I wrote back in May that we need to watch for the possibility of fiscal union emerging as a result of the ongoing sovereign debt crisis in Europe. I wrote that fiscal union would be an important development to watch for the following reason:
Fiscal union is not quite the same as political union, but it’s a major step towards it. Under fiscal union the members of the EU would be able to influence each other’s budgetary and taxation policy. The determination of budgetary and taxation policy is not only an economic decision but a political decision. Therefore, the creation of a fiscal union would give EU members some political sway in the domestic politics of individual European countries. The next step after fiscal union would probably be political union.
Today there is a report that Yves Leterme, the Prime Minister of Belgium and the current President of the EU, is going to proposal new legislation that could lead to the creation of an EU Treasury. The creation of an EU Treasury would be a step towards fiscal union as EU countries would have shared responsibility for paying the debt that the treasury would issue and the EU Treasury apparently would help to harmonize budgetary policies throughout the EU.
The creation of a EU Treasury is not imminent yet because there is likely going to be some opposition by Germany and others weary about surrendering more sovereignty to Brussels. Nevertheless, this is something to watch given consequences associated with fiscal union. The complete report can be found at this link.
