Should-Read: Helge Berger, Giovanni Dell’Ariccia, and Maurice Obstfeld: The Euro Area Needs a Fiscal Union

Should-Read: Helge Berger, Giovanni Dell’Ariccia, and Maurice Obstfeld: The Euro Area Needs a Fiscal Union: “Without more tangible elements of a fiscal union, the euro area will remain fundamentally vulnerable to shocks…

…The architecture supporting Europe’s currency union remains incomplete and leaves the region vulnerable to future financial crises…. The euro area needs to build elements of a common fiscal policy, including more fiscal risk sharing, to preserve financial and economic integration and stability. Without some degree of fiscal union, the region will continue to face existential risks that policymakers should not ignore. While this is not a new topic, the current favorable economic climate might be the moment to advance the discussion—and the chance to strengthen the euro area. If Europe’s Economic and Monetary Union (EMU) were like any other large currency area, such as the United States, member states would tackle economic or financial shocks together. They would have empowered a central government or jointly run institutions to deal with stressed financial entities, secure bank deposits, and provide fiscal relief to member states in a particularly deep recession…