The 30-year old Maastricht Treaty on European Union (EU) is based on the political vision that a stable euro requires sound and sustainable public finances in all the participating countries. This paper reviews the evolving supranational framework for governing the varieties of sovereign risk in the European Monetary Union (EMU). The main finding is that a whole body of EU/EMU public policies contingent on the state of national economies, sustainable financial integration and effective monetary transmission, works against fiscal discipline. EU fiscal rules include ample flexibility, making enforcement contingent on a multitude of mitigating relevant factors. EU financial governance provides public entities with a privileged access to private finance contingent on prudential considerations. The European Central Bank accepts sovereign securities as eligible collateral for its credit operations contingent on continued market access for weaker euro area countries and it utilises contingent public sector purchase programmes as a standard monetary policy tool for managing the euro area sovereign yield curve as well as sovereign spreads. Member States increasingly draw on EU/EMU fiscal agencies for turning national public spending into supranational contingent liabilities. The European response to the Covid-19 pandemic, which involved all the aforementioned state-contingent public policies, added a fiscal redistribution scheme based on large-scale EU debt issuance and has the character of a state-contingent fiscal union. The rise of state-contingent governance to suppress the varieties of sovereign risk in EMU in fact addresses the lack of a central fiscal capacity and a safe sovereign asset for the eurozone and is set to expand further in the period ahead. The political focus on realising common public goods while anchoring national economies marks the transition from the Maastricht Treaty to a ‘Next Generation EMU’ with a more complete fiscal architecture to counter both moral hazard and systemic fragility.
