Fiscal union

Fiscal union is the integration of the fiscal policy of nations or states. Under fiscal union decisions about the collection and expenditure of taxes are taken by common institutions, shared by the participating governments. For example, in federal nations such as the United States, fiscal policy is determined to a large extent by the central government, which is empowered to raise taxes, borrow and spend. It is often proposed that the European Union adopt a form of fiscal union. Most member states of the EU participate in economic and monetary union (EMU), based on the euro currency, but most decisions about taxes and spending remain at the national level.

Control over fiscal policy is a traditionally considered central to national sovereignty, and today there is no substantial fiscal union between independent nations. However the EU has certain limited fiscal powers. It has a role in deciding the level of VAT (consumption taxes) and tariffs on external trade. It also spends a budget of many billions of euro. There is furthermore a Stability and Growth Pact among members of the Eurozone (common currency area) intended to co-ordinate the fiscal policies of member states.

Much greater fiscal union, at least in the Eurozone, is seen by some as either the natural next step in European integration or as a necessarily solution to the 2010 European sovereign debt crisis. Combined with EMU, fiscal union would lead to complete economic integration.

In late 2010 proposals were made to reform some rules of the Stability and Growth Pact to strengthen fiscal policy coordination. In February 2011, France and Germany proposed the 'Competitiveness Pact' that will strengthen economic coordination in the euro area. Spain also endorsed the proposed pact.

See also

• Fiscal policies in the Eurozone
• Fiscal federalism