The eurozone needs its own budget with significant capacityto absorb major shocks and tackle the crisis

Herman Van Rompuy, President of the European Council, has called for a euro-area budget, with the ability to absorb country-specific shocks in member states at a central level. Guntram Wolff looks at these proposals, saying that there is a strong case for a eurozone federal budget, and a strongly defined banking union, to be used for stabilisation policy. He suggests that the existing European Stability Mechanism should be explored as a basis for developing the eurozone’s fiscal capacity.