Fiscal Policy in the Member States under EMU

[From the Introduction]. The main purpose of this paper is to consider whether fiscal policy according to EMU’s constraints is sustainable particularly in the context of high unemployment and low growth. In this respect, this paper is mainly based on previous studies which developed possible scenarios in order to examine this sustainability. The paper also considers the implications of the sanctions stated in the Stability and Growth Pact on EMU Member States’ economies should they actually be applied. In this respect, a negative economic scenario characterised by asymmetric shocks is presented in order to try to establish whether the EMU provides measures which may help economic recovery by enhancing regional convergence. A comparison with US fiscal federalism is also made to compare the means used in the US to achieve stabilisation. Finally, the discussion is extended by considering whether fiscal policies in a Monetary Union should in principle incorporate stabilising functions, and whether a Monetary Union actually needs a centralised fiscal policy in order to pursue such stabilisation.