Fiscal policy in the EU: an overview of recent and potential future developments

The sovereign debt crisis that started with the Greek admission of a substantially-higher-than-expected 2009 budget deficit has shown how important well-designed fiscal institutions are for a proper functioning of the Economic and Monetary Union (EMU) in Europe. The crisis has put a number of EMU Member States under severe budgetary pressure, forcing them to adopt rescue packages, while it brought the Eurozone itself to the brink of collapse. As a result a substantial number of measures have been taken to fortify the fiscal policy framework in the EU. This chapter provides an overview of the main arrangements before the outbreak of the crisis, the changes to the fiscal framework that were adopted in response to the crisis, and the potential paths to further fiscal integration, while embedding this overview within the relevant academic literature. Further fiscal integration will be hard to sell to the general public in the current climate. However, the events in recent years have shown that tighter fiscal integration may be unavoidable to avert future threats to the existence of the euro as a result of new financial crises.