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Fiscal federalism reforms in the European Union and the Greek crisis

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  • Mark Hallerberg

    (Hertie School of Governance, Germany, hallerberg@hertie-school.org)

Abstract

Based upon existing fiscal federal arrangements, this article considers the options facing the European Union to reform its own framework. There are two plausible ways the EU can stabilize the finances of its member states over the longer term. The first is to take steps that complement the market discipline of individual member states. For market discipline to play this positive role, three conditions need to be met: (1) markets need to have accurate information on member state finances; (2) the market valuation of a given state also has to be an accurate valuation of the sustainability of that state’s finances; and (3) populations need to interpret market discipline as a signal about their government’s competence and punish governments that face market pressure. Such a system is possible under the current Stability and Growth Pact, and indeed it appears that all three conditions held in summer 2009. Any bailout of a member state, however, undermines this type of system. More political integration would be needed to prevent a state from getting into a situation where a bailout would be an option. The Brazilian model is a precedent that the European Union could emulate.

Suggested Citation

  • Mark Hallerberg, 2011. "Fiscal federalism reforms in the European Union and the Greek crisis," European Union Politics, , vol. 12(1), pages 127-142, March.
    • Handle: RePEc:sae:eeupol:v:12:y:2011:i:1:p:127-142
    DOI: 10.1177/1465116510387652
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    References listed on IDEAS

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    1. Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September.
    2. Hallerberg,Mark & Rainer Strauch,Rolf & von Hagen,Jürgen, 2010. "Fiscal Governance in Europe," Cambridge Books, Cambridge University Press, number 9780521138260, September.
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    6. Mr. Anthony M Annett, 2006. "Enforcement and the Stability and Growth Pact: How Fiscal Policy Did and Did Not Change Under Europe’s Fiscal Framework," IMF Working Papers 2006/116, International Monetary Fund.
    7. von Hagen, Jurgen & Eichengreen, Barry, 1996. "Federalism, Fiscal Restraints, and European Monetary Union," American Economic Review, American Economic Association, vol. 86(2), pages 134-138, May.
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    Cited by:

    1. Podsiadło Piotr, 2015. "State Aid for the Coal Sector in the European Union: Pre- and post-crisis perspective / Državna pomoč za premogovni sektor v Evropski uniji – pred- in pokrizna perspektiva," Naše gospodarstvo/Our economy, Sciendo, vol. 61(5), pages 3-11, October.
    2. C. Randall HENNING & Martin KESSLER, 2012. "Fiscal Federalism: US History for Architects of Europe’s Fiscal Union," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 1-31.
    3. Ngai, Victor, 2012. "Stability and Growth Pact and Fiscal Discipline in the Eurozone," Working Papers 12-10, University of Pennsylvania, Wharton School, Weiss Center.
    4. Torój, Andrzej & Bednarek, Elżbieta & Bęza-Bojanowska, Joanna & Osińska, Joanna & Waćko, Katarzyna & Witkowski, Dariusz, 2012. "EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates," MF Working Papers 12, Ministry of Finance in Poland, revised 06 Mar 2012.
    5. Joshua Aizenman & Gunnar Gunnarsson, 2015. "Fiscal Challenges in Multilayered Unions: An Overview and Case Study," Social Sciences, MDPI, vol. 4(2), pages 1-20, May.

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