Brussels, 03/09/2013 (Agence Europe) - Although the unemployment insurance project for the Eurozone was not ultimately included in the European Commission communication on the social dimension of the Economic and Monetary Union (see EUROPE 10934), the theoretical premise of such a system was briefly tackled in this communication. It is distinctly Keynesian on this point, insofar as the Commission has drawn direct inspiration from the US unemployment insurance system, created a few years after the 1929 stock market crash, to illustrate its vision of a future euro zone with its own budget. The president of the Commission, José Manuel Barroso, explained that this vision no longer remained a very realistic option because substantial changes to the treaty would be needed.
Similarly to Europe, US unemployment insurance cover is managed by the authorities of the state. Since 1935, however, a federal programme has been in place to support the authorities through the collection of local and federal taxes. Federal bodies are able to take out loans if necessary. In cases of severe recession, the US Congress can put in place temporary programmes for extending allocations, as was the case in 2002 and 2008. This allows the unemployed to continue to receive unemployment allocations even beyond the legal period, which corresponds on average, to 26 weeks in the US. In these circumstances, the federal budget funds up to 50% of these temporary measures. This two-level structure provides the US with a flexible automatic stabilisation instrument when crises strike.
The Commission was directly inspired by this system and referred to it in its communication on the social dimension of the EMU. Unemployment insurance, however, is only included as an illustration of the possibilities that a Eurozone with its own budget capacity could provide. The Commission explains that, “the central budget would provide for an EMU-level stabilisation tool to support adjustment to asymmetric shocks, increase economic integration and convergence and avoid setting-up long-term transfer flows”. Two options have subsequently been proposed: a stabilisation scheme based on conventional or “European” social security systems; or a scheme that is similar to the assistance capacity provided by the US federal government. In the first case, “this a stabilisation scheme to absorb asymmetric shocks could require monetary net payments that are negative in good times and positive in bad times”. In such a scheme, net contributions/payments would be worked out, “by countries as a function of their output gap (relative to the average). Such a system would need to be financially neutral in the medium term for each country, and it would also depend on country size”.
The second option proposes greater flexibility. Financial contributions from states would not be permanent because the stability scheme would be based, “on earmarking payments from the fund for a defined purpose, with counter-cyclical effects”. Specific EMU support to one or several states could be done in respect of unemployment insurance but not exclusively so. What would it cost? The Commission has not made a lot of progress with its estimates in this regard simply because by using the example of complementary unemployment insurance at the euro zone level, everything would depend on the amount of net contributions and fixed objectives (who will benefit from it, for how long and in what circumstances).
The Commission therefore, ultimately, did not seek to venture on to ground that was fraught with both political and legal dangers. As Barroso pointed out a few hours after the presentation of the communication on the social dimension of the EMU by Commissioner Laszlo Andor (Employment and Social Affairs), “there is currently no legal basis to put forward proposals on mechanisms in the framework of a budgetary union, particularly because fighting against asymmetrical shocks through unemployment insurance systems would imply the transfer of resources for a harmonisation mechanism, which is not allowed in the treaties” and particularly highlighted by Article 149 of the TFEU. The flexibility clause provided in Article 352 cannot be applied either because, as explained in the communication, “the establishment of macroeconomic stabilisation systems would exceed the general framework of the current Treaties and thus amount to amending the Treaties without following the requisite procedures”.
According to Barroso, even if such a proposal were put on the table, there is no probability at all of it being approved because the majority of governments in Europe would immediately oppose it. In a small meeting with journalists, he explained that in a personal capacity, he would be in favour of doing much more on this issue but that he had to be frank, “none of his predecessors, not even Jacques Delors, who created a social agenda, had gone against the treaties”. (JK with MB/trans.fl)