A few days ago, the Bertelsmann Stiftung hosted a conference in Brussels on “Automatic Stabilizers for the Eurozone” (October 11), with the focus on an EU-wide system of supplemental unemployment benefits. On superficial inspection the conference agenda appeared to involve a technical assessment of policy alternatives, a conference for “policy wonks” to use the slang favored “across the pond”.
However as the EU Commissioner for Employment, Social Affairs and Inclusion, Laszlo Andor, made clear in closing remarks, the task before the participants in the meeting was far more serious and urgent than a debate over the details of a “top-up” benefit system and the automatic “triggers” to activate it. It was my clear impression that for a large minority of the participants the subtext of the meeting was nothing less than the survival of the EU in its present form.
For several years what might be called the official line in the debate over the EU future stressed the need for a rapid movement to a more centralized European Union (the word “federal” and “greater federalism” often used), in which the EU parliament obtained a fiscal authority to complement the monetary authority held by the European Central Bank.
A frequently expressed position by those supporting greater centralization is that it is the only policy that would make the Union sustainable. At the Brussels meeting several participants publicly and privately dismissed proposals for an EU unemployment scheme as half-hearted, diverting discussion from the necessity to strengthen the powers of the Parliament and the Commission.
A bit of background helps understand why the “centralize-is-the-only-road-forward” argument is out of touch with reality. The current EU Parliament was elected in 2009, before the EU debt and deficit crisis that arrived with a vengeance in mid-2010. Even with the crisis in the future, hard-line anti-EU candidates won at least 32 seats (so-called Europe of Freedom and Democracy group), and the anti-federalist Movement for European Reform took 54.
Without doubt these two “EU-skeptical” groups will improve on their slightly over ten percent of the parliamentary seats in May 2014. The question is, by how much? The countries currently suffering from debt and deficit stress, with the associated severe fiscal contraction imposed by Brussels, account for about 240 seats (Cyprus, Greece, Ireland, Italy, Portugal, Slovenia and Spain).
Of these, only Italy currently has a substantial number of “skeptical” MEPs (9 of 72, from the Northern League). I would predict that at least a quarter of these seats could go to hard- and soft-line anti-EU candidates. To these I would add a substantial increase of anti-EU nationalists from Hungary, where the radical right Jobbik party current holds three seats. The government party Fidez-MPP, with 14 of the country’s 22 seats, is hardly pro-EU. It should not be necessary to point out that most of the UK Conservative Party MEPs would not support increasing the power and authority of the EU parliament or the Commission.
After this tedious detail, I can state the headline: the political likelihood of a stronger EU Parliament and Commission is zero for the foreseeable future. If greater federalism is the only way forward for a sustainable Europe, there is no way forward. It is time all supporters of the European Union faced that reality.
That reality derives from another. Many if not most people in the austerity-effected eurozone countries, as well as many Europeans outside it, view the Commission as enforcing a set of arbitrary fiscal rules against the will of democratically elected national governments. Whatever the validity of this perception, it will be dispelled, if it can be, by actions of the parliament and the Commission that bring benefits directly to Europeans.
Proposals for an EU-wide unemployment benefit scheme seek to do exactly that. However designed, the scheme would achieve two goals, direct income replacement payments to workers who have qualified, and a counter-cyclical demand injection during recessionary periods. An alternative countercyclical scheme was proposed in which national deviations from “potential GDP” would trigger cross-country transfers. The potential output approach appealed to some participants because net total transfers would be zero. However, most discussion focused on unemployment compensation schemes, in part because the potential output proposal did not involve direct payment to EU residents.
There was little debate over the major characteristics of the unemployment benefit program:
- the EU-wide system would be in addition to national schemes; for example, coming into effect when workers reached the statutory end of national payments;
- qualification and percentage of income replacement would conform to national programs; and
- a tax on employers would fund the benefits.
Among participants some sympathy existed for the program in the United States created in 1935, because of its formal decentralization to state governments to determine key issues such as qualification and income replacement. Europeans should be aware that this decentralization resulted from the demand by powerful politicians from the US South that African-Americans be excluded from coverage. This accounts for the exclusion of agricultural workers from coverage. As with Social Security, the US retirement program created in the same year, the devolution of responsibility was the price paid by President Franklin Roosevelt to obtain the necessary support from Southern Democrat politicians. Given the Faustian bargain from which the US decentralization arose, other models for Europe might prove more appropriate.
A key and recurrent issue in discussion was whether an EU unemployment program should be self-funding and, if so, over what time period. This issue goes to the heart of the countercyclical function of the unemployment scheme. A requirement that the scheme be self-financing over a short time period undermines the countercyclical function. As I argued in an SEJ article almost a year ago, and demonstrate in my new book, during recessions governments should run deficits, to compensate for the fall in private sector demand. Unemployment benefits represent a major component of increasing deficits, then decline as the economy recovers. If a national government or that of the European Union keeps the economy expanding and unemployment low, any unemployment benefit scheme will run a surplus. If, as now, the eurozone economy stumbles along at a growth rate near zero, unemployment benefits do and should exceed the scheme’s revenue. Any other approach would be pointless.
The health of the European Union is not robust, to say the least. The combination of economic stagnation in most countries and serious breaches of democratic practice in several leave little room for optimism, much less plans for “stronger union”, as Maria Joao Rodrigues argues in her new book, “Europe is still possible”. Pursuing that possibility requires convincing Europeans of it. An EU-wide unemployment compensation problems is a step to demonstrate the possibility.