This paper provides an analysis of the controversial issue of fiscal coordination in the future monetary integrated Europe, both from a theoretical and a policy point of view. It is argued that fiscal coordination is efficient, especially if governments care about deficits. Authentic coordination would be carried on by a federal government managing a large enough centralized budget. Alternatively, a coordination-like outcome may be achieved by establishing correct deficit targets to national governments. The pragmatic solution, since the economic structure of the European Union is not well known, consists in assessing upper and lower bounds for deficits. The model emphasizes the positive role of the Stability and Growth Pact.
ANDRÉ, P. and VRANCEANU, R. (1997). Fiscal Coordination in the EMU : A Theorical and Policy PErspective. ESSEC Business School.