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International Economics 17th Edition

International Economics (17th Edition)

Book Edition17th Edition
Author(s)Carbaugh
ISBN9781337558938
PublisherCengage
SubjectEconomics
Economic Costs and Benefits of a Common Currency: The European Monetary Union
International Trade Application
North American Free Trade Agreement
International Trade Application
Chapter 8, Economic Costs and Benefits of a Common Currency: The European Monetary Union, International Trade Application, Exercise 01
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What do you think? Do you think that the eurozone countries will ever achieve fiscal union?

Here is a tip:

Fiscal union refers to an integrated fiscal policy of nations or states.

Explanation

The EZ consists of many countries, therefore it is difficult to maintain a homogeneity in their budgetary policies, tax unions and tax regulations. Some countries in the EZ pursue strong fiscal policies while other countries pursue weaker economic policies. In the absence of such homogeneity in policies adopted by nations, it is very difficult to achieve fiscal union.

 

However, a constitutional rule was made in 2011, to balance the budget. Penalty was to be imposed on countries if the deficit exceeded three percent of the GDP. As a result,it is uncertain as to whether EZ countries will ever achieve fiscal union.

Sample Response

It is very difficult for the EZ countries to create a strong enough uniform fiscal discipline. This is because some countries pursue strong fiscal policy while others do not. Since there are 19 members with different governments setting different tax systems, they did not agree on forming the union.    

 

However, the countries also met in 2011 and pledged that they would adopt a constitutional rule that would balance their budget and impose a penalty if the deficit exceeded three percent of the GDP. Therefore, it is uncertain that EZ countries will achieve fiscal union.

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