Brussels, 17/06/2014 (Agence Europe) - In order to address the cyclical variations in unemployment and to bring a tangible response to the European election results, the eurozone should focus in the years to come on a common unemployment insurance system, which would make payments of up to 40% of the national reference wage for a period of six months, said European Commissioner for Employment, Social Affairs and Inclusion Laszlo Andor at a conference in Berlin on Friday 13 June.
Although the European Commission has looked at the issue of an unemployment insurance system within economic and monetary union (EMU) in the past, it has never actually launched into political battle on this. In the view of European Commission President José Manuel Barroso, the reason for this is that there has been no chance of the Council supporting such an initiative - which would have required a revision of the Treaties (see EUROPE 10934). However, the political context has now changed on two points, which facilitates Andor's attempt to re-open the debate. Firstly, Germany is now setting a general minimum wage, and secondly, the European elections have borne witness to Europeans' disenchantment with the EU - which is pushing European leaders to take a fresh look at ideas that were previously rejected.
Andor has already begun the debate on this type of insurance system, referring to it in his communication on the social dimension of EMU - but without entering into detail. He has also argued for it on other occasions. He has now decided to suggest a concrete way “to those negotiating the mandate for the next European Commission” to correct make adjustments in a Union which he believes is lopsided and structurally inappropriate because it contains “an inherent bias towards internal devaluation as the prevailing if not the only mechanism of adjustment to economic downturns”. As before, the inspiration comes from the other side of the Atlantic and from the US federal unemployment insurance system. “My main argument today (…) is that Europe's economic and monetary union needs to be strengthened with a well-designed mechanism of fiscal transfers between member states using the euro (…) namely a scheme where EMU member states share part of the costs of short-term unemployment insurance”, Andor stated.
The best solution would be to “define basic European unemployment insurance, which would replace the corresponding part of national schemes” and where “the levels of contribution and of the benefit should represent a relatively low common denominator between the rules of the various national schemes”. The exact parameters remain to be defined but a good compromise could be a fund which “would be paid only for the first six months of unemployment and the amount would represent 40% of the previous reference wage” - with the member states being free to add what they want. Such a system would only be to support unemployed people in the short term because it is they who pay the price of a general reduction in demand.
What would be the cost of maintaining a fund like this? It would be reasonable, in Andor's view, equivalent to 1% of European GDP. Every month the national authorities would be asked to send “to the European fund the basic contribution from all their employed workers”. The fund “would pay to the national authorities an amount corresponding to the sum of all the basic European unemployment benefit payments to be made that month in the country”, which would actually result in a transfer of just the difference between the two. Andor is aware that a structure like this includes the risk of ending up with permanent net beneficiaries, which is not politically sustainable over the long term. However, in his opinion, this is “secondary”, because two mechanisms can reduce the risk of this, making the way the system works fully predictable and calculable. The first mechanism would monitor the medium-term balance between the beneficiaries and the contributors, regularly adjusting the amounts paid and withdrawn (experience rating). The second mechanism would aim to enable the member states to be net beneficiaries for several years before the amounts are adjusted (clawbacks).
Concluding his presentation, Andor wanted to make his mark by giving a strong sense of the stakes in this debate - “either we give up the dogma of 'no fiscal transfers' in the EMU, or we give up the European social model and everything the EUROPE 2020 strategy ever stood for”. (JK)