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The United States fiscal architecture merits a closer look for Europeans because it too is a large monetary union, similar in geographic and economic size to the Euro zone. The US fiscal system is characterized by a high degree of fiscal autonomy of the federal states. Transfers between different levels of government are an essential element of its system, ensuring its functionality. In the case of insolvency, bankrupt federal states are not bailed out by the federal government or other states, as proven by precedent. Automatic stabilizers in the form of spending (social benefits) and revenue (taxes) are in place to disperse the impact of asymmetric shocks across the currency union. The EU, in contrast, has in the past bailed out insolvent member states, creating moral hazard, but has no automatic stabilizers in place to distribute the effects of the business cycle. Its budget rules are not only pro-cyclic but also remain unenforced. The United States’ consistency in its reaction to asymmetric macroeconomic shocks and insolvencies is its greatest strength and a lesson to be learned for the Euro zone, which must find a clear bankruptcy regulation or enforce more expedient budget rules and must put in place automatic stabilizers in order to preserve its prosperity as a whole
