A European Fiscal Union of Macroeconomic Indicators: ‘Failing Forward’ with the Euro Area Fiscal Stance

Abstract

This article reveals a neglected aspect of macroeconomic indicators – their integrative power as vehicles to deepen European integration. It focusses on the euro area fiscal stance which provides guidance on the overall direction of fiscal policy in the euro area. Debtor countries, the ECB and the European Commission argue that the spillover effects of fiscal policy are large in a monetary union and therefore some countries need to be more fiscally active than others. Creditor countries oppose the euro are fiscal stance because they fear that it is used as a ‘top-down’ approach to steer fiscal policy in a direction inimical to their fiscal preferences. Notwithstanding its contested nature, the euro area fiscal stance has provided proponents of deeper fiscal integration with arguments why more fiscal coordination is needed. It has done so by measuring the failure of fiscal coordination in the euro area. Having a quantitative measure of fiscal (non-)coordination is a powerful instrument to persuade actors that deeper integration is needed.

Keywords: Macroeconomic indicators, fiscal policy, euro area fiscal stance, fiscal union, Economic and Monetary Union, fiscal coordination

JEL Classification: H30, H40, H50, H6, H7