Fiscal policy and governance within Economic and Monetary Union

Economic and Monetary Union (EMU) is a unique combination of a single monetary policy and a multitude of fiscal and economic policies that are decentralised at the Member State level. It is therefore important to understand how these policies interact and contribute to ensuring the smooth transmission of monetary policy throughout the euro area. Indeed, in the absence of national monetary and exchange rate policies to respond to country-specific shocks, fiscal policies can be designed to cushion such shocks if they start from a sound position. Similarly, sound structural policies can help to strengthen economic resilience and thereby contribute to the smooth functioning of EMU. Other aspects of EMU governance are also relevant from a monetary policy perspective. In this regard, the ECB is particularly interested in understanding the benefits of, and the obstacles to, financial integration within EMU, including the establishment of a banking union and a capital markets union, and their implications for monetary policy implementation.

Fiscal policy within EMU

General area of interest: gaining a better understanding of the conduct of fiscal policy in the euro area, its potential cross-border spillovers and its implications for monetary policy transmission.

Selected areas of focus:

• analysis of the impact of fiscal policies on the macroeconomy, e.g. on economic growth, macroeconomic stability and inflation, especially at the effective lower bound of interest rates
• analysis of the aggregate euro area fiscal stance, particularly in view of the trade-off between sustainability and stabilisation
• study of the interaction between monetary policy, fiscal policy and the financial sector
• assessment of risks to debt sustainability, including the impact of population ageing and the effects of pension reforms
• exploration of issues related to fiscal policy and climate change
• analysis of ways to improve the functioning of EMU, including reforms of EU fiscal rules, the interplay between fiscal rules and market discipline, and options for a fiscal capacity for EMU

EMU integration and governance

General area of interest: measurement and characterisation of EMU integration, and analysis of governance structures and structural policies.

Selected areas of focus:

• analysis of the relative role of private and public channels in sharing risk in the euro area
• measurement of financial integration within EMU and identification of obstacles to further integration
• analysis of the costs and benefits of structural and institutional reforms aimed at fostering the euro area’s resilience to shocks
• analysis of the implications of economic and political factors for the economic governance framework, in particular whether the EU-wide response to the coronavirus (COVID-19) crisis could be beneficial for economic and fiscal integration in EMU and how the framework could be improved from a longer-term perspective
• analysis of citizens’ attitudes towards the ECB, the euro and EMU integration
• assessment of different options for completing the EMU architecture, including options for a capital markets union and a banking union, as well as their interlinkages with a possible fiscal union