Can the EMU survive without a fiscal union?

Can a currency union survive without a fiscal union? Can monetary policy be decided by the ECB while fiscal policy is run by member states themselves? Could a more ambitious redistribution of resources be carried out at EU level, compensating for imbalances between countries and regions in times of crisis? Could the fiscal policy cooperation be strengthened within the framework of the EMU economic pillar? And could credibility and trust be re-established, without taxes and redistribution carried out at the EU level? These questions were discussed at the Swedish Entrepreneurship Forum’s seminar in Brussels on Friday, May 6.


Sideek M. Seyad, Åsa Hansson och Linda Berg

Åsa Hansson, Associate Professor Lund University:

– There is no support for a fiscal union in the current treaties. And it is not, in my opinion, desirable in the current situation.

– A European tax law lacks support among the citizens of the EU countries. Tax policy should be adapted to local conditions and continue to be a national concern.

– The EU should establish an apolitical “European risk insurance” to offset economic imbalances between countries. The insurance may not be redeemed if a country’s economic problems are self-inflicted.

Linda Berg, PhD, University of Gothenburg

– The citizens want the EU to take greater responsibility for jobs and welfare, but also want their tax and pension systems to remain at the national level.

– Today there is not a sufficiently strong identification at the European level to gain support for a fiscal and social union.

– There is civic support for the EMU, but not for a common EU tax.

– There is a need for public education on the size of the EU budget in relation to the member states. There is great misconception regarding the size of EU resources.

Sideek M. Seyad, Associate Professor Stockholm University

– Many citizens believe that if all member states had followed the EMU rules the crisis would never have arisen!

– The inability among the member states to comply with budgetary rules has significantly damaged the Euro’s reputation, credibility and stability.

– The credibility of the stability pact could have been strengthened if it had been included in the Lisbon Treaty framework. And the market’s confidence in the euro would probably have been higher.

– European Court of Justice must be able to impose sanctions on member states that violate regulations.


Cinzia Alcidi och Fabian Zuleeg

Fabian Zuleeg, Chief Economist EPC:

– Don’t assume limitations! When solving this crisis, we must use our creativity and flexibility. There are ways forward.

– The reason why the Growth and Stability Pact did give us the desired outcome was not that it it wasn’t strict enough, and not that it wasn’t implemented properly. The problem with the GSP is that it is the wrong instrument. Both Spain and Ireland were doing well but still surprised us: it was the banking systems that failed. The Greek case is different; they had had problems with budgets and debts for decades! I don’t believe in sanctions. I believe in prudent economic policies. And to be honest: no member state wants to be where Greece and Ireland are today. This view that “bail out” is a desired solution that would cause precedents is simply wrong.

– The idea about risk insurance (as put forward by Åsa Hansson) is interesting. But in practice it is impossible to disentangle “self-inflicted” problems from “external shocks”. The way a shock hits your economy is a function of how the economy was run before the shock. The timing is another problem: we have the external shocks now and the self-inflicted problems were there since before.

Cinzia Alcidi, Research Fellow CEPS

– The challenge is to reestablish discipline and we can choose between discipline imposed by rules or by markets. Before moving on to the next step, EMU needs to fix the banking system and deal with the debt problem (public and private)  . Without addressing these problems, it will be very difficult to build a sound future for the Union.

– I disagree with those who think that the EMU was a bad idea to start with. On the contrary, if you add up positive and negative effects, the member states have gained a lot from the Euro! Imagine dealing with a financial crisis involving 27 currencies and without mechanisms for coordination and cooperation. We would have been much worse off.

– A fiscal union will not come any time soon. There is an evident lack of political will. There is, however, a clear need for reforms. In what direction should they go? We need to ensure fiscal and financial stability: necessary condition for single monetary policy to work. Discipline imposed by rules did not work. Why should it now? I believe in the need to introduce market discipline. The ESM seems to be going in the right direction. The problem is the transition towards the new system.

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