Economic and Monetary Union : can this form of federalism survive without 'fiscal federalism'?
Could the European Union (EU) be more like other federations where monetary
integration works together with fiscal federalism? Assuming that Economic and
Monetary Union (EMU) strongly reinforces economic integration, and since national
governments were deprived of adjustment mechanisms to accommodate economic
shocks, the question seems plausible. Is the Euro-zone economy, and national
economies in particular, still shielded against these shocks?
The dissertation's purpose is to provide a political-economic answer to these questions,
addressing the feasibility of conventional fiscal federalism in the EU. 'Conventional
fiscal federalism' refers to systemic aspects of federations, where a constitutional
division of powers between different tiers of government is organised as far as fiscal
powers are concerned. This division of powers involves a centralisation bias.
Recognising that monetarism shadows EMU everywhere, important consequences are
found when the prospect of 'conventional fiscal federalism' is at stake. The monetarist
influence reflects the prominence devoted to supranational monetary policy for
stabilisation purposes. It is implied that fiscal policy has a minor role in providing
stabilisation for the Euro-zone. At best, fiscal policy is valuable for each member state
adjusting domestic economies to specific developments, as an expression of the
diversity that characterises the EU.
The discussion about 'conventional fiscal federalism' and the EU brings out the
important question of equity being at the mercy of centralisation, to emulate other
federations' picture. Nonetheless I find important evidence that centralisation of the
redistribution function is not feasible in the EU context. National governments' lack of
political willingness to significantly increase EU budget resources, and the clearly
absent solidarity among EU member states both prevent the implementation of such
The dissertation concludes ruling out the feasibility of 'conventional fiscal federalism'
in the EU. However this is not the same as rejecting fiscal federalism at all. Considering
the existence of different tiers of government endowed with fiscal competences, and a
clear assignment of powers between them, this is sufficient to conclude that a different,
decentralised, low profile modality of fiscal federalism already exists in the EU