Completing the Euro: A road map towards fiscal union in Europe

This report is the result of the work of the “Tommaso Padoa-Schioppa group”, established by Notre Europe – Jacques Delors Institute to reflect on the future of the Economic and Monetary Union. After a thorough analysis of the roots of the crisis, the report identifies the main challenges the euro area had to face in the first decade of existence and presents elements for reflection on how to solve these challenges and make the euro area more resilient in the future.

Report translated in French and in German.

This report is the result of the work of the “Tommaso Padoa-Schioppa group”, established by Notre Europe – Jacques Delors Institute to reflect on the future of the Economic and Monetary Union. After a thorough analysis of the roots of the crisis, the report identifies three major challenges the euro area will have to solve in the coming decade:

Preventing large and persistent EMU heterogeneities;

Making the EMU fiscal framework more sustainable and resilient to ‘self-fulfilling solvency’ crises;
Breaking the nexus between national banks and national sovereigns with the establishment of an appropriate EMU framework for banking supervision and resolution.

To solve these challenges, the report proposes:

Completing and fostering the single market in order to allow the real exchange rate channel to work more effectively;

Creating an automatic cyclical stabilization fund outside the EU budget, to alleviate the effects of endogenously-generated EMU cyclical divergences;

Rebalancing fiscal rights and fiscal duties in the common currency area, in particular through the creation of a European Debt Agency which would serve as normal financing instrument for an amount of 10% of GDP to all countries but would also ensure adequately priced access to sovereign financing in crisis times;

Creating a euro area banking union, composed by a euro area banking supervision authority with micro-prudential powers and a euro area agency inspired by the US Federal Deposit Insurance Corporation (FDIC), combining the function of a banking resolution agency and a deposit guarantee scheme.