The Future of Fiscal Policy in the Euro Area

The European monetary union (EMU) is a largely incom - plete currency union. The Euro founding fathers were very aware of this issue but, because of political con - straints, they chose a “minimalistic” solution (Constan - cio 2018). The optimistic view of the time was that even an incomplete currency union would be enough to induce greater political and economic convergence among member countries, making it easier to adopt further reforms of the EMU architecture when, and only if, needed. Thus a common currency and a fiscal brake, in the form of the Stability and Growth Pact (SGP), rep - resented the only two blocks of the original EMU. There was no perception that, in order to support the cur - rency union, a common financial supervision for banks and a crisis management mechanism for member countries might also be needed.