Chapter 5: Fiscal capacity
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The chapter analyses the proposals in favour of establishing a fiscal capacity – that is a budget of the euro area that can be used as a counter-cyclical tool for stabilization purposes in cases of asymmetric shocks. As the chapter explains, the fiscal capacity remains a missing link in the constitutional structure of EMU: the Maastricht Treaty did not foresee any supranational mechanism to handle asymmetric busts, and the responses to the crisis so far have not led to the creation of such an instrument. Yet, the author underlines that growing awareness exists on the need for such a fiscal capacity and he reviews the proposals advanced, among others, by the European Parliament, the European Commission and jointly by the French and German Governments for a euro area budget, suggesting that a consensus may be building in this direction. In fact, Fabbrini claims that there are adequate legal bases in the current EU treaties to set up such a stabilization tool, but he emphasizes that a successful fiscal capacity must be based on own resources – rather than state transfers – and subject to adequate governance and accountability mechanisms to ensure executive effectiveness and democratic legitimacy.

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