Good or bad?

For and against an EU unemployment fund

I have a plan. Source: Reuters

An EU fund against unemployment can help cushion serious crises and avoid expensive euro rescue packages. Germany, in particular, should be interested in this, writes Ruth Berschens, our Brussels bureau chief.

The euro zone must better arm itself against severe economic crises and the high unemployment that goes with them. Economic experts largely agree on this. Now Germany’s finance minister has made a sensible proposal: a new EU fund for the jobless should help out with loans if a member state is financially overburdened with exploding unemployment figures. In good times, the euro states should feed this fund with national contributions so that states in economic difficulties can fall back on it in times of greatest need.

The idea is not new. In the US, this type of unemployment reinsurance has existed for a long time. Despite different insurance systems in the individual states, the joint fund has proved its worth in America. So why shouldn’t this work in Europe?

A knee-jerk “nein” to European pots of money for any purpose is not sufficient as a counterargument. The fact that Germany would always pay extra with such a fund and that other countries would always benefit is also not true. There were still very high unemployment figures in Germany in the 1990s. And it could be as bad again if industry fails to cope with the digital revolution.

Mr. Scholz has also included some safeguards in his proposal to prevent abuse. Countries that want to join the EU fund must meet minimum labor law standards and have a functioning national unemployment insurance scheme. And all money received from the EU fund must be refunded within a certain period of time. Delinquent payers are threatened with increases in contributions. Mr. Scholz does not want new European financial transfers through the back door, either.

Certainly, hammering out the details of the EU Unemployment Fund would still be difficult. On the whole, however, the plan makes sense: the fund could help cushion the impact of economic shocks on euro-zone states. This would prevent more and more countries from falling into a downward spiral and having to apply for euro rescue packages worth billions. This is exactly what happened in the last major euro debt crisis: After Greece, the euro zone also had to protect Ireland, Portugal, Spain and Cyprus from collapse, which shook the euro itself. Germany, in particular, should have a great interest in ensuring that such a conflagration does not happen again.

Not so, says Thomas Sigmund, our Berlin bureau chief. He warns that Germany can only lose by sharing risks, adding that Mr. Scholz seems more worried about winning elections in Italy instead of at home.

Germany’s finance minister seemed up till now to be an economically sensible person. Olaf Scholz reliably continued the balanced budget policy of his predecessor Wolfgang Schäuble. In his time as mayor of Hamburg, the Social Democratic politician wasn’t known as a scary economic figure. But he is increasingly transforming himself from a moderate with a reputation for being able to handle money, into a socially conscious champion with a sweeping left-wing profile.

First, there was his proposal to raise the minimum wage to €12. Then he wanted to guarantee pension levels until 2040. Now he is pushing ahead with another favorite topic of the left: European unemployment insurance. In plain language this means German employers and employees, i.e. taxpayers, should finance unemployment in Greece, Spain and Italy. Mr. Schäuble was badmouthed as Europe’s disciplinarian. Mr. Scholz apparently wants to become Europe’s paymaster.

If he thinks the countries will repay the money in the event of an economic upswing, he also believes that Angela Merkel will be the next James Bond. The reserve in German unemployment insurance currently amounts to €24 billion. This is money for which millions of contributors, including many skilled workers who once voted Social Democratic, work hard to be prepared for the next economic crisis. Does Mr. Scholz really believe that Germany will apply for money from the planned funding pot before it has used up its own reserves? The first to raise their hands will be countries like Italy, which are burning through money as if there were no tomorrow. It seems as if Mr. Scholz wants to lead the government in Italy and not win elections in Germany.

His push comes at an inopportune time anyway, since it would be a stimulus package for the Alternative for Germany party, which can again warn against a transfer union. In Brussels, they use the example of the United States, which has a well-functioning reinsurance system. But that is the United States. Even if many in Brussels dream of the United States of Europe, we still have 27 members with 27 different systems. Britain, the 28th state, is saying goodbye precisely because it no longer wants to support mutualization of all risks. If the EU wants to survive, it needs more competition and not more socialism. In Greece, Spain and Italy the champagne corks may well be popping.

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