The precarious fiscal foundations of EMU

After a brief overview of the fiscal theory of the price level, we consider the insights it provides into monetary policy formation under certain kind s of deflationary and inflationary stress. Then we consider how the institu tions of the EMU are equipped - or unequipped - to deal with such stress. T he conclusion is that fiscal institutions as yet unspecified will have to a rise or be invented in order for EMU to be a long-term success.