Does macroeconomic stabilization through European unemployment insurance imply permanent transfers between States?

A Community mechanism for unemployment insurance would make it possible to concretely materialize solidarity between States by helping to smooth the impact of economic shocks. As early as 1975, the Marjolin report underlined the interest of this mechanism in order to reduce intraregional imbalances. In response to the strong asymmetric shocks observed since the beginning of the 2000s, the report of the five presidents (2015) also insisted on the importance of a common macroeconomic stabilization mechanism in monetary unions to absorb certain severe shocks”.

From a theoretical point of view, the presence of market failures also justifies the creation of a mechanism of this type. In a context of fixed exchange rates, the presence of nominal rigidities and frictions with the free mobility of factors prevent the absorption of asymmetric shocks by market mechanisms. Beyond the measures aimed at modifying the incentives of private economic agents, recourse to public intervention seems necessary. However, the establishment of public risk-sharing mechanisms at the level of the Economic and Monetary Union (EMU) raises many questions about their methods of application and their political feasibility. In particular, the lack of consensus on possible transfers between countries may have slowed down their implementation.

A European unemployment compensation mechanism would be a first step towards risk sharing within EMU (Bilbiie et al., 2021), offering at first glance obvious characteristics of subsidiarity between levels of government. In this perspective, fourteen French and German economists (Bénassy-Quéré et al., 2018) propose the establishment of a European unemployment insurance while proscribing permanent budgetary transfers within the EMU. The Franco-German declaration of Meseberg (2018) for its part invited further reflection on “ the creation of a European unemployment insurance stabilization fund, for the event of serious economic crises, without transfers”.

This Newsletter estimates the benefit of smoothing and harmonizing the intra-European economic cycle of a European unemployment insurance system. The analysis focuses on an insurance system without permanent transfers, but with a common borrowing capacity, which would be superimposed on national unemployment insurance transfers, partly based on the model of the American federal unemployment insurance. The simulation is calibrated so as to imply an additional expenditure of 10 billion euros per year on average, the equivalent of one SURE plan per decade.

Such a system could play an important role of countercyclical stabilization without permanent redistributive effects between States. According to the simulations performed…

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