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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.
It is often proposed that the European Union should 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. Therefore, although the European Union has a monetary union, it does not have a fiscal union.
Laruffa describes the European economic governance as "an economic constitution made by rules, policies and institutional practices aimed to establish the a fiscal-monetary policy mix, competition rules, financial markets regulations, the single market and international trade policies. When the euro was created, monetary policy was established as a centralized policy, while fiscal policy remained in the hands of national authorities under some institutional arrangements for sound budgetary policy and an ex-ante control by the European Commission."
Control over fiscal policy is considered central to national sovereignty, and in the world 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 euros. There is furthermore a Stability and Growth Pact (SGP) among members of the Eurozone (common currency area) intended to co-ordinate the fiscal policies of member states. Under the SGP, member states report their economic plans to the European Commission and explain how they are to achieve medium-term budgetary objectives. Then the Commission evaluates these plans and the report is sent to the Economic and Financial Committee for comments. Finally, the Council of Economic and Finance Ministers decides by qualified majority whether to accept the Commission's recommendation to the member state or to rewrite the text. However, under the SGP, no countries have ever been fined for not meeting the objectives and the effort to punish France and Germany in 2003 was not fulfilled. Therefore, after the Eurozone crisis, some people in Europe felt the need for a new union with more powerful fiscal influence among member states.
On 2 March 2012, all members of the European Union, except the Czech Republic and the United Kingdom, signed the European Fiscal Compact, which was ratified on 1 April 2014. The treaty is designed to implement stricter caps on government spending and borrowing, including automatic sanctions for countries breaking the rules. The results of the treaty on the Eurozone economy, are yet to be known.
With the crisis of the euro area deepening, more and more attention has been put by scholars on completing the fiscal side of the monetary union. Marzinotto, Sapir and Guntram Wolff (2011), for example, were among the first to call for proper fiscal resources at the federal level that would allow to stabilize the financial system and if necessary help individual countries (What kind of fiscal union?).