European Fiscal and Monetary Policy: A Chicken and Egg Dilemma

The launch of the euro saw the creation of a two-tier Europe, but systemic defects led subsequently to the current crisis of the Eurozone, resulting in a much more complex and problematic set of core-periphery relations between north and south. The preeminent role of Germany in the north is pointing to the lack of democratic legitimacy in the whole construction. The idea of creating a banking union and fiscal union is in principle aimed at restoring unity to the Eurozone and ensuring its effectiveness. While negotiations over the banking union are ongoing, the recent fiscal innovations are not even approaching the constitution of a sustainable fiscal union. A more federalistic fiscal structure is needed, but this demands major political leadership.

Paper produced within the framework of the project "Towards a More United and Effective Europe".