'Whatever it takes': the Five Presidents' Report on completing Economic and Monetary Union Contents

Appendix 5: Interpretations of ‘fiscal union’

Our witnesses provided a variety of interpretations of ‘fiscal union’. A range of them is included below.

Dr Dermot Hodson told us that the term fiscal union did not have a “stable” meaning and that it was interpreted differently by different people. He said that for some, fiscal union meant “some sort of fiscal stabilisation mechanism, so a centralised budget; for others, it means strong, central oversight of national fiscal rules.” He said “to the extent that [the Five Presidents’ Report] talks about anything that looks like fiscal union, is talking about the possibility of some sort of stabilisation mechanism eventually, although it does not really go into detail on that.”257

Christian Odendahl said that he saw fiscal union as some sort of “risk pooling or transfer”.258

Sir Jon Cunliffe said that to him, “fiscal union”, meant that “some of the sovereignty for taking fiscal decisions is moved up to the supra-national level, and, secondly, that those decisions that are taken at the supra-national level would include the fiscal choices that individual members of the monetary union make.”259

Fabian Zuleeg told us that “a union implies a very high degree of integrated policy-making, which I am not sure fiscal union always refers to.” He said there were some minimal requirements that include some form of risk-sharing and some mechanisms to deal with ex ante and ex post shocks. He considered that a transfer element was an essential part of fiscal union.260

Philippe Legrain told us that “people will use the phrase “fiscal union”, which sounds to some people as though you are creating a common fiscal authority with tax-raising, spending and borrowing powers.” He said “Wolfgang Schäuble is saying that you need a super-Commissioner, a eurozone Finance Minister, who will simply be able to enforce the existing fiscal rules more stringently on national budgets. That is not a fiscal union of the sort an economist would recognise.”261

Gunnar Hökmark MEP took a similar line and said that “the discussion on fiscal union seems to me to be more centralistic than in the true meaning of the word “federalist”. He told us “a lot of people are sure they know what fiscal union is until they are asked what it is, and a lot of people want it until they get it.” He said that he supported having a fiscal union regarding the Stability and Growth Pact, with “clear rules on balanced public spending.” However he maintained that “as soon as we enter other steps, you are in some way bringing up decisions about spending that are better on either a local or a national level. That is very much because our different welfare societies are looking very different.”262

Dr Marek Dabrowski interpreted fiscal union as including a variety of mechanisms. He said fiscal union could be defined in very broad terms as a transfer of fiscal policy from the national to the supranational level. He noted that by using this definition, one could conclude that the EU budget was a form of fiscal union, albeit a very small one. Aside from the existence of a common budget, the EU fiscal union included “cross-country fiscal transfers, some elements of federal taxation, partial tax harmonization, fiscal discipline rules … fiscal crisis resolution mechanism and federal bailout facilities.”263

Guntram Wolff argued that the eurozone was “clearly not at a stage where we want to have large redistributions around the union, where money flows from one country to another” but supported an automatic stabilisation mechanism, such as an unemployment reinsurance scheme. He considered that a fiscal union might take the form of a stabilisation function because proposals to coordinate fiscal policy and to achieve a euro area fiscal stance, though desirable, were extremely difficult.264

The Minister told us that he thought fiscal union embodied “closer co-operation between Member States to ensure that the fiscal risks of having a common currency are more closely shared. Within that, there are different ways one can do that.” He said “some would argue that this is about the Stability and Growth Pact and about ensuring that there are rules in place among members of fiscal union as to how they behave. Others would argue that it is more about fiscal transfers between richer parts of a fiscal union towards poorer parts.”265

263 Written evidence from Dr Marek Dabrowski (EMU0010)

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