Toward A Fiscal Union for the Euro Area

Abstract

The turbulence experienced by the Eurozone in 2010-12 highlighted the shortcomings of the currency union. This column suggests that the crisis was exacerbated by a combination of a lack of market adjustment mechanisms, rapid financial integration, and underlying design issues. While substantial progress has been made to address some architectural issues, minimal elements of a fiscal union are still needed in our view to increase the union’s resilience to shocks and to prevent the re-emergence of broader economic and financial stress.