The False Promise of a Eurozone Budget

The US monetary union is frequently said to work much better than Europe's because a large federal budget smooths the impact of shocks to individual states; so the eurozone, it is claimed, should have its own budget to provide similarly automatic insurance to its members. But this argument misreads the US experience.

BRUSSELS – A key question confronts the four presidents of Europe’s major institutions (the European Commission, the European Council, the European Central Bank, and the Eurogroup) as they prepare their report on how to reform the common currency: Does the eurozone need its own budget?

They are facing the argument that the United States’ monetary union works much better because there is a large federal budget to smooth the impact of asymmetric shocks – that is, shocks to individual states. The eurozone, it is claimed, should have its own budget to provide similarly automatic insurance to its members.

This argument, however, misreads the US experience.

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