Fiscal Capacity

This chapter examines the notion of fiscal capacity – as a centralized budget, funded by own resources, to be spent in pursuance of strategic priorities – in the European Union (EU). The chapter explains that the EU’s Economic & Monetary Union (EMU) launched by the Treaty of Maastricht was asymmetry, as it lacked a fiscal capacity. The chapter analyses the EU responses to the euro-crisis and underlines that these did not lead to a fiscal capacity, but rather resulted in the set up of a financial assistance facility, the European Stability Mechanism (ESM), which lacks the feature of a fiscal capacity. Instead, the chapter examines the EU responses to Covid-19 and argues that through the Next Generation EU (NGEU) Recovery Fund the EU has now acquired a fiscal capacity. As the chapter points out, NGEU rebalances EMU and while its approval can be explained in view of the specific circumstances posed by the pandemic, it will likely leave a legacy in the EU constitutional architecture of economic governance.