A proposal for a central fiscal capacity for the EMU targeting euro area, national, and regional shocks by Roel Beetsma, Jacopo Cimadomo, Josha van Spronsen published by VOXEU (3/2022).
The global crisis and Covid-19 pandemic highlighted the limitations of the European Economic and Monetary Union, particularly the lack of a fiscal union for cross-border risk sharing. This column proposes a central fiscal capacity for the euro area in which transfers to/from regions are driven by euro-area, country-specific, and region-specific shocks. The scheme can produce substantial stabilisation of regional growth with a limited need for the system as a whole to borrow in any given year. The success of the current Recovery and Resilience Facility will be an important litmus test for such a broader central fiscal capacity.
