Reforming under pressure : the evolution of Eurozone's fiscal governance during a decade of crises

The fiscal governance of the European Economic and Monetary Union (EMU) was the result of a political compromise. This led to an imbalanced and unsustainable framework, which contributed to the outbreak of the Eurozone debt crisis. During the crisis, European leaders embarked on a reform effort whose outcome has been criticized for its complexity and lack of effectiveness; moreover, despite its innovations, the reformed fiscal governance has not signified a substantial departure from the previous regime’s failed philosophy. Against this background, the COVID-19 pandemic has posed a new fiscal challenge for the EMU. The massive fiscal intervention required to cope with the health crisis, the economic implications of the lockdowns, and the challenge of economic recovery has questioned the adequacy of EMU's fiscal governance and has raised the prospect of a fragmented European economic landscape. The European Council’s agreement on Next Generation EU has been an undoubtedly positive development in terms of addressing short-term fiscal needs. However, its long-term impact on the supranational institutions of fiscal governance is limited and uncertain. The objective of this chapter is to review critically these changes in the design and evolution of EMU's fiscal governance, through a decade of crises, under the analytical lens of political economy.