Is the euro area a prelude to the fiscal union? Introduction to the ‘fiscal confluence criteria’

Abstract

Objective: The objective of the article is to investigate the suitability of the European Union (EU) convergence criteria as an evaluative instrument in assessing its progression from the monetary union (MU) to the fiscal union (FU). The secondary aim was to propose a list of ‘fiscal confluence criteria’ as a foundation for evaluating member states’ ability to adhere to the fiscal union.

Research Design & Methods: A quantitative research methodology was employed, using eight indicators and three distinct methods (Euclidean distance, standardized sums, Technique for Order Preference and Similarity to Ideal Solution) to create a joint development measure, known as the core measure, for each group: CMMU and CMFU. I employed Spearman’s ρ to calculate the rank correlation between Monetary and fiscal union. The research sample comprised all 27 European Union member states (EU MS). I sourced the datasets from reputable databases, namely Eurostat, the International Monetary Fund (IMF), the World Bank (WB), and Accounting for Transparency (AFT).

Findings: The integrity level of the EU member states falls notably below the established thresholds. There are significant discrepancies between the countries. Consequently, the possibility of the EU attaining the next level of integration (FU) in the foreseeable future is limited.

Implications & Recommendations: Given the obvious limitations on the ability of EU member states to pursue further integration in the immediate future, policymakers, and business entities within the EU should prioritize maintaining the agreement in its current form (Economic and monetary union). Further research should immediately concentrate on the causes and remedies of rising Euroscepticism in EU MS.

Contribution & Value Added: This research offers valuable insights into the potential for further integration within the EU. Moreover, it initiates a discourse on the formulation of new criteria for the next level of integration (fiscal union).

Keywords

European Union, monetary union, fiscal union, convergence criteria, fiscal confluence criteria

Author Biography

Wojciech Ficek

Financial Analyst, Bachelor of International Economics (2022), Master of International Economics (2024) from Krakow University of Economics (Krakow, Poland). His research interests include regional integration, European unification process, financial economics, monetary integration, international trade relations. Applied research methods: panel data regression, synthetic measures of development, Ward’s method, standardized sum method, correlation analysis, TOPSIS.

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