On 15 October, former Commissioner for Employment, Social Affairs and Inclusion of the Barroso Commission (2009-2014), László Andor was in Lisbon to make a keynote speech at the annual conference of FESSUD project – Impacts of Financialisation on Society , Environment and Economy entitled “Restoring convergence and cohesion in the EMU: a role for unemployment insurance.”
In a speech marked by a pro-European tone but also very critical of the current situation of the European Union and in particular the euro zone, László Andor made use of some graphs to illustrate the weakening of national automatic stabilizers since 2010 and their failure to respond to the crisis of the eurozone. This asymmetric failure between centre and periphery is also reflected in a clearly divergent evolution of unemployment rates in these two regions. Not only are unemployment rates of the core countries considerably lower than those of the peripheral countries, but also this center-periphery difference is greatest among countries of the monetary union than when considering all countries of the European Union.
According to the former commissioner, this inability to overcome the crisis and the related divergent trajectories of the countries that make up the eurozone result from the lack of a common macroeconomic stabilization tool, leaving the stabilization of the economy of the monetary union only to the uncoordinated and unequal efforts of national automatic stabilizers – which is clearly a sub-optimal solution.
Three hypotheses for this stabilization tool were put forward:
1) Automatic income support (based on the ‘output gap’)
2) Reinsurance of national unemployment funds (which would be triggered in case of “severe crises” that affect a member state beyond the capabilities of your unemployment benefit system)
3) Partial pooling of national unemployment benefit systems, thereby creating a common unemployment insurance at EU-level (which may require partial harmonization of the characteristics of the systems)
The proposal defended by László Andor falls into hypothesis 3 and has been developed by Sebastian Dullien. This proposal consists in the supranational establishment of a “social minimum” for unemployment benefits that would be covered by a European unemployment fund (European Unemployment Insurance), with the possibility of each member state deciding the exact duration and dimension of benefits beyond that European “social minimum” (in the proposal advanced by Dullien, the European fund would cover 50% of last wage during the first 12 months of unemployment. Every member state could decide, nationally, to increase the replacement rate above these 50% and the duration of benefits beyond those 12 months using national funds).
The former commissioner, currently researcher at the Hertie School of Governance in Berlin, also took the opportunity to address some of the usual criticisms that the creation of such an instrument has sparked in discussions about reforming the architecture of the Eurozone.
One of the main criticisms is that this instrument would be politically illegitimate because it could cause an asymmetric situation in which some countries would mainly be net contributors to this fund while others would mainly be net beneficiaries of this fund. However, for Andor this problem could be solved by distinguishing between cyclical and structural unemployment and ensuring a greater sensitivity of the instrument to the former and lower sensitivity to the latter. However, even if certain member states permanently play the role of net contributors, in economic terms these would also be net beneficiaries, due to the expected positive effects of this instrument in terms of growth and macroeconomic stabilization at the Union level, which would benefit all countries.
Andor also drew a clear distinction between this instrument and the existing Structural Funds, in response to criticisms that point to a possible overlap of the two. The Structural Funds were created as a result of the Single Market and have the rationale of promoting convergence in terms of GDP level between the different member states of the European Union, whereas the European Unemployment Insurance (EUI) should respond to the different dynamics that stem from the adoption of the single currency by countries that are in different stages of development and lead to external imbalances and uncoordinated economic cycles.
Questioned by the audience, the former commissioner stressed that the stabilization capacity of this fund would be greater if it were endowed with a borrowing capacity, thus issuing European debt. In fact, only through this capacity would the EUI be able to respond to a widespread crisis in the eurozone – otherwise the countries that were “less badly-off” would have to be called upon to help countries in (even) worse shape, converging towards a negative balance. Also answering to a question from the audience, Andor acknowledged that the EUI could be the first step towards a future harmonization and integration at European level of other aspects of social security, such as pensions and child benefits.
At the end of his speech, the former commissioner emphasized the critical tone regarding the current state of the European Union, and particularly the eurozone. Considering it was unacceptable to resort to beggar-thy-neighbour policies and internal devaluation within the monetary union, he admitted that although the wage policy is not a competence of the Union, greater coordination in this field would be needed in the future. Andor also said that European economic and monetary union is currently only a “banknote union” or a “currency board plus”. To evolve towards a full monetary union, the mandate of the European Central Bank could not be so restrictive. And in order to be considered an economic and monetary union, a common monetary policy would need to be accompanied by other common tools, such as the European unemployment insurance.
Institute of Public Policy has been working on a policy paper on the European Unemployment Insurance which will be published soon.