The Future of EMU – Is more fiscal integration really indispensable?

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A monetary union without a fiscal union is not sustainable! That is the dominant narrative on the still ongoing crisis of the European Monetary Union (EMU). The euro crisis has been exceptionally deep and has indeed exposed structural weaknesses of the EMU.

So, does the EMU need more fiscal integration? Are further permanent measures such as a fiscal stabilisation mechanism or a common unemployment insurance scheme necessary to overcome the deficiencies of the EMU’s crisis resilience?

In our view, attention has to be paid to the causes and underlying factors of the crisis, for example the sovereign-bank risk nexus, before potentially premature decisions are being made. Temporary effects of this untypical crisis, however distressing they may be, should certainly not lead to the creation of irretrievable instruments and institutions. We thus want to challenge the above narrative. We argue that based on the current reforms at the national and European level more fiscal integration is dispensable on economic grounds, if some additional financial sector reforms are adopted.