Strengthening the eurozone: prospect of progress at last?

For anybody who has read last week's The Economist on how bad the next recession might be and how the eurozone in particular is challenged in terms of policy leeway to address downturns, press reports this week on ideas to create a cyclical stabilisation fund must have sounded like music to the ears. Clearly, after a long wait (calls for such an initiative go back to the Four Presidents' Report of December 2012), there is a genuine risk that signs of timid progress are welcomed with excessive enthusiasm. After all, German finance minister Olaf Scholz only produced a "non-paper" about creating a pan-European unemployment fund which would allow countries faced with a big increase in unemployment to borrow from this fund (and pay back later), rather than to borrow from the markets and be faced with rising bond yields on the back of a perceived increased riskiness of the paper which is being issued.

Although only a "non-paper", the initiative should be welcomed, not only because it should lead, as reported by Handelsblatt, to a proposal submitted at the Eurogroup meeting on 3 December, but even more so because at long last something might really be moving. This interpretation is supported by the interview of the Spanish minister of economy Nadia Calvino in Les Echos in which she stated that Spain is working together with France, Germany and Portugal on a European unemployment insurance system.The merits of this particular system of risk-sharing have been explained in research papers of, amongst others, the Bundesbank and the IMF. In a nutshell, enabling a country faced with a big increase in unemployment to borrow from a central fund, consisting of annual contributions of its members, avoids that this country would be forced to cut other expenditures, thereby reinforcing the downturn, so as to limit the increase of its budget.