For a federal European Unemployment Insurance Scheme

BY DOMENICO MORO is a member of the national board of the Movimento Federalista Europeo (MFE) and of the Federal Committee of the Union of European Federalists (UEF). He is a former director of the Altiero Spinelli Institute for Federalist Studies.

INTRODUCTION

The economic crisis has highlighted the fundamental flaws of the European Economic and Monetary Union. Stabilisation by the market, on which the euro was funded, proved ineffective in the face of a deep downturn and the erosion of political trust. The Eurozone requires automatic stabilisers able to effectively manage the impact of asymmetric shocks to the European economy. The idea of a European Unemployment Insurance Scheme (EUIS) has become popular among politicians and scholars, but discussions are still marked by deep divergences regarding the extent, scope, purpose and structure of any such system. This paper strives to identify how an EUIS could benefit the euro area and which characteristics it should have. It begins by examining the US Unemployment Compensation system, providing considerable insight on the stabilising effects that could be expected from an EUIS, as well as illustrating how a federal-level system can be conciliated with a variety of state social regulations.

An overview of the major contributions to the discussion on the establishment of an EUIS illustrates the potential for such a scheme to prevent or cushion future sovereign-debt and economic crises in the Eurozone. This would be achieved by relieving Member States’ social systems when their finances most need it and by providing anti-cyclical stimulus.

The paper concludes by proposing the creation of an EUIS fully managed at the European level, able to cover a significant part of short-term unemployment benefits. A European Fund financed through a common tax rate and hosting European and national accounts would help address the potential for moral hazard. Finally, this construction should be complemented by an institutional overhaul of the EU, giving it exclusive competence in dealing with unemployment resulting from serious economic downturns. The European Commission’s legitimacy should be improved in order to allow it to carry out the harmonisation of a part of national social policies.