EU's Andor Urges Euro-Area Unemployment Insurance Program

European Union Employment Commissioner Laszlo Andor urged the euro area to set up a common unemployment insurance program to provide a “safety net” across the currency bloc.

“Europe’s Economic and Monetary Union needs to be strengthened with a well-designed mechanism of fiscal transfers between Member States using the euro,” Andor said today in a speech in Berlin. Such a transfer mechanism would involve “a scheme where EMU member states share part of the costs of short-term unemployment insurance,” he said.

With the European economy struggling to gain momentum after the longest recession since the euro’s introduction, unemployment remains near the record 12 percent reached last year. Across the euro area’s 18 nations, jobless rates range from 4.9 percent in Austria to more than 25 percent in Spain and Greece.

“It is obvious today that while some countries like Germany are enjoying economic growth and record-high employment, many other countries are struggling with economic stagnation or continued contraction,” Andor said. “A basic European unemployment insurance scheme would have a strong economic rationale, since it would provide a limited and predictable short-term stimulus to economies undergoing a downturn in the economic cycle -– something that every country is going to experience sooner or later.”

Monetary Policy

A “key factor” in the divide among euro-area economies “has been the design of our Economic and Monetary Union, with monetary policy being centralized at the European Central Bank, but fiscal and structural policies being predominantly under the responsibility of national governments, without there being any euro-zone budget in place,” the commissioner said.

“At the beginning, the euro provided some shelter for its member states,” Andor said. “But the euro has also been a trap, because member states can no longer adjust to economic shocks through tailor-made monetary policies and devaluation in their exchange rate, while at the same time being subject to strict rules on fiscal policy.”

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