The Global Financial Crisis and the Eurozone Crisis have dealt a severe blow to the real economy, marked by a striking north-south divide in the patterns of unemployment across Europe. The EU has often been blamed for playing a negligible role in providing solutions for this plague, especially as solutions to financial troubles have not yielded equal results for employment conditions across the euro area. This has engendered, inter alia, two main EU proposals targeted on unemployment: first, the introduction of a common unemployment insurance scheme within the Eurozone; second, the launch of an initiative specifically aimed at tackling youth unemployment, known as Youth Guarantee.
An early proposal to ease the burden of unemployment came in 2009 from former EU Commission President Barroso, who proposed to temporarily suspend member states’ obligation to part-finance European Social Fund (ESF) projects supporting training and employment projects. The Commission estimated that in 2009-10 the proposal would have increased the amount of money disbursed by the ESF by €6.6 billion, as governments would have been able to use the money without further straining their public finances. Yet, this project did not encounter the enthusiasm of the member states, and was quickly abandoned by the Commission.
Only later did an actual idea for a European Unemployment Benefit Scheme started to circulate in the Brussels aisles. In 2014, a study prepared by the Centre for European Policy Studies for the European Commission contributed to clarifying the terms of feasibility and established that the creation of a minimum common employment insurance regime for the Eurozone would require a budget between 0.3% and 0.8% of the GDP of participating countries, with an estimated stabilization effect of 20% (namely 1.2 euros generated for each euro invested). While the debate on the matter remains extremely lively, this has not been matched by significant policy developments, mostly due to the fact that such changes would probably require treaty changes, and therefore unanimity among member states.
Quite differently, the Youth Guarantee has reached considerable, levels of advancement. In December 2012 the European Commission presented a proposal aimed at ensuring that all youth under 25 receive a quality job, internship or education offer within four months of finishing school or becoming unemployed. The scheme was approved by the EU Member States in March 2013 and €6 billion was set aside in the 2014-20 EU budget to tackle youth employment. After a slow start, in May 2015 the European Commission decided to give the initiative a fresh boost by increasing the availability of pre-financing for Youth Gurantee projects from 1% to 30%. Three years after the launch of the initiative, the Commission claims that 14 million young people have entered Youth Guarantee schemes, with around 9 million people taking up an offer, the majority of which were offers of employment. According to the Commission, almost two thirds of young people who left the Youth Guarantee in 2015 took up an offer of employment, education, traineeship or apprenticeship.
POLITICAL FAULT LINES
What are the main factors preventing the development of a common European benefit scheme? The need to strengthen the budgetary policy of the single currency area to cope with systematic shocks appears to come into direct conflict with certain member states’ reservations about further economic integration. On the one hand, the Italian government has been one of the main proponents of a common European unemployment insurance. In a policy paper published in February 2016 Matteo Renzi’s government laid out its priorities for deeper European integration, calling for a common Eurozone unemployment insurance scheme and backing the idea of a finance minister for the whole Eurozone.
On the other hand, this attempt—which was likely to be supported by France and the other Southern European member states—has remained rather isolated due to Berlin’s opposition. The fear that greater fiscal integration may lead to moral hazard in Southern European Member States has been recently restated by the Germany’s council of economic advisers: the government-funded panel of five economists warned that recent proposals to deepen integration within the Eurozone, including unemployment insurance and shared economic governance, would undermine its founding tenets, in particular the stipulation that members not subsidize one another.
Less critical is the position of Central and Eastern European member states. For instance, in a recent interview Slovak State Secretary of Finance Ivan Lesay has affirmed that Slovakia is not among the “hawkish” member states opposed to a fiscal stimulus for the Eurozone and has overtly backed calls for a European unemployment insurance scheme.
As for the Youth Guarantee, notwithstanding decreasing media attention on the issue, the political debate around this initiative and its results has been no less contentious. Controversies revolve mostly around the actual benefits provided by the programme. One year after its launch, in June 2014 German Chancellor Angela Merkel admitted, during a EU Council summit, that the Youth Employment Initiative—an instrument of the Youth Guarantee—had thus far been a failure, adding that youth unemployment is one of the areas that needs more policy work in the EU.
Expressions of scepticism have come also from the supranational level. Officials from the European Court of Auditors, which is responsible for screening the Youth Guarantee outcomes, have admitted that they have yet to see a single young person who has found a job through it, and warned that “there is a risk that total funding may not be adequate”. As a matter fact, in 2015 the court was not able to estimate how much of the money had been used, as nine member states did not to provide any information about their commitments.
This helps explain why member states appeared to be reluctant to renew the funding for the Youth Guarantee in 2016. Yet, members of the European Parliament have roundly rejected this cost cutting effort and decided to add a further €473 million to the programme to ensure its continuation. Along similar lines, following the positive, albeit modest, increase by 0.4% in youth employment during 2015, Employment Commissioner Marianne Thyssen has defended the initiative claiming that the actions of the Commission in the fight against youth unemployment “are beginning to bear fruit”.
Seven years after the outset of the Eurozone crisis and three years after the launch of the Youth Guarantee, unemployment rates—most notably for young people—still vary tremendously along a north-south divide: the youth unemployment rate remains above 40% in Greece, Spain and Italy, whereas it is below 7% in Germany. While there is no “magic formula” to drastically change the course of employment in Southern Europe and while treaty change leading to greater European integration appears to be a very difficult path, a potential solution has been suggested by the French Council of Economic Analysis. The common European unemployment insurance could be combined with the need to strengthen the budgetary policy of the euro area and could be put together as an extension of the European Stability Mechanism—the agency providing financial assistance to Eurozone countries. This way, it would be likely not to require treaty change.
The future of the Youth Guarantee is rather murky, too. The Commission has recently proposed to extend the budget resources of the Youth Employment Initiative and provide an additional €1 billion to the YEI specific budget allocation, matched by €1 billion from the European Social Fund, in order to extend the programme until 2020. However, it is not yet clear whether this additional funding may yield tangible economic outcomes. Indeed, according to the International Labour Organisation, an efficient Youth Guarantee at a European level would cost at least €21 billion.
However, the launch of a European Pillar of Social Rights, as announced in the State of the Union speech made by Jean-Claude Juncker on 9 September 2015, might suggest a more optimistic scenario. Throughout 2016 the Commission discussed with national authorities, social partners, civil society and citizens on the content and role of a proposal on the topic, which is expected for March 2017. Not only did Juncker affirm the willingness of the Commission to keep on implementing the Youth Guarantee, but he also envisaged the presence of a European Unemployment Benefit Scheme, making use of the European Stability Mechanism, the European Fund for Strategic Investments, or a Eurozone budget as a starting point.
Ultimately, it is fair to say that significant policy developments on the topic will be entirely dependent on the domestic conditions that will be defined by the 2017 French and German elections. In particular, with former European Parliament President Martin Schulz—a staunch promoter of the Youth Guarantee—rapidly gaining ground since he returned to German politics and succeeded Sigmar Gabriel as the Social Democratic Party’s and Chancellor candidate, and with pro-EU candidate Emmanuel Macron strengthened by the divisions of the Socialists and the scandals of the Conservatives, (almost) nothing seems impossible.
Photo Credits CC Labour Youth
Also published on Medium.