State and Future of European Union Fiscal Integration

Four years after the outbreak of the COVID-19 pandemic, the European Union (EU) is arguably still in a “fiscal limbo”. Until 2026, the EU’s temporary fiscal capacity—the Recovery and Resilience Facility as part of the recovery fund NextGenerationEU (NGEU), adopted in 2020 to tackle the pandemic—will continue providing member states with loans and grants for domestic investments and reforms. While some countries push to extend NGEU beyond 2026, others refuse this. The fate of NGEU remains unclear. Meanwhile, Russia’s invasion of Ukraine in 2022, the ensuing rise of energy prices, and the need to address the green transition, push member states to invest in environmental protection and military defence capabilities. Yet, member states must comply with the deficit and debt rules of the Stability and Growth Pact, which has been recently reformed. In this challenging moment of history, the EU has still a small budget, mostly made of member state transfers, and no power to raise its own taxes. Hence, it cannot finance strategic European public goods, such as a common European defence or alternative sources of energy. Against this background, this paper analyses in depth the complex construction of the present European Union fiscal integration, conceived as the policy mix of resources (fiscal capacity) and rules (fiscal regulation), in order to understand in what ways the EU could fiscally “think bolder” in the future. Adopting a comparative (federal) perspective, the paper has three goals: firstly, to assess the current state of EU fiscal integration; secondly, to critically analyse strengths and weaknesses of EU fiscal integration; and thirdly, to outline potential triggers and persistent obstacles to the further development of EU fiscal integration. In developing this research agenda, the paper introduces the various contributions and relates their individual focus to the wider theme of the special issue.