Is the Economic and Monetary Union Headed to Becoming a Fiscal Federation?

Petr, Michal (2024) Is the Economic and Monetary Union Headed to Becoming a Fiscal Federation? CENTRAL EUROPEAN JOURNAL OF COMPARATIVE LAW, 5 (2). pp. 211-228. ISSN 2732-0707

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Abstract

Since the financial and Eurozone crises, the rules on the functioning of the Economic and Monetary Union (EMU) have changed fundamentally. In this article, I argue that these changes are moving the balance from national to supranational institutions and lead the EMU in a direction frequently referred to as ‘fiscal federation’. At the same time, I contend that these changes are not fully in line with European Union’s primary law, as it stands today. Without contradicting the necessity and effectiveness of these measures on economic terms, I put forward that, to accommodate this substantially modified architecture of the EMU, it would be beneficial to change the primary law in order to clarify the EMU rules. This argument will be made upon an example of three specific policy changes: creation of the European Stability Mechanism, enabling the EU to bail-out states in financial difficulties, introduction of the European Semester, granting the EU the capacity to extensively coordinate the budgetary policies of the Member States, and establishment of the EU Recovery Instrument, empowering the EU to take on itself debt and to redistribute the money across the Member States. For each of these instruments, their legal basis will be thoroughly discussed. I will underline the fact that they were established outside of the regular legal architecture, outlined in the Treaty on the Functioning of the European Union, and suggest specific ways in which the primary law could be modified in order to accommodate these instruments. In conclusion, their combined effect on the operation of the EMU will be analysed and assessed.

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