A Step towards Reviving a Cooperative EU: Unemployment Support

For almost three years the focus of discussion and policy action in the European Union, and especially the so-called euro zone, has been unrelentingly reactionary, bank bailouts, budget cuts, contracting economies and growing unemployment. Such depressing news and reactionary politics have driven many, myself included, to doubt the wisdom of ever having started down this path.

For those who believe that political stability and sustained economic improvement require some form of institutionalized cooperation among the countries of Europe, reflection on how to move forward in a progressive way is more necessary than ever. We need clarity on several major questions:

1. what is Europe and, whatever it is, why seek to unite it?

2. how did we get into the current reactionary mess? and

3. what might be done to shift debate and policy in a more progressive direction?

The answer to the first question provides the guide to answering the others. For me, “Europe” consists of those countries whose governments provoked almost constant political, military and economic conflict among themselves for centuries, and catastrophically during the twentieth century. Therefore, the purpose of institutionalizing cooperation among European countries must focus on eliminating the material basis for those conflicts, economic as well as military, in as far as possible.

From this perspective, fostering market competition in Europe conflicts with the central purpose of institutionalizing cooperation. In this context, “cooperation to foster competition” is an oxymoron. We should define the purpose as “cooperation to manage and civilize markets”. Fostering market competition does not lead to peaceful relations among countries; quite the contrary. Competition among corporate giants, the major actors in the EU common market, does not and will not restrict itself to purely economic means.

After the Second World War politicians and the public recognized the validity of this principle, that big capital invokes governments to act in its interest. For this reason, the first tentative step towards European union, the European Coal and Steel Community, involved the reduction of competition in this sector, not intensification. However, at some point the cooperation for management of markets for the public welfare, became cooperation for deregulation of markets in the interest of capital. The re-construction of a cooperative Europe requires concrete initiatives to foster the welfare of the many, not the interests of the few.

A EU-wide system of unemployment insurance could serve as an important step in that reconstruction. Understanding the rationale for this system requires a distinction between unemployment insurance and unemployment benefits. I use the first term to mean insuring against short term job loss, and the second refers to support for medium and long term unemployment. The former would be self-funded through a payroll tax, while the financing of the latter would come from general revenue. The short run system would be at the level of the European Union, and when the insured period ended an unemployed person would go onto the national benefit scheme of her or his country of residence.

What would be the advantage of an EU-wide unemployment insurance system? With increasing intra-European migration, an EU system would allow for standardization of benefits and procedures. The scheme might set payment as a percentage of the wage earned by a person immediately prior to suffering redundancy. This would mean that payments would vary across countries with wage levels, as well as skill differences. The funding method would further avoid accusations of cross-country subsidies.  The EU parliament would levy a fixed rate payroll tax on both employers and the employee based on the employee’s gross earnings. The insurance fund would accumulate a surplus in periods of low unemployment, then make net payments when unemployment rose. Unemployment insurance functions in this manner in the United States. During 2005-2007 net revenue into the fund averaged US$ 8 billion, then a negative 85 billion in 2009 when the unemployment rate moved towards ten percent (these statistics can be found at http://www.bea.gov/).

This funding method has several important economic and political advantages. First, it has an unambiguously countercyclical effect, though rather small. In the United States the shift from surplus to deficit in the fund represented a bit more than 1.5 percent of GDP. This effect would make a step towards overcoming the current pro-cyclical macroeconomic policies fostered within the European Union.

Second, and extremely important politically, a scheme with an “ear-marked” tax helps overcome the reactionary propaganda that the unemployed are feckless shirkers and scroungers. When an employee pays for insurance against unemployment, falling into unemployment cannot be equated with aversion to work.

Finally, and desperately needed for public perception, the unemployment payments to people would come from a European supra-national agency. This would help overcome the impression most EU citizens have that the Commission, the Parliament and the Union itself “do nothing for them”, except enforce draconian austerity and allegedly promulgate arbitrary regulations.

A EU administered unemployment insurance that supplements national benefit programmes would provide a vehicle for linking the Union to the citizen in a concrete manner, as well as serving as an entry mechanism for more progressive fiscal policies.  The scheme would fall into the spirit of the European Social Charter, that states (Part II, Item 14), “everyone has the right to benefit from social welfare services”. It would be a step towards renewing the progressive promise of European unity.

  • Al Viguera

    Hundred percent behind your piece of policy. Time for anti-reactionary policies in the EU, the forgotten social cohesion and the ultimate EU for its citizens.

  • Al Viguera

    Great piece and better as applied policy; time to react with anti reactionary policies in the EU: where did the social cohesion and the EU for its citizens go?

  • Kathleen McMullen

    ‘Reactionary propaganda?’

    There is an entirely new disparaging vocabulary being produced to categorise those excluded by the market and austerity policies. The discourse, deliberately pejorative, is succeeding, with the assistance of a bunch of salivating Yes Sir/Madam journalists, in establishing divisions between job seekers and workers across the social spectrum.

    Rather than ‘reactionary’ it represents the power of those concerned to consolidate their economic interests and political privileges. Such power will have to be challenged if we are to see a more co-operative EU.