The eurozone must take steps without delay towards a fiscal union that involves the creation of a eurozone finance minister and fiscal resources to prevent, manage and resolve crises, researchers from a Brussels-based think tank Bruegel said.
At the core of the failure in solving the debt crisis which risks breaking up the eurozone is "the absence of a fiscal union with corresponding authority over fiscal, structural and banking policies," Bruegel said in its latest policy brief "What Kind of Fiscal Union."
The article, co-authored by Bruegel's researcher fellow Benedicta Marzinotto, senior fellow Andre Sapir and deputy director Guntram Wolff, proposed a fiscal union in the single-currency area, including "the creation of a eurozone finance ministry, with a minister with veto rights over national budgets that could threaten euro-area sustainability."
The ministry should help establish a sole supervisory authority over all systemic banks in the area, with complete and direct access to all information for the relevant institutions and with financial means to support those in difficulty, said the three researchers of Bruegel, whose research is often reflected in the decisions of eurozone policy-makers.
The finance minister will need to be elected by the European Parliament and the European Council. All major decisions would have to be put to a vote in the two chambers, according to the brief released earlier this week.
BUMPY ROAD AHEAD
However, the Bruegel researchers cautioned that a bumpy road might lie ahead as the establishment of such a fiscal union necessitates a large-scale revamp of the European Union (EU) treaty, which is set to be extremely complicated.
As the plan implies a significant transfer of sovereignty, "we are aware that this will not happen overnight," said the researchers, who expected the treaty change to take at least three to four years.
Saying "this is much too long to be of help in resolving the current crisis," they called for a swift political agreement to move forward in such a direction in order to allow current institutions to prevent the worst from happening.
Sapir said there was not much of a debate on these matters, except in Germany. As it is essential for national leaders to sell such a move to the citizens, there needs to be a debate about the merits of fiscal union "as soon as possible," Sapir, one of the authors, told Xinhua.
"The debate should not be confined to politicians and specialists but involve citizens. If we start the debate now, then in three to five years, we could have a new treaty with not just a monetary but also a fiscal union," said Sapir, also a Professor of Economics at Universite Libre de Bruxelles (ULB).
SINGS OF PROGRESS
There are already signs of the eurozone working towards the building of a fiscal union, said Sapir.
The decisions taken for the past year, including the creation of the European Financial Stability Facility (EFSF) and the reinforcement of the Stability and Growth Pact (SGP), go in the direction of a fiscal union, Sapir said.
On Thursday, the leaders of Germany, France and Italy made tougher fiscal governance a top priority in their battle to stem the sovereign debt crisis, a day before the European Commission proposed regulations for tougher budgetary disciplines.
The euro project will be "difficult, if not possible" to save from break-up without eurozone countries giving up some fiscal control, the European Commission President Jose Manuel Barroso warned at a press conference on Wednesday after unveiling the proposals.
"The new moves are a further step. But although they represent steps in the right direction they are still short of a more radical step as advocated in our article," Sapir said.