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The article examines the recent high-level policy proposals to establish a fiscal capacity for the euro zone and discusses the relationship between taxing and spending in the Economic and Monetary Union (EMU) by analysing the need and possibility to levy taxes at the supranational level to sustain this new fiscal capacity. To this end, the article focuses on the pending legislation for the introduction of a Financial Transaction Tax (FTT) and considers the legality of resorting to enhanced cooperation to adopt a FTT among a sub-group of euro zone countries. While the use of enhanced cooperation in the area of FTT has been the object of recent challenges, the article discards these concerns and argues that the adoption of an FTT through enhanced cooperation is consistent with the constitutional function of this instrument, complies with the principles of the internal market and does not affect the rights of nonparticipating Member States - so it is legal. However, the article suggests that the use of enhanced cooperation to enact an FTT meets several political challenges, precisely because of the connection between taxing and spending in the euro zone. Since only 11 Member States have agreed to levy an FTT, it appears difficult to appropriate the revenues of the FTT for the benefit of a common euro zone budget. In the end, the establishment of a fiscal capacity for the euro zone requires further institutional reforms in the architecture of the EMU aimed at ensuring a more effective and legitimate decision-making process in fiscal affairs.
