It’s always good to see people confounding national stereotypes. For instance, it turns out that Pier Carlo Padoan, Italy’s finance minister, is a master of understatement. Here’s the opening line of his recent think-piece for the Guardian:
“Despite some signs of recovery, the euro area’s economic performance remains disappointing.”
I’ll say. The Eurozone unemployment rate is roughly twice that of Britain’s – and in some member states three, four or even five times as high. As Padoan points out, the people of Europe aren’t best pleased:
“Persistently high unemployment rates have led to widespread popular disaffection with the currency in particular, and the European project more broadly. No wonder so many Europeans are now convinced that the way to solve these problems is to unwind integration and retrench behind national borders.
“Faced with such widespread dissatisfaction we can either muddle through or we can face up to the challenges in bold and concrete ways…”
His key policy proposal is very bold indeed:
“Eurozone labour markets especially must be made more resilient. This could be done by introducing a common European unemployment insurance scheme.”
I’m sure that he meant to refer to a common Eurozone scheme, not a common European one – because the idea of, say, Britain wanting to participate is obviously absurd.
Padoan ventures that such a scheme would “smooth demand and cushion the negative fallout of any future crises” helping member states to “cope with what economists call asymmetric shocks – or events that strike one nation harder than others.”
What he doesn’t mention is that by removing the compensating effect of floating national exchange rates, asymmetric shocks are built into the very design of the Eurozone. He adds that fiscal integration would be required to “avoid the need for permanent financial transfers between countries”, but that is precisely what the integration of key fiscal components – such as unemployment insurance – would entail.
Nevertheless he’s absolutely right when he argues that “a genuine monetary union requires a stronger element of risk-sharing.” At the moment, Eurozone risk-sharing is monetary in nature and embodied in the credibility of the currency itself and its supporting institutions. Such credibility can be turned into money – literally in the case of quantitative easing, and indirectly in terms of government access to cheap credit. In this way the stronger economies prop up the weaker ones.
One of the drawbacks of this monetary risk-sharing is that it’s difficult for ordinary voters to see what their governments and the Eurozone institutions are up to. For instance, German voters suspect that they (and the other solvent countries) are frittering away a valuable resource, but they can’t put a figure on it.
If, however, risk-sharing took a fiscal form (such as a common unemployment insurance scheme) then the true cost would be there to see in the accounts. Of course, if German taxpayers had to transparently pay the price of exporting joblessness to the peripheral members of the Eurozone then they might not be so keen on the whole mercantilist scam.
In the meantime, here’s something that Pier Carlo Padoan might like to note: Europe already has a common unemployment insurance scheme!
It’s called the British economy – and it provides a multitude of Italian, Spanish, Portuguese and Greek workers with the jobs that are so needlessly missing from the Eurozone.