The European fiscal governance framework remains incomplete, leading to challenges in coordinating policy responses when facing economic shocks, and hampering the transmission of the single monetary policy. Against this backdrop, we provide a framework to assess a proposal for a Central Fiscal Capacity (CFC) in the euro area, aimed at stabilizing the business cycle, promoting sovereign debt sustainability as well as reducing the procyclicality of public investment. We develop a two-region DSGE model with a permanent CFC that allocates resources based on the relative output gap of the two regions while earmarking a fraction for public investment and imposing fiscal adjustment requirements for the high-debt region.