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Dolls, Mathias
Fuest, Clemens
Heinemann, Friedrich
Peichl, Andreas
Year of Publication: 
Series/Report no.: 
ZEW Discussion Papers 15-044
This contribution develops a blueprint for a European fiscal union. The proposal addresses the shortcomings of most other reform designs which do not offer a solution for insolvent or noncooperative euro countries. We suggest a design which combines fiscal insurance with an orderly procedure to restructure the debt of an insolvent euro member. We show that fiscal insurance and a sovereign insolvency procedure are no contradiction but, on the contrary, mutually enforcing: An effective fiscal insurance helps to limit the stability risks involved in the implementation of an insolvency regime for sovereigns. And vice versa, a well-defined insolvency procedure reduces the danger that a fiscal capacity motivated as an insurance against transitory asymmetric shocks degenerates into a permanent transfer system. Moreover, we show that both elements are a helpful complement for the functioning of the European banking union and the new European fiscal governance.
sovereign insolvency procedure
European unemployment insurance
euro area debt crisis
Document Type: 
Working Paper

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