The US may show the EU the way forward on fiscal integration

The financial crisis has not affected all of the countries of the EU in the same way. Member states in the EU’s periphery are struggling with unemployment rates of over 25 per cent, while the core nations, such as Germany, have rates around 5 or 6 per cent. Using another currency union, the US, as a comparison, James Feyrer and Bruce Sacerdote argue that one of the EU’s major weaknesses is its lack of a mechanism for large fiscal transfers between states. In the US, Federal spending is progressive, and much more responsive to external shocks, meaning that there is a much larger degree of smoothing between states in terms of GDP and unemployment rates.