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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
EUROPEAN PARLIAMENT, BRUSSELS, 9 JULY 2013 Social dimension of the Economic and Monetary Union Minimum unemployment allowance

MANUEL CALDEIRA CABRAL | UNIVERSITY OF MINHO

outline
MANUEL CALDEIRA CABRAL

OUTLINE:

- whyisthere a need for anautomaticstabilizer?

- possiblemodalities for itsintroduction

single currency area

| 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).

optimal currency area

| 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…)

country with na adverse shock

| 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.

european union policy

| MANUEL CALDEIRA CABRAL

EUROPEAN UNION POLICY

TRADE:

  • Decreasedbarriersonentryoflabourintensiveproducts
  • Decreasedlessthebarriers for agriculturegoods

Monetarypolicyneeded:

SOUTH EUROPE

  • CurrentAccount Deficit
  • HighDebt
  • Unemployment

 DEVALUATION

slide8

1,60

EUR/$ - STRONG APPRECIATION

0,82

central automatic stabilizers needed because
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…)

central automatic stabilizers needed
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.

national and regional measures

| MANUEL CALDEIRA CABRAL

NATIONAL AND REGIONAL MEASURES

Creationofan Euro Zone EmploymentInsuranceFundto pay for measuresatNationaland Regional levelin countries andregionswithhighlevelsofunemployment.

national level

| 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
regional level

| 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