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SOCIAL EUROPE POLICY PAPER NO 251 APRIL 2020 #SOLIDARITY #COVID-19 #HEALTH #EMPLOYMENT SUR A WELCO FOR E UNEMPL RE-INSU ▪ SOFIA FERNANDES Senior Research Fellow Jacques Delors Institute in Paris FRANK VANDENBROUCKE Professor at the University of Amsterdam & Advisor to This paper expands upon/ “The European Commission’s SURE initiative and euro area unemployment re-insurance” by Frank Vandenbroucke László Andor Roel Beetsma Brian Burgoon Georg Fischer Theresa Kuhn Chris Luigjes Francesco Nicoli VoxEU 6 April The authors would like thank Klervi Kerneïs for her work as research assistant Abstract On 9 EU finance ministers enlarged Eurogroup (with eight countries which are not members area) agreed least principle implement a pan-European support system national short-time schemes proposed Commission We will discuss relationship between this proposal idea unem- ployment re-insurance scheme also refers its communication on Rather than an “unemployment (re)insurance scheme” first-order effect is above all “job insurance explain why against backdrop sharp contraction caused public-health res- ponse COVID-19 pandemic collective type measure welcome urgent even though can only constitute one component much broader solidarity effort has some important virtues particular scale planned but we identify questions caveats that it raises Systems prevent lay-offs limited time cannot be solution combat Establishing step forward organisation does dispense us making progress towards fully-fledged should act lynchpin recap main economic political arguments favour implementation such stress notwithstanding sensitivities citizens regardless whether they live North or South “old” “new” Member States cross-border timeline short It quickly possible Failing eco- nomic social upheavals vital fight grow INTRODUCTION current health crisis biggest post-war period All Union (EU) facing challenge although have been affected same way As was case ten years ago with being put test played part adopting series measures since outbreak – including suspension stability pact States’ responses new tools limit duration economy companies workers Yet failure Council meeting 26 March instead providing ambitious response confirmed divides fuelled fears existential Against warned “the climate heads state government lack pose mortal danger Union” 1 agreement obtained joint coronavirus includes plan around €500 billion allows hope rise instrument view protecting jobs named “SURE” (temporary Support mitigate Unemployment Risks Emergency) grant financial assistance form loans granted favourable terms from when latter sudden increases their public expenditure preserve employment With firepower €100 total “second line defence supporting similar help protect thus employees self-employed risk loss income” 2 presented temporary emergency “European system” had propose end year advocated many experts essential complete architecture Economic Monetary (EMU) In fact nearly existing monetary unions true ‘insurance unions’: centralise management regard banks degree Historically exception aftermath started arguing EMU needs both Banking automatic fiscal stabilisers One options establishing suggested benefit level 3 Faced governments formulated second option: supports investment capacity hit cope reduced revenue increased spending benefits 4 share common insight wit play role times whilst simultaneously While no made regarding these proposals seems third variant generic namely union must confronted severe shocks However applies 1. Le manque de solidarité « mortel » pour l’Europe AFP 28 mars 2. Proposal Regulation establishment risks (SURE) following 3. Reflection deepening 31 May 2017 4. “New budgetary instruments stable within framework” Communication EP ECB December whole logic behind indeed applicable entire Single Market first return debate (part 1) then position 2) order avoid any misunderstan- ding our argument let alone EU’s crisis: massive intervention needed But risk-sharing domain parcel more encompassing relief Hence question what extent fits bill term how relates further unemploy- ment EUROPEAN UNEMPLOYMENT RE-INSURANCE: RATIONAL ARGUMENTS AND PUBLIC OPINION purchasing power downturn therefore stabiliser par excellence surprising key elements Existing either opt downright centralisation historically Canada Germany demand convergence provide need particularly high US combines decentralisation notably deep recession hits related legitimacy relevant endow (1 ) 5 addition while divided might popular hesitant Euro- pean leaders thought 1.1 From point rational policy option reason Two major stand out i) Without implemented ex ante functioning inher- ently fragile inherently fragility mainly due currently functions escalating trust so-called ‘sudden stops’ markets rely issue debt analysis developed Paul Grauwe lessons especially situation 5. ANDOR L 2016 “Towards shared area” IZA Journal Labor Studies vol n° 10 F “Automatic stabilizers model” Other document 22 September RAGOT X 2019 Civiliser le Capitalisme Crise du libéralisme européen et retour politique Paris: Fayard 6. DE GRAUWE P 2018 Economics Integration 12th edition Cambridge: Cambridge Press p 140 advantage pooling face asymmetric often (to interregional smoo- thing limits scale) effective organises smoothing able organise intertemporal Interregional combined 7 Moreover crucial set up (rather negotiated post hit) way: mere existence change expectations agents fall-out shock occurs nutshell leaving aside technicalities commitment means assured receive fund increase ii) matter concern stabilisation based incomplete there useful economically highly integrated trade production integration goes beyond compared well-known about ‘positive externalities’ vaccination National systems create positive externality: country properly insures itself helps neighbours stabi- lising consumer imports (similarly individuals who vaccinate themselves infectious diseases externality them too) Because just interest widespread practice effectiveness depends cluster principles: sufficiently generous benefits; sufficient coverage rates schemes; labour market segmentation leaves force poorly insured unemployment; proliferation relations into insurance; activation unemployed individuals; constitution buffers good so do bad Whether principles each State programme “vaccination instability” general contribute appropriate (think subsidisation authorities8) Conversely domestic could well become fortiori imperative equipped agree other’s if exchange guarantee function adequately 7. Regarding see DOLLS M An Re-Insurance Scheme Eurozone? Stabilizing Redistributive Effects EconPol Policy Report ifo Munich 8. theorem theory: insufficient sub-optimal provision promoted supported another 1.2 What think? Our previous section implies quality policies sharing intrinsically whereby former conditions premise development field gather Indeed broadly democratic reckoning initiatives survey experiment conducted focused aim 19 500 people thirteen were polled assess respondents judge different specific designs These varied minimum generosity education training programmes provided results show fundamental opposition confined small segment popula- tion contrary think listening over last strong North-South divisions reflected opinion Notwithstanding priorities surprisingly determined overall Box Avoid unnecessary Preserve companies’ human capital Limit severity Maintain households’ income Loans To cover costs creation extension other Up BILLION backed €25 guarantees voluntarily committed budget leverage 9. For in-depth discussion normative here Solidarity through Redistribution Insurance Incomes: Guide Guarantor Provider? Centre Paper No 2020/013 February 10. NICOLI insurance: really think” 13 BURGOON B KUHN T SACCHI S VAN DER DUIN D HEGEWALD “Risk Sharing When Hits: How Design Influences Citizen Risk (EURS)” AISSR PROTECTING EMPLOYMENT IN VIEW OF THE CURRENT CRISIS WHILE MAINTAINING MEDIUM-TERM OUTLOOK meets need: textbook use (2 Both volume appear few raised approach inevitably remedied creating genuine 3) 2.1 Short-time subsidy reductions number hours worked firms employers experience drops reduce employees’ laying off Employees proportional reduction (for overview table appendix) Lay-offs future hiring capa- cities networks maintained households Thus significantly mitigated Giupponi Landais11 convincingly work: context forms universal transfers efficient wage subsidies action very reasons mentioned apply (the without sta- bilisers; externalities adequate cf metaphor) gains Admittedly normal business cycle movements relatively disruption destroys matches supply chains large-scale economies external impact huge ‘vaccinating’ 2.2 characteristics responsibility aforementioned focus well-taken rather distinc- job meaningful labelled Nevertheless likely lower actual better ini- tiative promises significant (€100 billion) tackle There 11. GIUPPONI G LANDAIS C Building SURE’s firepower: three representing largest exceed €60 provides indication figure Over reached record €193 2010 EU-27 stood €174 If consider Spain Italy equal €58 fell €49 12 clear envisaged may costly (both because arrangements greater conventional measures’ scope application broad groups usually self-employed) data figures amount promised lockdown continue months additional funding probably necessary asset article 122 TFEU funded intergovernmental By using Stability Mechanism (ESM) avoids interference (divisive) ESM vehicle corona borrow directly markets; underlying close Financial Stabilisation (EFSM) almost double versus Another interesting feature introduces (cf supra combine smoothing) decision-making process adoption regulation creates requires qualified majority voting available take voluntary basis (no legal obligation under law) instrument’s (article regulation) Una- nimity required make financially operational “make available” according contributions “irrevocable unconditional guarantees” 11) account 25% (therefore allocated decided relative gross Although participation gua- rantee desirable credit rating perspective (in rates) veto ruled however clearly breach founded construction shoulder responsibilities ensure enjoys instrument; once place decision granting loan applicant 6) adopted upon 12. EUROSTAT ESSPROS viewed 2.3 SURE: short-term medium-term perspectives Having identified range core features having underscored now proposal; overcome First proposes grants soft preferable support: addresses immediate ensures low increasing rate own bond issues sharply levels little looming unsustainability those Second Landais list concrete guidelines best short- context: payments timely conditional retain eligibility extended replacement established non- sectors working hour flexible programme’s confinement highlight difficulty urgency deal hand legacies heterogeneous lose: hence understandable try impose detailed rightly measures: crisis” 14 learn practices guidance already said Discussing imposing imply delays afford longer mutual delineation conditionality maximally politically sustainable Third certain underscore Inevitably laid off: insu- rance laid-off ineligible bound given contracts sectors: renewed dismissed facto jure note lacunae precarious establish access whatever sector activity earn living Pillar Social Rights (EPSR) proclaimed (non-binding) Recommendation protection 2019; badly Implementing prominently roadmap 15 13. GUIPPOINI (op cit add incentivised 14. Questions answers 15. 8 November Fourth operated requests disbursement depend bilateral agreements discretionary effectively expec- tations entail automaticity 16 sense seen complement ‘normal’ adds ‘job insurance’ created exogenous disaster So conceived day ‘plug-in’ ready installed immediately exceptional emergencies CONCLUSION: TIME TO LOSE merely maximum i e helping self- employed give businesses soon reticent aware hesitations damage repaired At 16. Even publications effects decision-making); BALLEER GEHRKE LECHTHALER W MERKL Ch ‘Does save jobs? analysis’ Review Vol 84 pp 99-122 ; HOCHMUTH “Counteracting Crises: Non-Linear Short-Time Work Policy” Scandinavian 22/8/2019 APPENDIX Table Comparison SUPPORT GRANTED BY NATIONAL SHORT-TIME WORK SCHEMES MEASURES SELF-EMPLOYED Austria Compensation representing: *90% salaries EUR 700 *85% 685 *80% 370 *100% apprentices *Eligibility pro- gramme Belgium *70% salary supplemented lump-sum 63 per *Replacement 291 69 month (EUR 614 dependants) *Deferrals security repayments * Extension deadlines withholding taxes Bulgaria co-financed company n/a Czech Republic *60% quarantine stoppage operations *Between 60% 100% employ- ees experiencing problems sale volumes *Daily allowance CZK 424 (≈ 16) most days *Postponement insur- ance one-off 25 000 tax-free 930) Denmark *For salaried employees: compensation monthly 75% DKK 23 000) non-salaried 90% 500) *Self-employed freelance expe- riencing turnover 30% lost in- come 100 Estonia covered 150 paid *Exoneration advance tax payable quarter Finland Temporary entrepreneurs waiting period) France roughly 84% net minimum-wage *Lump-sum via corresponding turn- micro-entrepreneurs liberal professionals suffering drop subject adminis- trative closure difference accor- dance agreements) *Fixed Greece *Compensation 50% calculat- ed average two *EUR 800 *Social pension Hungary 70% compa- nies recording Ireland (tax-free) 410 week un- 350 *Ordinary Wage Guarantee Fund (CIGO): covers 80% *Extraordinary (CIGS): cov- ers *Solidarity contracts: wages work- ing CIGO CIGS ceiling Protection (INPS) 600 *An municipalities Covid-19 Latvia pay- ments Lithuania *Partial employee’s exceeding below 257 Luxem- bourg can- 250% *6-month moratorium taken Neth- erlands *22 5% *45% *Access *Monthly 050 (at married couples children) Poland *State 455) Portugal 66% 905 *Flexible *Possibility defer Romania sala- ry Slovakia *Allowance 540 Slovenia *40% cases majeure event guaranteed contribution mini- mum 220% *3-month mortgage *Suspension *Option postponing payment worked) penalty lines Sweden *Granting standardised sick pay Source: compiled OECD address Netherlands added ETUC briefing dated 24 entitled “Short Term Measures Across Europe” Croatia Cyprus Malta