What is Fiscal Transfer Mechanism

The aftermath of the financial crisis and following debt crisis that the European Monetary Union faced in 2008 required re-examining the architecture of the Euro area and a cost/benefit assessment of the monetary union. When one examines the causes of the crises, one sees that EMU's financial architecture stands out. Although there is a common monetary policy application authority within EMU, local economies can carry on with their own autonomous fiscal policies without any effective control mechanisms. Problems with structures caused arguments about EMU's architecture. It is clear that there is a need for changes in EMU's architecture in short term for euro to survive. The objective of this chapter is to present some suggestions to the policy makers and to point out the problems with the architecture and mechanisms needed to be brought into being in order EMU to survive with the ongoing crisis.