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Social dimension of the Economic and Monetary Union Minimum unemployment allowance

Social dimension of the Economic and Monetary Union Minimum unemployment allowance. MANUEL CALDEIRA CABRAL | UNIVERSITY OF MINHO. OUTLINE:. - why is there a need for an automatic stabilizer ? - possible modalities for its introduction. | MANUEL CALDEIRA CABRAL.

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Social dimension of the Economic and Monetary Union Minimum unemployment allowance

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  1. EUROPEAN PARLIAMENT, BRUSSELS, 9 JULY 2013 Social dimension of the Economic and Monetary Union Minimum unemployment allowance MANUEL CALDEIRA CABRAL | UNIVERSITY OF MINHO

  2. MANUEL CALDEIRA CABRAL OUTLINE: - whyisthere a need for anautomaticstabilizer? - possiblemodalities for itsintroduction

  3. | MANUEL CALDEIRA CABRAL SINGLE CURRENCY AREA Countries thatintegrate a single currency arealoosetheirability to use themonetaryandexchange rate instrumentsto react to crisisandexternalshocks. In the Euro Zone severalotherconditionalities – Fiscal rules, competitionpolicy, etc. Asymmetricshocks:Shocksthataffectdifferent countries ofthesame currency area in different (orevenoppositeways). Problem:theoptimalmonetarypolicyshouldbedifferent for thedifferent countries that are in thesame currency area (andthushave to pursuethesamemonetarypolicy).

  4. | MANUEL CALDEIRA CABRAL OPTIMAL CURRENCY AREA Minimizingtherisks: • Homogeneous set ofcountries – decreasestheprobabilityofassimetricschocks – Notthe case ofthe EZ. • ReducingtheconsequencesoftheAsymmetricshocks: • Flexibility – for fastadjustment • Mobilityoffactorswithinthe Currency Area (*) • Central transfers (Stabilizers| avoidingtheriskofdivergence) (*) With factor movementsthedragofadjustmentmayresult in movementsfromdecayingregionsofthe more mobile factors (Problems: Structuralunemployment; Debt, divergence…)

  5. | MANUEL CALDEIRA CABRAL COUNTRY WITH NA ADVERSE SHOCK Budget: StatelevelStabilizers – crisis: • Decrease in taxrevenues • Increase in unemployment – increase in social expenses => Increase in the budget deficit | Constraintsmay => prociclical macro policies. Monetarypolicy: • Devaluationanddecrease in interest rate to increaseexportsandinvestmentandreduceimports. NOT POSSIBLE IN COMMON CURRENCY.

  6. | MANUEL CALDEIRA CABRAL ASYMMETRIC SHOCKS – EU NORTH AND SOUTH

  7. | MANUEL CALDEIRA CABRAL EUROPEAN UNION POLICY TRADE: • Decreasedbarriersonentryoflabourintensiveproducts • Decreasedlessthebarriers for agriculturegoods Monetarypolicyneeded: SOUTH EUROPE • CurrentAccount Deficit • HighDebt • Unemployment  DEVALUATION

  8. 1,60 EUR/$ - STRONG APPRECIATION 0,82

  9. MANUEL CALDEIRA CABRAL Central AUTOMATIC STABILIZERS NEEDED BECAUSE: Asymmetricshocksexistand can be brutal Memberstateslostseveralinstruments to dealwithcrisis (monetarypolicy, exchange rate, limits in fiscal policy, competitionpolicy rules) Factor movementswithinthe EZ mayamplifytheeffectsofshocks (on GDP, indebtment, Unemployment…)

  10. MANUEL CALDEIRA CABRAL CENTRAL AUTOMATIC STABILIZERS NEEDED: To allow some space for stabilizerswithintheconstrainsofhaving a single currency, andthestabilitypact; To avoidthateconomiccrisisresult in budget, debtand financial crisis. - To avoidthatasymmetricshocksresult in longperiodsofdivergencebetweenmemberstates.

  11. MANUEL CALDEIRA CABRAL Euro Zone: 2001-2007Levelof GDP andconvergence - Eurostat

  12. MANUEL CALDEIRA CABRAL Euro Zone: 2001-2007Convergence in the Euro Area

  13. MANUEL CALDEIRA CABRAL Euro Zone: 2007-2012Countries withlowerincome: 7/10 in divergence

  14. MANUEL CALDEIRA CABRAL Alternatives for theintroductionofeuropeanstabilizers

  15. | MANUEL CALDEIRA CABRAL NATIONAL AND REGIONAL MEASURES Creationofan Euro Zone EmploymentInsuranceFundto pay for measuresatNationaland Regional levelin countries andregionswithhighlevelsofunemployment.

  16. | MANUEL CALDEIRA CABRAL NATIONAL LEVEL • Supportwhennationalunemploymentlevelisabove a threshold (e.g. 2 percentual pointsabove Euro Zone average, orabove 12%). The Euro Zone Fundshouldtransferthecorrespondent to 50% oftheunemploymentbenefitoftheworkersthat are in thissituationto thenationalgovernment. Thismeasureshouldbesubjected to conditionality • Revisionof Labour laws • Unemploymentbenefit design • Otheremploymentpromoting policies

  17. | MANUEL CALDEIRA CABRAL REGIONAL LEVEL When regional unemploymentlevelisabove a threshold (e.g. 2 percentual pointsabove Euro Zone average, orabove 12%). The Euro Zone Fundshouldsupport: • Active employment policies (e.g. training, internships…); • Investmentsupport (fund for highunemploymentregions); • Higherlevelsofsupport for lessdevelopedregions; • Coordinationwithothe EU funds Thesemeasuresshouldnotbesubjected to conditionality

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