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The case for a central fiscal capacity in EMU

Marco Buti, Nicolas Carnot, (2018), «The case for a central fiscal capacity in EMU»VoxEU.org, 7 Δεκεμβρίου

Following the last crisis important governance steps have been taken to bolster the resilience of the European Economic and Monetary Union (EMU). The changes include putting in motion a banking union, establishing the European Stability Mechanism (ESM), and strengthening the surveillance framework. However, there is broad acceptance that current set up remains prone to shocks that could shake its functioning and even imperil its integrity. Further progress is therefore needed for a stable EMU (e.g. Benassy Quéré et al. 2018).

In general the remaining ‘problem’ can be described as a lack of adjustment channels to large shocks, given the incomplete nature of the financial union and the absence of common fiscal instruments. Key ingredients to overcome these gaps are the completion of banking union and capital markets union (CMU) as well as the introduction of a stabilisation function. And, as argued in this column, a financial union is not a substitute to a stabilisation function – they are in fact complementary.

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