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September 15, 2019

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Can we still talk about a Fiscal Union?

May 13, 2016

Since the beginning of the economic crisis in 2008 the concrete attempts to build a fiscal union have come to a halt. Let’s be clear: it’s quite unlikely that we’ll see a fiscal union in the next decade. Too many political obstacles and the weak economic situation have changed the priorities in the public discussion.

 

Despite that, this topic is still an idea that deserves to be discussed, especially after the creation of the EFSF and the debt crisis in many countries of south Europe. Whether your position is favorable or not, it’s evident that the monetary policy didn’t work as everybody was expecting it to. Europe is navigating in an economic stagnation, unemployment is still high in many areas of the continent and the gap between north and south is becoming wider. Furthermore, no significant progress towards a political union has been made and the risks of Brexit and Grexit have exhibited clearly that EU can dangerously become an “in and out” system, where the economic risks and losses for every member state can be disastrous.

 

Both positions on the fiscal union matter have strong points on their side. The drawbacks particularly stress the idea of a democratic deficit, the bureaucratic inefficiency and the moral hazard that can lead the single member states to break the rules in the public finance and to a lower pressure for structural reforms. Furthermore, a lower States inequality can be seen as not desirable or just too risky for “relatively wealthy” countries of north Europe.

On the other hand, a common fiscal policy can be used to contrast recession or any kind of shocks at an EU level, leading to a higher market credibility from the world’s perspective and to a lower volatility to GDP per capita and incomes.

However, the point I’d like to focus more is the opportunity to get closer to a political integration that since the failing of the adoption of a common Constitution has not continued. It’s evident that any possible step forward cannot be made if EU doesn’t have a proper budget to cope with the expenditures that a political union needs. The current one is around 142.6 bln € and clearly nothing like a common army or a basic income for unemployed people can be implemented with such a small budget.

 

The problems to realize this project are obvious and I don’t intend to underestimate them but the benefits can be widely higher. In order to avoid the democratic deficit I suggest to involve in the process only the countries that are already in the monetary union and only if there is a parliamentary and popular support. It’s a risky choice but it’s the only one possible if we desire a union that is not built just with treaties and rules. In addition, the “multi-speed” Europe is a reality that everyone can see. A larger union with countries that don’t share our democratic principles or with member states that prefer to keep a stronger sovereignty can just damage the idea on which the EU has been founded. On the contrary, a deeper union among states that truly desire it can strengthen our identity as Europeans and make the process of fiscal transfers more acceptable for everyone.

 

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