Why does the euro zone need fiscal rules?

As Europe works on new fiscal rules, it is important to ask why such rules are needed for the euro-zone countries. There are several strong reasons: A country that does not ensure the sustainability of its public debt creates a negative externality for the other countries, not in the form of a rise in all euro interest rates, as has been said in the past, but by requiring the other countries to bail out the defaulting country; Without fiscal rules, some euro-zone countries would be encouraged to never correct their excessive fiscal deficits and the ECB would be subject to fiscal dominance, that is monetary policy would be forced to maintain the sustainability of these countries’ debt, with the resulting risks; Ensuring the sustainability of all euro-zone countries’ public debt limits the risk of debt crises, with justified speculative attacks on some countries, that threaten the survival of the euro. Indeed, a debt crisis in one euro-zone country turns into a zone-wide crisis by contagion. This leaves unjustified, self-fulfilling debt crises, which the ECB must prevent with its policy of monitoring yield spreads between the countries.