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Eurozone's Conditional Unemployment Insurance Mechanism: A Sustainable Solution

Presenting a proposal for a Euro-wide Conditional Unemployment Insurance with three pillars to address the economic challenges in the Eurozone. The mechanism includes a European Labor Agency, a unique European Labour Contract, and Conditional Unemployment Insurance to offer Flexisecurity options to workers. This proposal aims to tackle unemployment and economic disparities in the Eurozone through structured transfers and reforms, with a focus on decentralizing decision-making to the individual level. The system incentivizes reforms and transfers funds from thriving economies to regions in need, without moral hazard risks. The proposal emphasizes the need for solidarity and reform to prevent potential political and social crises in struggling Eurozone regions.

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Eurozone's Conditional Unemployment Insurance Mechanism: A Sustainable Solution

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  1. 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

  2. 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

  3. A Euro-wide Conditional Unemployment Insurancewith THREE Pillars

  4. 1st) Resources of the u/e insurance • Creation of a Eurozone wide Unemployment Insurance Fund (€ Job Fund -€JF) • ≈ 1% of each country’s GDP for u/e insurance • + €-wide job training fund (0.5% of GDP) • With money coming out of existing national social funds, on an annual basis • With maybe some of the EU budget money (from structural funds) • All that money Managed by a European Labor Agency (probably managed by the EC), supervised by the European Parliament

  5. 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 compromise

  6. 3rd) The ConditionalUnemployment 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.

  7. 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 GIIPS

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