The End of Fiscal Sovereignty in Europe
The current crisis in the eurozone vividly underscores the importance of fiscal discipline – a point that the common currency's creators understood well. Today, EU leaders and member states must recognize that achieving the combination of discipline and flexibility needed to protect the collective interest and sustain the eurozone implies a loss of full fiscal sovereignty.
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MILAN – The late Milton Friedman said that a common currency – that is, a monetary union – cannot be sustained without a deep form of economic and political union. By this, he meant an open economy that ensures the free flow of goods, labor, and capital, together with a disciplined central fiscal authority and a strong central bank. The latter two are pillars of a strong currency. They work in tandem. But the other pieces are no less important.