The European Monetary Union (EMU) includes a new framework for the fiscal policies of its member states. The need to create a genuine institutional framework to deal with public finances in EMU was recognized already in the Delors Report (1989), which called for institutional safeguards of fiscal discipline in the monetary union and argued that a lack of fiscal discipline might undermine the stability of the new currency. The fear that high and rising public debts would undermine the central bank's ability to deliver price stability has left its mark on all important documents and political decisions on the way to EMU.

In terms of technical economic analysis, fiscal policy and monetary policy are indeed linked through the “intertemporal budget constraint,” the requirement that, in the long run, the discounted sum of a government's expected expenditures cannot exceed the discounted sum of its expected revenues. Given an expected stream of expenditures, governments in EMU must adjust taxes to assure that the intertemporal budget constraint holds, since they cannot use the printing press freely to monetize their debts. Otherwise, they will be forced at some point to default on their debts. A fiscal crisis would arise, and pressures would rise on the European Central Bank to bail out the troubled government.

This reasoning leads to the conclusion that EMU needs a fiscal framework preventing the national governments from running up excessive levels of debt that could threaten the common good of EMU, that is, price stability.