V- RESULTADOS
5- Evaluación de posibles cascadas de prescripción:
Presentation by Mathias Dolls, discussion led by Ricardo Reis
Participants (alphabetical)
Jochen Andritzky German Council of Economic Experts
Roel Beetsma University of Amsterdam
Mathias Dolls ifo Institute
Daniel Gros Centre for European Policy Studies
Pietro Reichlin LUISS Guido Carli University
Ricardo Reis LSE
Jörg Rocholl ESMT Berlin
Nicolas Véron Bruegel and Peterson Institute for International Economics
Jeromin Zettelmeyer Peterson Institute for International Economics
Ricardo Reis made three points. First, unemployment insurance needs to be viewed in
connection with other social policies, in particular poverty prevention, disability insurance, early retirement, and basic income policies. A harmonisation of unemployment insurance would be difficult without harmonising other policies as well, which in turn would affect the stabilisation properties of the system. However, harmonising these policies may not be where Europe stands in terms of political union and voter preferences.
Second, the simulation shows that the no permanent transfer condition is not satisfied over the simulation period. As basic unemployment levels differ between countries and over time, and unemployment tends to be very persistent, the no transfer requirement may only be satisfied over very long time periods. If this is politically not tenable, and the system would be required to zero out every five or ten years, the stabilisation benefit would be much lower. Third, an insurance solely against very bad outcomes is equally important and maybe more effective. Following up, Jeromin Zettelmeyer suggested simulating the re-insurance version of a scheme that could consider an ‘experience rating’ (see discussion notes in annex to Chapter 1), and evaluate the stabilisation outcome and the resulting transfer properties. He also pointed out that constraining transfers to zero out every few years – basically within a business cycle – does not make much sense as it could come to resemble self-insurance. He expressed hope that euro area member would be sufficiently patient to permit a longer period, such as a generation, to allow net payments to even out. Furthermore, he pointed out that the survey results presented in fact suggest that on an unconditional basis, a majority may exist for the common unemployment scheme.
Roel Beetsma wondered whether only uncorrelated shocks should be considered. In the
simulation, it may be the case that even countries hit by a shock remain net contributors if the euro area is hit by a correlated (or symmetric) shock. Mathias Dolls responded that interregional smoothing is indeed not countercyclical in all countries, as countries suffering smaller shocks may still remain a net contributor.
Roel Beetsma also pointed out that it may be useful to take into account different equilibrium unemployment rates. Mathias Dolls responded that the idea was to simulate a basic scheme without considering equilibrium unemployment rates, or other feedback effects.
Pietro Reichlin agreed to the benefits of the proposal and pointed out that it may raise levels
of public approval for the EU if it shows it can save not only banks, but also individuals. He also saw the benefit of possibly facilitating the convergence of institutions. However, he wondered about the simulation result for Italy, in which the country turns out to be a net contributor, which would worsen its already difficult position. He also pointed out that the individuals who suffered most in Italy are most likely the most difficult to insure, such as the self-employed or elderly. Hence, he thought it may be best to focus efforts on a system that offers transfers only in case of large shocks and leaves it up to the recipient country how to spend the funds.
Daniel Gros recalled that the value added of a system of large gross payments going one
direction one year, and in the other direction another year, is questionable. Only if the marginal benefit is convex and not linear, could such a system make sense.
Jochen Andritzky commented that if the starting point were different, in other words if national
schemes had sufficient reserves to avoid pro-cyclical increases in contributions in a downturn, then the stabilisation benefits would turn out lower. He wondered whether a European labour contract with a European unemployment insurance, which could co-exist in parallel to national labour contracts and labour market institutions, is a way to go instead. However, unity of liability and control may be tricky to maintain as other economic policies also affect unemployment.
Ricardo Reis reiterated that any harmonisation may be difficult to achieve. He wondered
whether other, simpler schemes for shock absorption may be preferable, such as a European level treasury. However, the individual relation of unemployment insurance distinguishes it from country-level shock absorption schemes.
Jochen Andritzky mentioned other ways to absorb shocks, such as allowing countries (or
national unemployment systems) to incur larger deficits and facilitate their financing, if needed, through ESM assistance. Such a system could be compared to the US, where states have to repay federal contributions. Ricardo Reis pointed out that a difference to the US is when and how these contributions are to be repaid. Daniel Gros responded that there is a great difference between a system of transfers and an ESM loan. Jeromin Zettelmeyer agreed that self- insurance through incurring debt is not risk sharing, unless repayment is made state contingent. However, hitting the sweet spot between intercountry risk sharing and permanent transfer is tricky. Making repayments to the ESM state contingent could blur the lines with crisis lending, and thus a separate institution would be needed. Jochen Andritzky agreed that at least a facility other than macroeconomic adjustment programmes would be required.
Mathias Dolls emphasised that interregional smoothing is the key element of the proposal, not
the intertemporal aspect. In this way, interregional smoothing could turn out to be pro-cyclical.
Jeromin Zettelmeyer said that this could be mitigated by a borrowing facility, although this would always be politically contentious.
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