Maastricht and the Prospects of Fiscal Integration in the European Union
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The Maastricht Treaty of 1992 constitutes a major step in the process of economic and monetary integration of the European Union (EU). With the creation of the common currency, the euro, the member countries gave up their sovereignty in the area of monetary policy; and the ECB gained the sole responsibility in this policy field. Whereas the EU moved forward in the field of monetary policy integration, fiscal policy remained the responsibility of the individual members states. The separation of monetary and fiscal policy became problematic when the euro crisis hit in 2009 and some countries had severe problems refinancing their debt. The EU has reacted to this crisis with the creation of institutions such as the European Stability Mechanism (ESM) and with the Fiscal Compact. After the crisis fiscal integration remained largely off the table. However, recently there has been some movement in this policy field with the European Commission and some key states, especially, Germany showing more readiness to consider deeper fiscal integration in the EU. The Covid-19 crisis has provided the EU with another opportunity to move forward in this policy field. The article looks at the different proposals and initiatives for a common European fiscal policy and reflects on the relationship between common monetary and fiscal policy. This involves the issuance of common euro bonds, the establishment of an investment guarantee scheme and a union-wide unemployment reinsurance system. It also stresses the need to complete the European Banking Union to provide more financial stability for the union. In the debate between the two major positions on fiscal policy integration there are two camps, the stability union camp and the fiscal union camp. It was found that the stability camp has reluctantly yielded to few of the positions of the fiscal union camp. While there has been some movement in these positions, a stability union still is the leading paradigm in the economic and monetary union (EMU).
Abstract
The Maastricht Treaty of 1992 constitutes a major step in the process of economic and monetary integration of the European Union (EU). With the creation of the common currency, the euro, the member countries gave up their sovereignty in the area of monetary policy; and the ECB gained the sole responsibility in this policy field. Whereas the EU moved forward in the field of monetary policy integration, fiscal policy remained the responsibility of the individual members states. The separation of monetary and fiscal policy became problematic when the euro crisis hit in 2009 and some countries had severe problems refinancing their debt. The EU has reacted to this crisis with the creation of institutions such as the European Stability Mechanism (ESM) and with the Fiscal Compact. After the crisis fiscal integration remained largely off the table. However, recently there has been some movement in this policy field with the European Commission and some key states, especially, Germany showing more readiness to consider deeper fiscal integration in the EU. The Covid-19 crisis has provided the EU with another opportunity to move forward in this policy field. The article looks at the different proposals and initiatives for a common European fiscal policy and reflects on the relationship between common monetary and fiscal policy. This involves the issuance of common euro bonds, the establishment of an investment guarantee scheme and a union-wide unemployment reinsurance system. It also stresses the need to complete the European Banking Union to provide more financial stability for the union. In the debate between the two major positions on fiscal policy integration there are two camps, the stability union camp and the fiscal union camp. It was found that the stability camp has reluctantly yielded to few of the positions of the fiscal union camp. While there has been some movement in these positions, a stability union still is the leading paradigm in the economic and monetary union (EMU).
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