Vít Beneš (Institute of International Relations)
At first sight, the fiscal union might seem as a vitally important tool for the functioning of the Eurozone. But, at the same time, fiscal union conceals dangers in the form of a mechanism for saving the bankrupting states and enforceable rules for budgetary discipline, which on the surface seem to be a manifestation of discipline but in reality they deprive Member States of their fiscal sovereignty. Their tragic impact can be clearly traced in the case of Greece, which is being constantly deprived of the possibility to manage its financial problems on its own because of the mounting fears of possible repercussions of Greece’s exit from the Eurozone. Greece is constantly being prodded into accepting rescue packages, which are, however, capable of covering only interests from the previous loans while they do not have bearing on the reform of the state sector or debt repayment.
This procedure is only slowing down the inevitable Greek bankruptcy, which would not, however, have to have such a catastrophic scenario if we learned at least a small example from the attitude of the US federal government towards the States of the Union. In the United States, every State has its own responsibility for their fiscal policies and there is no possibility to save any of them from bankruptcy. Thanks to the developed banking union, a possible bankruptcy, however, does not have any influence on the functioning of other States that don’t have any responsibility for financial problems of other members of the federation. In the past, there have been cases when several States went simultaneously bankrupt, yet the monetary union was not jeopardized.
Despite these problems, fiscal policy is still a key element in sustaining the Eurozone. Therefore it would be a mistake to create a complicated new mechanism, which would take her place. The replacement of fiscal policy by a revamped, strengthened and federalized cohesion policy seems to be an appropriate solution. After all, the cohesion policy has its own purpose contained in its name – it is to sustain the cohesion of its internal market and the Eurozone. Its objective should thus be leveling system imbalances and asymmetric shocks, which at times occur in the monetary union. A successful application of the cohesion policy could ensure a well-functioning economic and monetary union, leading it to true cohesion and prosperity.
(The study can be downloaded here: http://www.dokumenty-iir.cz/PolicyPapers/2015/pp_benes_fiskalni_protektorat.pdf)