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Policy Contribution

Fiscal federalism in crisis: lessons for Europe from the US

Drawing comparisons between the fiscal architecture and situation in the US and the European Union, Bruegel Research Fellow Zsolt Darvas answers three questions in this Policy Contribution- Why has the euro been hit so hard? How would a more federal European fiscal union closer to the US model have helped? How do the euro area’s fiscal architecture reform plans stand up in light of the US example?

By: Date: July 11, 2010 Topic: Macroeconomic policy

The euro area is facing crisis, while the US is not, though the overall fiscal situation and outlook is better in the euro area than in the US, and though the US faces serious state-level fiscal crises. The focus on the euro area is a consequence of the Greek solvency problem, fear of contagion, the ambiguous policy response and institutional deficiencies.

A higher level of fiscal federalism would strengthen the euro area, not least because it could help to constrain member state-level fiscal policy, allow the resolution of banking issues, and would give less opportunity for conflicting responses. But a higher level of fiscal federalism is not inevitable.

Current fiscal reform proposals (strengthening of current rules, more policy coordination and an emergency financing mechanism) will if implemented result in some improvements. But implementation might be deficient or lack credibility, and could lead to disputes and carry a significant political risk.

Introduction of a Eurobond covering up to 60 percent of member states’ GDP would bring about much greater levels of fiscal discipline than any other proposal, would create an attractive Eurobond market, and would deliver a strong message about the irreversible nature of European integration.

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External Publication

European Parliament

Tailoring prudential policy to bank size: the application of proportionality in the US and euro area

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Alexander Lehmann and Nicolas Véron Topic: Banking and capital markets, European Parliament, Macroeconomic policy Date: October 14, 2021
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Opinion

European governance

The inconsistency in global strategic relations

All of this talk on strategic retrenchment and autonomy is the language of escalation, not of appeasement and collaboration.

By: Maria Demertzis Topic: European governance, Global economy and trade Date: October 13, 2021
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Blog Post

Germany’s foreign economic policy: four essential steps

Germany and the EU need to develop a strong and proactive agenda to manage foreign economic relations, which are essential for German and European prosperity.

By: Guntram B. Wolff Topic: Macroeconomic policy Date: September 23, 2021
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Podcast

Podcast

What should public spending look like?

What should we do about the increase in public spending due to COVID-19? Bruegel Director Guntram Wolff and Former Deputy Secretary-General of OECD Ludger Schuknecht discuss.

By: The Sound of Economics Topic: Global economy and trade Date: July 14, 2021
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Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Global economy and trade, Green economy Date: June 11, 2021
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Podcast

Podcast

A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: The Sound of Economics Topic: Global economy and trade, Green economy Date: June 11, 2021
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Opinion

Is Bidenomics more than catch-up?

The Biden administration's promises to 'think big' and rebuild the country seem like a major historical departure from decades of policy orthodoxy.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: June 3, 2021
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Blog Post

International tax debate moves from digital focus to global minimum

International corporate tax reform is coming closer if countries can set aside their differences and work for progress rather than the perfect deal.

By: Rebecca Christie Topic: Global economy and trade Date: May 27, 2021
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Opinion

European governance

Europe must fix its fiscal rules

The pandemic has shown that the EU’s spending framework reflects an outdated economic orthodoxy.

By: Maria Demertzis Topic: European governance, Macroeconomic policy Date: May 27, 2021
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Past Event

Past Event

After COVID-19: a most wanted recovery

This event, jointly organised with ISPI, as the National Coordinator and Chair of the T20 Italy, is part of the T20 Spring Roundtables and it will focus on strategies for a swift and sustainable economic recovery for Europe.

Speakers: Franco Bruni, Maria Demertzis, Elena Flores, Paul De Grauwe, Christian Odendahl, Miguel Otero-Iglesias and André Sapir Topic: Macroeconomic policy Date: May 19, 2021
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Past Event

Past Event

Form a climate club: United States, European Union and China

Can the three biggest economies agree a carbon tax on imports to catalyse climate action globally?

Speakers: Simone Tagliapietra, Sheldon Whitehouse and Guntram B. Wolff Topic: Global economy and trade Date: May 3, 2021
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External Publication

Form a climate club: United States, European Union and China

If the three biggest economies agree a carbon tax on imports, it will catalyse climate action globally.

By: Guntram B. Wolff and Simone Tagliapietra Topic: Green economy Date: March 23, 2021
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