Columbia International Affairs Online: Policy Briefs

CIAO DATE: 06/2012

On the road to a true Economic and Monetary Union? The challenges of fiscal federalism and democratic legitimacy

Teija Tiilikainen

May 2012

Finnish Institute for International Affairs

Abstract

Lessons learned from the current economic and financial crisis pose great challenges for the EU concerning the future development of the EMU. Through the recent changes the limits of a mere coordination of economic policies have been reached and a debate about turning the system into a true Economic and Monetary Union must be launched. A further strengthening of the EU’s power in economic and fiscal policies would require a clearer move in the direction of fiscal federalism, that is, a more balanced relationship between the Union’s budget and those of the member states. It would also require the finalization of the Union’s democratic system along the lines of a federal political order. The divided character of the currency union presents significant difficulties for its further deepening and democratization.