Report of October 31, 2012
Abstract:
A European transfer system could contribute to a stabilization of the euro area by synchronizing business cycles in the monetary union, thereby simplifying the common monetary policy. Such a system is suggested here in the form of a European unemployment insurance system. Compared to other forms of fiscal transfer systems, some advantages arise: By putting the focus on short-term unemployment, an automatic link between payments and the cyclical situation of a member country is ensured, making the system fairly robust against political manipulation. Furthermore, asymmetries are mostly avoided, which could result in countries becoming systematically net recipients or net contributors in such a system. Therefore, the risk of permanently financing expenditures of single countries appears to be low. A European unemployment insurance system would not be suitable to remove or avoid structural discrepancies between countries, such as those currently resulting in the crisis in the euro area. Cyclical imbalances within a monetary union, however, would be effectively dampened by a European unemployment insurance system, at not much additional administrative costs. Such a system could thus become an important stabilizing element for the member countries of the European Monetary Union.
The complete publication in German by Sebastian Dullien and Ferdinand Fichtner in:
DIW Wochenbericht 44/2012 (PDF, 141.59 KB)
"Europäischer Konjunkturausgleich ohne Mehrbelastung"