Monetary Union without Fiscal Union? The Euro Crisis and the Move Towards European Fiscal Union

Abstract

This paper examines the European Monetary Union (EMU) and the euro crisis through the lens of a robust political economy. Based on the history of monetary unions, monetary union is unlikely to survive without a fiscal union or strong constitutional constraints. The EMU has neither, and its institutional structure makes it unsustainable. Since the euro was (and is) fundamentally a political – rather than economic – project, we argue that policymakers will not allow the EMU to fail. Rather, continued movement towards greater EU-level fiscal, and ultimately a fiscal union, are likely.