Overview of proposals discussed

Table 1 provides a general overview of five different concepts of fiscal capacity for the euro area. They differ according to their rationale and the scope of stabilisation intended, as well as to whether pay-outs should be triggered automatically, or result from political decision-making. Finally, sources of funding also differ. The most-cited reform options are use of insurance to absorb cyclical shocks (measured as output gap of GDP, see section 3.1), and two versions to mitigate large swings in unemployment in the monetary union. A genuine European unemployment insurance (section 3.2) could top up and continuously support national budgets in economic downturns, while an unemployment re-insurance fund (section 3.3.) would only kick in during extraordinary economic crises. Less ‘technocratic’ options seek to create means that would not only allow mitigation of major macroeconomic shocks, but also support structural reforms in Member States, enhance public investment, and increase domestic demand. Such a public investment strategy could build upon the existing EFSI (European Fund for Strategic Investments) framework and eventually become subordinated to a dedicated borrowing-lending institution, such as the ESM (European Stability Mechanism). The two EP committees’ draft report suggests eventually transforming the ESM into a European Monetary Fund (see section 4.3.2). Finally, a dedicated euro-area budget, including some delegated competences for own resources, is advocated by those who consider it would become the nucleus for a genuine euro-area treasury.
The first column, the scope of stabilisation, shows the different major functions implied with the chosen instrument. An absorption fund to counter cyclical shocks (see 3.1.) for instance, predominantly aims for macroeconomic stabilisation. By contrast, supporters of European unemployment insurance (see 3.2) often evoke social policy aims as well. To set up any minimum provision regarding unemployment protection at EU level would necessarily imply some form of harmonised labour law, while at the same time it might foster the convergence of European labour markets.