Finance Minister Olaf Scholz wants to create a pan-European unemployment fund as part of a broader effort to bolster the euro zone. Ailing countries could borrow money from the fund to finance national unemployment schemes but would have to pay back the cash, according to a working paper, officially known as a “non-paper,” obtained by Handelsblatt.
The plan would boost “solidarity between member states” because it would lessen the impact of rising unemployment payments for crisis-ridden governments. Mr. Scholz will present the plan during a meeting of euro-zone finance ministers on December 3 in Brussels.
“A European reinsurance for national unemployment schemes is basically useful. It could temper a crisis and avoid economic stumbling blocks for countries during times of crisis,” said Andreas Peichl from the Center for Economic Studies (CES) in Munich.
French President Emmanuel Macron has made euro-zone reform a key part of his platform, while Mr. Scholz’s left-leaning Social Democratic Party included euro-zone reform in the contract that governs the country’s current ruling coalition. Politicians want to make the 19-nation currency bloc more crisis-proof following bailouts in 2011 and 2012.
Another baby step
Mr. Scholz’s plan would use loans to avert Germany’s never-ending fear of entering a so-called “transfer union” that would require Berlin to shore up the finances of economically weaker states. Still, it would allow the economic prowess of the entire EU to benefit troubled countries because they wouldn’t have to hunt for money to fund unemployment schemes – it would be readily available.
Despite calls for major reform, European politicians so far have only taken baby steps. They’ve managed to create a new fund to support crisis-ridden banks and coupled it with a push to further reduce the number of bad loans at European financial institutions. Compared with efforts to reform banks and prevent future financial meltdowns, the suggestion of a European Unemployment Stabilization Fund, its formal name, seems only a tiny piece of a much bigger puzzle, and too small an idea for Europe’s biggest economy.
The paper didn’t say how big the fund would have to be, but similar ideas have called for an annual contribution of 0.35 percent of Gross Domestic Product, or €11.4 billion ($13.2 billion) for Germany. According to a study by the CES, Germany would have actually tapped such a fund in the early 2000s had it existed – at a time when Spain would have made a bigger net contribution.
The non-paper hasn’t been well-received in Berlin. The economics ministry, led by conservative politician Peter Altmaier, has already rejected the proposal and the idea hasn’t appeared in joint EU proposals by Chancellor Merkel and Mr. Macron.
Andrew Bulkeley is an editor in Berlin for Handelsblatt Global. Martin Greive is a correspondent for Handelsblatt based in Berlin. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. To contact the authors: firstname.lastname@example.org, email@example.com, firstname.lastname@example.org