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The Euro Crisis and Its Aftermath$
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Jean Pisani-Ferry

Print publication date: 2014

Print ISBN-13: 9780199993338

Published to Oxford Scholarship Online: May 2014

DOI: 10.1093/acprof:oso/9780199993338.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 23 April 2021

A Real or a Mock Budget?

A Real or a Mock Budget?

(p.153) Chapter 18 A Real or a Mock Budget?
The Euro Crisis and Its Aftermath

Jean Pisani-Ferry

Oxford University Press

In contrast to the United States or other federations, the euro area does not have a meaningful federal budget. The budget of the European Union amounts to only one percent of its GDP, lacks flexibility, and plays no role in macroeconomic stabilization. Indeed, in the Maastricht Treaty, all responsibility for macroeconomic stabilization was assigned to national budgets. But when bad times came, the buffer proved perilously small; it may prove even smaller in the future, now that investors pay more attention to state solvency. Stabilisation concerns and financial-stability concerns, therefore, suggest that the repair agenda should not stop with banking union. To create a stabilisation capacity in the euro area, a first solution would be to revisit the MacDougall proposal and equip the monetary union with a true budget. An alternative would be to mimic the operation of a budget, with a purely macroeconomic automatic stabilisation scheme. A last solution would be to make states able to borrow even in situations of stress, in other words letting states issue limited amounts of Eurobonds. European leaders already played with the idea of equipping the euro with a fiscal capacity at the end of 2012, but the idea was forgotten before having been seriously discussed. The issue, however, has not gone away and European leaders would be well-advised to explore the options as the current fiscal regime remains several incomplete.

Keywords:   United States, euro, federal budget, European Union, monetary union, Maastricht Treaty, banking union, credit markets, Eurobonds, macroeconomic stabilization

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