For Europe, There Are No Shortcuts to Fiscal Union

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Photographer: LLUIS GENE/AFP/Getty Images

European Commission President Jean-Claude Juncker made clear in his State of the Union speech today that he wants more Europe, including an expanded euro zone club. That will require a degree of economic and financial integration Europe currently lacks. The central question, with German elections nearly two weeks away, is whether Berlin will finally agree to the creation of some form of fiscal union, which would help member states deal with economic shocks before these turn into full-fledged crises.

One optimistic take is that this question may not matter all that much. Even if Germany continues to refuse to pool tax revenues to fund measures such as a joint unemployment benefit scheme, there are other ways to ensure that risks are spread more evenly across the euro zone. In particular, the speedy completion of the banking union and the creation of the EU's capital markets union can ensure that private investors from across the monetary union take a hit when a country suffers a shock. So long as governments do not step in to cover these losses, the argument goes, the euro zone can thrive without a fiscal union.

The main appeal of this view is that it appears politically realistic. Last week at a conference in Brussels organized by the economic think tank Bruegel, the consensus seemed to be that we should not expect a great leap forward once a new government is in place in Berlin. "Is everybody around the table ready to accept a delegation of power to the European level? For these kind of steps to be taken now, it is a difficult period of time," said Belgian Finance Minister Johan Van Overtveldt, pouring water over the idea that greater integration, particularly on the fiscal front, may be just behind the corner.