European Monetary Union without a Banking or Fiscal Union cannot Essay

European Monetary Union without a Banking or pecuniary Union dirty dognot succeed. Please critically evaluate this statement with s - Essay Example forrader going into detail as to why and how pecuniary and banking union can facilitate success of fiscal union, it will be prudent to delve deeper into the aspects that are responsible in creating a state of monetary instability in the European Union. It is worth noting that unlike the United States, fiscal measures are not exercised by the EMU and that is where the major crux of the issue lies. Genesis of Crisis EU witnessed a sovereign debt crisis and an unprecedented banking crisis in the recent years. It is important to note that both did not surface in isolation but they were interrelated. autonomous debt crisis had its genesis in poor fiscal management over several years violating Maastricht Treaty. A reasonably large number of Spanish banks are afflicted with their own sovereign debt and because of that have lost their rea l Tier I capital. Thus, banking crisis has its roots, albeit in an indirect way, to the fiscal mismanagement. It is also true that the US subprime crisis did contribute to the woes of the European banks. When seen in terms of the fiscal mismanagement, the genesis of debt crisis is old. ... The irony was that much of the borrowing was not revealed because each straight government had to meet the euro average that restricted borrowing at 3% of GDP. Everything was fine until global financial crisis surfaced in 2008 that exposed many EU countries for their imprudent fiscal policies. Debt levels went so high that it was impossible for the soil to repay them. While providing the rescue package, the European Union attached several conditions that further compounded Greeces woes. In May, 2010, Greece was provided with funds of 110bn Euros so that government could pay its creditors. It was soon realized that given funds were not overflowing and another tranche of 130bn euro was planned. M aastricht Treaty among the member states specifies that total debt should not exceed 60 percent of GDP. Even this norm was flaunted by the member countries considerably. For example, in 2000, Greece had total debt of 103.4% as a proportion of GDP that rose to one hundred forty-five% and 165% in 2010 and 2011 respectively. Italy too had the total debt-GDP ratio of 108% in 2000 that rose to 120% in 2011 (BBC News, 2012). Fiscal Discipline A Necessity In the above perspective, it is quite obvious that monetary union cannot carry out desired results in the euro zone area as far as the financial stability is concerned. A fiscal discipline is extremely necessary however, monetary union has no control on fiscal imbalances created by the member states. Cottarelli (2012) from the IMF argues that in view of the current situation and to bring the EU out of crisis, a Fiscal Union is an absolute necessity built on the following criteria. 1. The Fiscal Union can enforce stronger constraints on state deficits and debt creation that will help