We review the reasons for limiting the discretion of national fiscal policies in the context of a monetary union. On this basis, we assess the shortcomings of the current euro-area fiscal framework as well as the merits of the main proposals for its reform. Taking into account the elements of consensus that emerged in the debate, we outline a possible revision of the European fiscal rules. The framework we propose aims at public debt sustainability – focusing on those policies that are harmful to member countries – and it is simple and transparent, avoiding the use of unobservable variables. The new framework would be based on a medium-term debt target and a multi-annual headline deficit profile consistent with that target. The new rules should be complemented with a common fiscal capacity to compensate for the loss of policy discretion at the national level and to internalize cross-country fiscal spillovers. In particular, we suggest introducing a contingent facility, which would only be activated in cases specified ex ante or for the realization of common projects of an exceptional nature (e.g. in the energy sector).