Just Round the Corner? Pros, Cons, and Implementation Issues of a Fiscal Union for the Euro Area

Author/s Fabrizio Balassone, Sandro Momigliano, Marzia Romanelli, Pietro Tommasino
Publishing Year 2018 Issue 2018/1 Language English
Pages 30 P. 5-34 File size 283 KB
DOI 10.3280/EP2018-001001
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The experience of a number of successful monetary unions and economic theory suggest that the euro area would benefit from the establishment of a supranational fiscal capacity, provided its design keeps the risk of moral hazard at bay. Institutional reforms prompted by the crisis (e.g., the European Stability Mechanism and the banking union) are introducing - though to a limited extent - elements of crosscountry risk sharing. Nevertheless, among European institutions there is a broad consensus that further steps are needed. Proposals to create a sort of rainy-day fund present major practical difficulties - associated, inter alia, with the uncertainty characterising the identification of shocks in real time. A more appropriate solution, consistent with how risk sharing operates in existing federations, may be to centralize specific public functions. One often-discussed possibility is the introduction of a common unemployment benefit scheme. We argue that consideration could also be given to the creation of a euro-wide, notional defined-contribution pension scheme.

Keywords: Fiscal union, intergovernmental transfers, risk sharing, European pension scheme

Jel codes: E42, E62, F15, F42, H77

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Fabrizio Balassone, Sandro Momigliano, Marzia Romanelli, Pietro Tommasino, Just Round the Corner? Pros, Cons, and Implementation Issues of a Fiscal Union for the Euro Area in "ECONOMIA PUBBLICA " 1/2018, pp 5-34, DOI: 10.3280/EP2018-001001