
    6. Heikki Oksanen, 2016. "Smoothing Asymmetric Shocks vs. Redistribution in the Euro Area: a Simple Proposal for Dealing with Mistrust," CESifo Economic Studies, CESifo, vol. 62(2), pages 332-375.
    7. Schelkle, Waltraud, 2017. "Hamilton’s Paradox Revisited: Alternative lessons from US history," CEPS Papers 12963, Centre for European Policy Studies.
    8. Anna Iara, 2016. "Revenue for EMU: A Contribution to the Debate on Fiscal Union," CESifo Economic Studies, CESifo, vol. 62(2), pages 301-331.
    9. Dolls, Mathias, 2016. "Chances and risks of a European unemployment benefit scheme," ZEW policy briefs 7/2016, ZEW - Leibniz Centre for European Economic Research.
    10. Heikki Oksanen, 2016. "Smoothing Asymmetric Shocks vs. Redistribution in the Euro Area: A Simple Proposal for Dealing with Mistrust in the Euro Area," CESifo Working Paper Series 5817, CESifo Group Munich.
    11. repec:cpn:umkeip:v:16:y:2017:i:4:p:413-432 is not listed on IDEAS
    12. repec:eee:streco:v:44:y:2018:i:c:p:100-114 is not listed on IDEAS
    13. repec:ces:ifodic:v:14:y:2016:i:1:p:19204335 is not listed on IDEAS
    14. repec:zbw:espost:190795 is not listed on IDEAS
    15. Mathias Dolls & Clemens Fuest & Dirk Neumann & Andreas Peichl, 2016. "A Basic Unemployment Insurance Scheme for the Euro Area," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(1), pages 55-60, 05.
    16. repec:eee:jmacro:v:59:y:2019:i:c:p:78-102 is not listed on IDEAS
    17. Blesse, Sebastian & Boyer, Pierre C. & Heinemann, Friedrich & Janeba, Eckhard & Raj, Anasuya, 2019. "European Monetary Union reform preferences of French and German parliamentarians," ZEW Discussion Papers 17-059, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    sovereign insolvency procedure; European unemployment insurance; euro area debt crisis;

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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