The End of Monetary Dominance? Europe’s Search for Fiscal Power

Over the past fifteen years, successive crises, from the pandemic to the energy shock and Russia’s invasion of Ukraine, have transformed the role of fiscal policy in the European Union. Once tightly constrained within a framework designed to entrench monetary dominance and fiscal discipline, fiscal policy has become the EU’s primary instrument for crisis management, stabilization, and investment. Yet this shift has unfolded within an institutional architecture still anchored in treaties designed for a different macroeconomic order. As a result, fiscal capacity today is more present, but also more politically contested, nationally fragmented, and institutionally constrained. This paper examines how this contradiction is managed inside the European Commission, focusing on the evolving role of the Directorate-General for Economic and Financial Affairs (DG ECFIN). Based on elite interviews and embedded fieldwork, it argues that the Commission has shifted from enforcing fiscal discipline to actively managing fiscal space. Under conditions of permanent emergency, DG ECFIN has gradually reinterpreted and layered existing instruments, moving from ex-post surveillance and sanctioning toward ex-ante guidance, investment planning, and discretionary coordination. Fiscal rules persist as a language of credibility, but no longer function as the sole organizing principle of governance. The Recovery and Resilience Facility (RRF) marked the pivotal moment in this transformation. By enabling EU-level debt issuance and direct fiscal transfers, the Commission acquired unprecedented sovereign-like capacities. While this bond-issuing power remains formally temporary, the administrative infrastructure, policy expertise, and coordination practices it generated are already being redeployed through post-2027 fiscal instruments. Conceptually, the paper frames these developments as pragmatic institutional adaptation in the face of paradigmatic uncertainty. Rather than a return to austerity or a clean transition to fiscal expansion, the EU is consolidating a hybrid regime that seeks to reconcile rule-based discipline with emerging fiscal sovereignty.