European Unemployment Insurance for a Stronger Eurozone

Implementing a European Unemployment Insurance (EUI) would be a significant step towards a stronger Eurozone. The EUI would provide financial support to workers in countries experiencing high unemployment, helping to stabilize the economy.

This is not a new idea, as the European Commission has been exploring the possibility of an EUI since 2012. The Commission's proposal would require member states to contribute a percentage of their GDP to a common fund, which would then be used to support unemployed workers.

The EUI would help to mitigate the negative effects of high unemployment, which can lead to social unrest and economic instability. By providing a safety net, the EUI would allow workers to keep their jobs and continue contributing to the economy.

Studies have shown that an EUI could lead to a 10% reduction in unemployment rates in participating countries. This is because workers would be more likely to stay in their jobs, rather than leaving to seek employment in other countries.

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A European unemployment benefit scheme can be designed to address both stabilisation functions, but it requires a basic arrangement of temporary, non-permanent transfers for cross-country risk-sharing.

The European unemployment benefit scheme can take two forms, one of which is a basic common European scheme where national schemes are partially pooled and individuals receive unemployment benefits directly from the common European scheme for a limited period.

This means that the level of generosity of the social protection system is not bound to be uniform among all countries, because member states could decide to complement it.

A minimum degree of harmonisation of labour markets would be required, defining some common minimum standards across countries.

Here are the two basic variants of the system discussed:

In an "equivalent" European unemployment insurance, a European fund would pay out funds to either the national budget or national unemployment insurance in case unemployment increases steeply in a member state, thus acting as a reinsurance for national unemployment systems.

European unemployment insurance has been a topic of debate among European leaders. László Andor, a former European Commissioner, has repeatedly called for its introduction.

German finance minister Olaf Scholz proposed European unemployment insurance in June 2018 as part of Eurozone governance reform.

The concept of a European unemployment insurance has a long history dating back to the 1970s, when the Marjolin Report first mentioned the possibility of introducing a common currency for the European Community.

The report's authors suggested that a community system of unemployment benefit would be an effective approach to redress imbalances between Community countries. This idea was later referenced in the MacDougall Report and other works on possible transfer systems commissioned by the European Commission in the early 1990s.

Sebastian Dullien, a German economist, published several papers on a possible European unemployment insurance in 2007 and 2008, which helped to revive the debate. His work on the concept was later taken up by the European Commission.

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The idea of a European unemployment insurance gained new prominence after the onset of the European debt crisis, when the lack of a fiscal capacity for the euro area became evident. This led to the inclusion of the idea in the four presidents' report of 2012.

In 2014, the European Commission commissioned a large consortium to write an extensive feasibility study on a potential unemployment scheme. The study detailed the different options for such a proposal, the technical challenges, and the macroeconomic impact.

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The idea of European unemployment insurance has been floated around for a while, and it's interesting to see how it's been taken up in the political sphere. Former European Commissioner for Employment, Social Affairs and Inclusion László Andor has repeatedly called for its introduction.

In June 2018, German finance minister Olaf Scholz proposed European unemployment insurance as part of Eurozone governance reform. This is a significant development, showing that the idea is gaining traction among policymakers.

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A European unemployment benefit scheme can be designed to address both stabilisation functions, but it requires a basic arrangement of temporary, non-permanent transfers for cross-country risk-sharing, and a debt-issuing possibility for inter-temporal stabilisation.

This can be achieved by propping up short-term unemployment, which is easily understandable and promptly measurable, and closely follows developments in the economic cycle.

A basic common European scheme involves partially pooling national schemes, where individuals receive unemployment benefits directly from the common European scheme for a limited period, and national systems are allowed to top up.

This approach ensures that fluctuations in unemployment rates in every country are automatically internalised by the system, therefore ensuring stabilisation.

A minimum degree of harmonisation of labour markets is required, defining some common minimum standards across countries, such as a minimum replacement ratio and duration of unemployment benefit.

Here are some key features of a basic common European scheme:

The current state of the EMU is a structure for fair weather, not for financial and economic turmoil, making it a competitive disadvantage for Europe.

The incomplete EMU design has led to monetary union imposed under inappropriate conditions, which is generating political pressures against integration. This is exactly what Nicholas Kaldor feared in 1971.

Either the EMU allows each country to be better off inside than outside it, or it will not be sustainable, as Mario Draghi put it in 2014. This is a stark reality that Europe needs to face.

Without concrete initiatives towards a better functioning model, de-construction will present itself as the more appealing option towards the end of this decade. This would be a choice between an orderly or disorderly one, with unpredictable consequences.

The key obstacle to implementing a European unemployment benefit scheme is political. Painful adjustments in deficit countries have eroded political support for further integration.

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