Do we need a fiscal union in Europe?

Summary The current difficulties in the euro zone have rekindled discussions about the governance of the euro zone and the desirability of a fiscal union, i.e., a set of collective fiscal rules, in Europe. In this article, we recall that the European Union already has a fiscal union. We establish a simple typology of fiscal unions and we emphasize one of the fundamental dilemmas of choice, namely the simultaneous management of natural idiosyncratic shocks and opportunistic behavior. We analyze the major shortcomings of the European monetary construct and set out five fundamental principles on which to build fiscal federalism in Europe and ensure the sustainability of the European currency.