A Fiscal Union for the Eurozone

The Only Way to Save the EU

At the headquarters of the European Central Bank in Frankfurt, September 2013. Kai Pfaffenbach / REUTERS

The German election is finally behind us. In spite of headlines about the rise of the extreme right, Chancellor Angela Merkel is headed for yet another term in power with pro-European partners. This means there is finally a window to discuss eurozone reform in earnest. But what is the goal? It is increasingly popular to argue that the creation of a budget for the eurozone is mere federalist utopia. Bruegel’s Andre Sapir, to name one, argue that Europe should pursue a more pragmatic solution. Their suggestion is to “complete the banking union” and transform the existing European Stability Mechanism (ESM) into a European Monetary Fund (EMF). Past and likely future German Finance Minister Wolfgang Schaüble seems to agree with them.

Such an EMF would exist to provide conditional crisis lending to sovereign nations in trouble, as the ESM does today. It would thus perpetuate our current system of asymmetrical adjustments decreed to bailout recipients who face no parliamentary accountability or scrutiny. It features men in dark suits who arrive with foreign reform dicta. It would also enshrine the deflationary bias of the current framework, in turn deepening the corrosive political dynamics of austerity.

German Chancellor Angela Merkel and French President Emmanuel Macron in Berlin, May 2017.
French President Emmanuel Macron and German Chancellor Angela Merkel in Berlin, May 2017.
Fabrizio Bensch / REUTERS

An improved monetary union with an EMF is certainly more palatable than what exists now. But it is not enough. It is an ahistorical half solution that would fall far short of making the eurozone economically and politically sustainable in the long run. 

Only last year, many worried about the impending collapse of the euro. Today the risk is complacency as a result of centrist, pro-European victories in this year’s elections from France to Germany. Growth and new leadership can deflate populists, but they still linger on the sidelines, too close to power for comfort. Two weeks ago, at the Ambrosetti Forum in Italy, the Netherlands’ Geert Wilders made that very point: the establishment has won 2017 but populists “will be

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