A CONDITIONAL UNEMPLOYMENT INSURANCE MECHANISM ACROSS THE EUROZONE

Brussels. 20 February 2012

Presentation before the European Parliament

Jacques DELPLA (Professeur-associé Toulouse School of Economics)With Pierre-Olivier GOURINCHAS, UC Berkeley

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NEED FOR CONDITIONAL MUNDELLIAN TRANSFERS IN THE EUROZONE

€ countries with negative shocks cannot bear 100% of the shock, as no option to devalue or inflate away

We call for “Mundellian Transfers” to save the €, analogous to US automatic Stabilizers

With strong & credible conditions: “no money without reforms, no adjustment without money”

Mechanism design. Full of eco & pol incentives: ‘opt-ins’, ‘opt-outs’, finite duration. Inter-Governmental scheme.

Net contributing countries have an incentive to participate and can threaten to leave

Net receiving countries have to reform or leave the Inter-Governmental scheme

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A EURO-WIDE CONDITIONAL UNEMPLOYMENT INSURANCEWITH THREE PILLARS

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1ST) RESOURCES OF THE U/E INSURANCE

1. Creation of a Eurozone wide Unemployment Insurance Fund (€ Job Fund -€JF)

2. ≈ 1% of each country’s GDP for u/e insurance

3. + €-wide job training fund (0.5% of GDP) 4. With money coming out of existing national

social funds, on an annual basis5. With maybe some of the EU budget money

(from structural funds) 6. All that money Managed by a European

Labor Agency (probably managed by the EC), supervised by the European Parliament

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2ND) THE EUROPEAN LABOUR CONTRACT

Unique for the whole €-area Unique for all sectors Would be the (N+1) contract in each country Designed with full and genuine

Flexisecurity Designed by the European Commission and the EU

Council, With help of successful countries (Scandinavia, cf.

former PM Rasmussen & Persson), In consultation with EU labour and business unions

(but they have no veto) Voted by the European Parliament Northern countries will emphasize flexibility,

southern, security Flexisecurity compromise5

3RD) THE CONDITIONAL UNEMPLOYMENT INSURANCE

When hired, each worker has the option to sign in for :

National contract + national insurance (status quo)

OR: European labor contract (Flexisecurity)+ (national and €) u/e insurance+ (national + €) job training

The company MUST propose both contracts The worker is completely free to choose any of

the two contracts. Respect for her preferences. 6

PROPERTIES OF THE U/E € INSURANCE

Idea : decentralize flexisecurity decision to the the individual, as it is extremely difficult to pass at national level. This by-passes political difficulties of reforming national labor laws.

Transfers money from booming countries to depressed areas, where it is most needed, and ONLY in case of actual reform

NO MORAL HAZARD: No transfers without reform Reforms with transfers. Why would Germany or NL sign in?

Reduce u/e in Spain, PT and GR, which is now systemic for the whole €-area

Avoid massive political & social meltdown in GIIPS7