Automatic stabilizers for the Euro area and the European Social Model

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1 / 6 TRIBUNE 22 SEPTEMBER 2016 AUTOMATIC STABILIZERS FOR THE EURO AREA AND EUROPEAN SOCIAL MODEL Frank Vandenbroucke | Adviser at the Jacques Delors Institute and Professor University of Amsterdam he debate on creation automatic stabilizers for Euro area is definitely agenda This tribune focuses relationship between proposals social dimension EU including recent Commission initiative to launch a ‘European Pillar Social Rights’ With Five Presidents’ Report completion European Economic Monetary Union Former Commissioner László Andor inspired by pioneering work German academic Sebastian Dullien advocated organization unemployment benefit scheme as best option stabilizer Meanwhile idea Unemployment Benefit Scheme has been subject various papers conferences 2 The funded thorough broadranging research project its added value feasibility led Centre Policy Studies (CEPS) which final results are be delivered soon 3 Parliament discussing report matter Therefore summary different stabilization in presented Paper Nathalie Julia Spath useful timely (Spath 2016) follows up Spath’s policy paper; it these On national level key feature welfare states; hence there an intrinsic link our conception Eurozone one hand EU’s role other hand: defining design implies respective member states systemic function insurance necessitates careful discussion – I hope show should avoid simplistic dichotomies undue ‘symbolism’ To make this case we first need slightly technical detour paper particularly helpful Three logic models organizes basis three ‘logic models’: Cyclical Shock Insurance (CSI); (EUI); Reinsurance mechanism (for will use ‘Reinsurance’ short-cut) CSI model not related either data or benefits; based relative output gap only caters asymmetric shocks means budgetary transfers does allow issue debt EUI variants scheme: they establish direct relation with In models’ can respond both symmetric building difference twofold First individual citizens who shortterm unemployed receive from fund whilst operates lump sum Second trigger (based deviation current short-term state past trajectory that same state); no specific start disbursing money (any participating receives independent T Automatic growth rate state) discard focus My main argument two sense less clear-cut than might suggest: require significant degree convergence regulation across yet extent required method achieve very imperative linked problem institutional moral hazard associated expression ‘institutional hazard’ refers collective actors Simultaneously introduction ‘trigger’ system game-changer regard Institutional essence occurs when person (or institution) takes more risks because someone else another bears costs those Moral insured manipulate liability insurer incurs influencing frequency and/or importance risk words influenced behavior choice deliberate policies rather being purely exogenous ‘beyond control’ reduced but never totally excluded: inevitable some any context traditional understanding what labels ‘ex ante Is relevant concern stabilizers? answer positive nuanced A intervention systems form would create multi-tiered Europe EU4 playing detailed survey eight countries architecture central levels government assuming ‘insurer’ shows emerges all degrees types solutions (Vandenbroucke Luigjes possibility (whether Reinsurance) become ‘lax’ activation (re)employment large generates obvious hazard; cannot dismissed out caveat about important thinking aware ‘a price pay’ obtain pooling stabilisation Hence objective mitigate trade-off capacity hazard: desirable minimised One conclusion examination experiences their extrapolation minimum requirements defined quality instrument reduce p 35) say order minimize financial must such permanent favour certain impossible: ‘experience rating’ prime example country average net beneficiary scheme5 ; trigger-based also respect explain below But Next (2016) mentions post risks’ she support provided used way effective terms stated aims If aim logical corollary schemes sufficient: maintaining (and reinforcing) political quid pro quo organising benefits depends generosity (notably short term) coverage; like Italy where coverage was traditionally low featured poor comparison see Dolls et al 2012) (short-term) part parcel ‘activation quality’ ‘stabilisation states’ (from now ‘minimum requirements’ short-cut concept) fight forms arising next mechanisms applies Minimum impose Pursuing well-known challenge certainly activation: Employment Strategy Open Method Coordination have testing grounds potential so-called ‘soft law’ domain Much literature exists showing mixed An soft process (the Youth Guarantee example) (not existing today mentioned generic future EMU) seen step towards establishment Rights launched March 7 includes principles perspective convergence: ways share challenge: common normative model; do agree ‘provide clear vision integration EU’ Such sharp dichotomy avoided Admittedly creating Europeans genuine transfer operated high symbolic per se prerequisite far merely ‘technocratic’ exercise: saliency underestimated differ flexibility pursued imposed directly fact becomes co-insurer cashing uniform parallel schemes; coordination hard law allows necessary accommodate diversity view ‘rigid’ solution leads ‘flexible’ administrative complexities underestimated8 easier implement; build processes closely initiatives preliminary outline published underscores economic fighting poverty security observes “[i]n cases due strict eligibility duration Member States well enforcement conditions job search participation active ” proposes following principle: “Action shall include requirement combined adequate sufficient time preserving incentives quick return employment Obviously statement general precise 4 However provides opportunity elaborate upon theme; well-formulated incisive benchmarking performance 9 Arguments presentation operation There indeed difference: if pays basic topped governments constitute rights made conditional exceeds higher percentage formulate precisely: character EU-funded right deemed politically disbursement macro-indicators 10 contrast interfere cashes systems; natural Importantly creates additional possibilities ex For instance deviations historical structural ‘benefit’ (by drawing support); obviously then counteracted experience rating broader set possible features 11 addition sheer complexity difficult protect against (compared pay symbolism Conclusion: Need Analytically compelling; doubt uphill battle today’s We therefore exploration scenarios how fit into developing union Various arguments militate idea: governance offers scope seems complicated Politically reinsurance may true ‘union 2015) Because presupposes definition established Rights; momentum 5 Completing Europe’s J -Cl Juncker close cooperation D Tusk Dijsselbloem M Draghi & Schultz June 2015 monetary equipped already long pedigree; account (2016); listed (2016 footnote 1) encompass econometric legal analyses; publications https://www ceps eu/topics/unemploymentinsurance apply Eurozone; here remainder text ‘EU’ ‘Experience ensures contribution differs record; ‘claw back’ deals long-term (negative) contributions increasing (decreasing) amount CEPS-led consortium EUBS examines detail preference her formulates ‘to increase business cycle convergence’ 17) suggests emphasis prefer define ‘increasing stability’ See http://ec europa eu/priorities/deeper-and-fairer-economic-and-monetary-union/towards-european-pillar-social-rights_en 8 reason implementation insurmountable differences reinforces my distinction rigidity versus practice new announced Work Programme Communication 21 follow-up Two nuances principle conceive whereby entitled (i) macro-indicator threshold (ii) exceeded generate set-up quite discussed Spath: imposes ‘basic’ (which top up) without necessarily funding time; reduces ‘European’ nature triggers combined: United federal supplements paying American additionally discretionary decisions); however extend thus top-up ‘top-up’ US is) combination individual-level feasible topped-up thinks operate automatically semi-automatic assessment correct automaticity incompatible indicators relatively simple robust empirical ‘political deliberation’ (in supposes) Moreover since frequently many position kind ad-hoc politically-based decision-making surveillance References L “Towards shared Area” IZA Journal Labour 5:10 C Fuest Peichl “Automatic Stabilizers Crisis: vs Europe” Public Economics Vol 96 No 3-4 2012 pp 279-294 N euro area: table? Promises problems cyclical stabilization” 166 Institut – Berlin F “A Union: Unduly Idealistic Inevitable?” Debates Investment Bank September assistance studies Brussel: February 19 rue de Milan 75009 Paris Pariser Platz 10117 info@delorsinstitute eu www delorsinstitute Managing Editor: Yves Bertoncini document reproduced full dual condition meaning distorted source views expressed author(s) reflect publisher held responsible third party Original version © ISSN 2257-5731 IS THERE SUCH THING AS “SOCIAL EUROPE”? Sofia Fernandes David Rinaldi Tribune ACCESS TO BENEFITS MOBILE CITIZENS: “TOURISM” OR MYTH? 168 STABILISERS AREA: WHAT ON TABLE? CROSS-BORDER MOBILITY WHY EUROZONE CAN’T AGREE CONVERGENCE HOW STRUCTURAL REFORMS CAN HELP Anna auf dem Brinke Henrik Enderlein Jörg Haas 165 LABOUR IN CURE CURSE? Paul-Jasper Dittrich 159 -Berlin BLUEPRINT CYCLICAL SHOCK INSURANCE Lukas Guttenberg Jan Spiess Reports 100 2013 COMPLETING ROAD MAP TOWARDS FISCAL UNION EUROPE (REPORT OF ‘TOMMASO PADOA-SCHIOPPA GROUP’) Helmut Schmidt Peter Bofinger Laurence Boone Paul De Grauwe Jean-Claude Piris Jean Pisani-Ferry Maria João Rodrigues André Sapir António Vitorino 92 themes