The European Commission’s SURE initiative and euro area unemployment re-insurance

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The European Commission’s SURE initiative and euro area unemployment re-insurance Frank Vandenbroucke László Andor Roel Beetsma Brian Burgoon Georg Fischer Theresa Kuhn Chris Luigjes Francesco Nicoli (*) ABSTRACT: Commission proposes a pan-European support for short-time work arrangements (SURE) This column discusses the relationship between this proposal idea of scheme to which also refers in its Communication on We sketch merits signal some caveats Nearly all existing monetary unions are true ‘insurance unions’ They not only centralise risk management with regard banks; they at least degree insurance Historically Economic Monetary Union (EMU) was one exception: In aftermath Eurozone crisis started arguing that EMU needs both fully-fledged Banking automatic fiscal stabilisers One options establishing suggested by would be national benefit schemes level Another option formulated 2017 supports Member States’ public investment capacity when hit have cope reduced revenue increased spending benefits (European 2017a 2017b) fact share common insight wit it is should play their role times whilst simultaneously protecting Alas no progress has been made implementation such proposals Today triggered economic fall-out COVID- 19 pandemic launches what seems third variant same generic union must act as an confronted severe or financial shocks: new instrument labelled (temporary Support mitigate Unemployment Risks Emergency) will provide assistance form loans granted favourable terms from EU States up €100 billion total These assist address sudden increases expenditure preserve employment Specifically these help cover costs directly related creation extension short- time other similar measures put place self-employed response current 2020) communication adds “this temporary seen emergency operationalisation Re-insurance Scheme specific context COVID-19 without prejudice possible subsequent establishment permanent under different legal basis TFEU ” 2020 p 3) first return debate (indicating passing might more popular than many hesitant leaders thought) then position within broader order avoid any misunderstanding our argument can main component – let alone EU’s corona-crisis: much massive intervention needed But risk-sharing domain part parcel encompassing relief Hence question extent fits bill how relates further re- envisaged re-insurance: rational arguments opinion reference debates about happenstance purchasing power citizens downturn therefore stabiliser par excellence Existing either opt downright centralisation (as historically case Canada Germany) demand convergence organisation need really high US combine decentralisation notably deep recession hits) Both political legitimacy relevant (Andor 2016) From point view policy reason First inherently fragile rehearse ‘fragility argument’ (De Grauwe 2018 pp 140-141) but aspect underlying analysis important situation While advantage pooling face asymmetric shocks often (with interregional smoothing shocks) there quite broad consensus effective organizes able organize intertemporal issue debt Interregional combined Next crucial system set ex ante (rather negotiated post hit) functions way: mere existence change expectations agents shock occurs nutshell leaving aside technicalities commitment means assured receive budgetary fund increase fragility-argument key However addition second why useful countries economically highly integrated compared well-known vaccination National systems create positive externality: country properly insures itself helps neighbours individuals do vaccinate themselves against infectious diseases) Because externality matter concern members dispose stabilisation Simultaneously good insufficient sub-optimal provision if promoted supported way (think again authorities and/or compulsory) effectiveness depends whole cluster principles: sufficiently generous benefits; sufficient coverage rates schemes; labour market segmentation leaves force poorly insured unemployment; proliferation relations into social insurance; activation unemployed individuals; constitution buffers so bad principles each State Whether risks shared ‘stability-supporting’ domestic favour contribute subsidisation authorities) Conversely plausible stability-supporting become fortiori imperative equipped systems: surely agree other’s governments exchange cannot guarantee function adequately Wrapping quality policies cross-border sharing intrinsically whereby latter former conditions At approach development (for discussion normative here see It wants gather Indeed broadly democratic reckoning initiatives To sure mutual present scenarios published over last years inspired survey experiment organized 19500 respondents 13 had judge designs varied minimum generosity education training programmes provided results show fundamental opposition hits confined small segment population contrary think listening 10 sample potential majorities packages associated referring (Vandenbroucke et al 2018; Short-time subsidy reductions number hours worked firms affected shocks; allows employers who experience drops production reduce employees’ instead laying them off Employees government proportional reduction Thus deteriorating skills mitigated firing future hiring networks kept alive Giupponi Landais (2020) explain convincingly sharp contraction caused public-health textbook use work: forms universal transfers efficient wage subsidies Moreover collective action very strong reasons mentioned previous section apply (the fragility stabilisers; externalities adequate cf metaphor) even gains Admittedly normal business cycle movements actual empirical weight ‘vaccination questioned since relatively limited disruption destroys matches human capital supply chains large-scale economies external impact huge ‘vaccinating’ Single Market For focus lay- offs well-taken rather ‘unemployment (re)insurance scheme’ envisages first-order effect ‘job distinction job meaningful well Nevertheless likely lowering better promises significant volume (100 billion): equally based Art 122 funded By using ESM avoids interference (divisive) whether vehicle solidarity corona ensure finances available borrow markets; logic close functioning original Financial Stabilisation Mechanism (EFSM) almost double firepower versus 60 billion) interesting feature introduces (cf supra smoothing) Having identified range core features keep mind next caveat disbursed supra) soft sharply increasing levels like Italy Spain little looming unsustainability those Second Langlais list concrete guidelines best signals difficult trade-off On hand legacies heterogeneous lose: hence try impose detailed implemented rightly measures: “the guidance indicated As already said section: discussing imposing imply delays afford Third lay-offs certain period solution underscore Inevitably workers laid off: laid-off ineligible bound rise given people contracts sectors: renewed end being dismissed de facto jure general note lacunae precarious urgent establish access including whatever type sector activity earn living Pillar Social Rights proclaimed 2017: (soft) Council Recommendation protection agreed 2019: badly Implementing principle prominently roadmap towards Establishing step forward does dispense us making Fourth operated requests disbursement depend bilateral agreements discretionary decision-making effectively entail automaticity sense complement ‘normal’ insurance: insurance’ created exogenous disaster So conceived day ‘plug-in’ ready installed immediately exceptional emergencies References: Laszlo (2016) Towards IZA J Labor Stud 5 design European-level Risk Sharing: Evidence Conjoint Experiment paper presented Situation Monitor Research Seminar “ Fairness Solidarity Europeans think” Brussels January Paul De (2018) Economics Integration 12th edition Cambridge: Cambridge University Press (2017a) Reflection Paper Deepening 31 May (COM(2017) 291) (2017b) New instruments stable Euro Area framework Parliament Central Bank 6 December 822 final) Proposal Regulation following outbreak 2 April COM 139 final Giulia Camille Building VoxEU 1 Stefano Sacchi David van der Duin Sven Hegewald Sharing When Hits: How Policy Design Influences Citizen (EURS) AISSR Report (December) through Redistribution Insurance Incomes: Guide Guarantor Provider? (February 3 Amsterdam Centre Studies No 2020/01 Professor Amsterdam; Commissioner Employment Affairs; now Secretary-General FEPS; MN Pension Vice-Dean Faculty Business Fiscal Board; International Comparative Political Economy Director Affairs DG EMPL Commission; Senior Associate WIIW; Department Science PhD-researcher Assistant Governance Gent