Mario Draghi on the path to fiscal union in the euro zone

the prospects for fiscal union in the euro zone are improving

Fiscal union is typically seen as entailing transfers from thriving regions to those going through economic slumps, and in Europe public opposition to stronger countries supporting weaker ones remains fierce.

The euro zone has evolved in two ways that are opening up a different, and potentially more acceptable, road to fiscal union.

First, since 2012 the European Central Bank has developed policy tools to contain unwarranted divergence between stronger and weaker countries’ borrowing costs

Second, Europe has to confront common, imported shocks like the pandemic, the energy crisis and the war in Ukraine.

there is a serious risk that Europe underdelivers on its climate goals, fails to provide the security its citizens demand and loses its industrial base to regions

Fiscal rules should be both strict, to ensure governments’ finances are credible over the medium term, and flexible, to allow governments to react to unforeseen shocks.

That is broadly the situation in America, where an empowered federal government sits alongside largely inflexible fiscal rules for the states, which are mostly prohibited from running deficits. Balanced-budget rules are credible—with the ultimate sanction of default—precisely because the federal level takes care of the bulk of discretionary spending.

Such reforms would mean pooling more sovereignty, and would therefore require new forms of representation and centralised decision-making.