Partial fiscalization: Some historical lessons on Europe’s unfinished business

Michael Bordo, Harold James

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Scopus citations


The British referendum on EU membership, combined with the discussion of a partial Greek exit from the euro, has raised in a suddenly acute form the question of the relationship between the EU and the eurozone. The new, acute crisis demands some innovative thinking to preserve - and extend - the central benefits of European integration, while thinking about additional areas that demand a cooperative rather than a confrontational solution. The Maastricht Treaty basically assumes that all EU member countries will satisfy the membership criteria for the currency union and stipulates that they are then obliged to join. The opt-outs only relate to the United Kingdom and Denmark. The United Kingdom has been in a paradoxical position of championing the rather abstract case (with which probably a majority of economists agree) that a currency union requires a greater measure of fiscal integration than the EU or the eurozone currently possesses - US policymakers made very similar points - while, on the other hand, making it clear that it did not want to participate in that greater fiscal integration. In January 2012 (along with the Czech Republic) it voted not to accept the fiscal compact (Treaty on Stability, Coordination and Governance), on “legal grounds.'' Brexit may thus in theory make a move to greater fiscal integration easier. At the time of the Maastricht discussions, many European policymakers, such as the influential Commission President Jacques Delors, simply assumed that the EU budget’s share would rise to about 3 percent of GDP (by coincidence, that was about the share in peacetime of the US federal budget during the nineteenth century). Instead, the figure remained stuck at just over 1 percent (it has actually declined slightly since the 1990s). Denmark on its own is unlikely to want to remain an outlier, especially since the management of the currency since the global financial crisis of 2008 has been rather precarious. There is a similarly strong case why Sweden might want to end its anomalous “out” position - for the same kind of reasons why Norway and Switzerland are finding it very hard to live with an independent currency and to devise an appropriate set of monetary and exchange rate policies.

Original languageEnglish (US)
Title of host publicationRethinking Fiscal Policy after the Crisis
PublisherCambridge University Press
Number of pages26
ISBN (Electronic)9781316675861
ISBN (Print)9781107160583
StatePublished - Jan 1 2017

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance
  • General Business, Management and Accounting


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