Dolls, Mathias, Fuest, Clemens, Heinemann, Friedrich, Peichl, Andreas, (2015), ” Reconciling Insurance with Market Discipline: A Blueprint for a European Fiscal Union”, ZEW Discussion Paper No. 15-044, July2015
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.
Relevant Posts
- Kotia, Ananya ,Duarte Lledo, Victor, (2016), “Do Subnational Fiscal Rules Foster Fiscal Discipline? New Empirical Evidence from Europe”, IMF WP/16/84, April
- Fidrmuc, Jan, (2015), “Political economy of fiscal unions”, European Journal of Political Economy, December