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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

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