The introduction of operational in practice rules to tackle unemployment across the Eurozone/EU as a whole, will take place in this fourth and final part (Part IV) of this series of analyses. In addition, we will present the appropriate organizational structure for the fiscal framework proposed by us in the euro area, which has not yet existed in the Eurozone, but also its results.
As regards the public sector expenditures on unemployment benefits and given that there will be a joint operational and centrally designed budget for the central government of the Eurozone, these costs will must be made with a combination of expenditures both from the budget of the central’s government member state and the common Eurozone budget.
by Thanos S. Chonthrogiannis
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The establishment of operational rules for tackling unemployment across the Eurozone/EU
The Commission will must set a predetermined maximum annual unemployment limit for all Euro-area member countries, e.g. a maximum annual unemployment limit of 7%. This predetermined maximum annual unemployment threshold should also be mentioned in a revised or new Stability and Growth Pact.
When the annual unemployment rate exceeds the ceiling rate above (e.g. annual unemployment 10%) in a Eurozone/EU member country, the Commission will have to implement specific fiscal and development policies. More specifically,
In such a case, the funds that will need to be spent as unemployment benefits for the exaggerated unemployment rate (in our example 10%-7% = 3%) they should be disbursed in their entirety by the one and only operating annual budget of the central government of the Eurozone.
For these funds there will must be a transfer of funds to the “problematic” economy of the member state which faces the immediate problem of unemployment.
At the same time with the transfer of these funds, specialized development policies will must be implemented in the member country concerned in order to reduce unemployment and, at the same time, transfer unemployed workforce from the member state which presents high unemployment figures must be made to other member countries with an increased job offers.
But these policies will must be implemented in a short time and within less than a year of finding the problem, while the implementation of these policies will must be independent of any policies of growth and shrinking unemployment which applies the central government of the member country.
Why do these policies not succeed in the Eurozone?
The failure of these policies lies in the organizational structure of the Eurozone. The organizational framework to date in the Eurozone is based on the fact that the transfer of any fund resources for both the payment of unemployment benefits/employment grants and for growth are attributed by the Commission to the central governments of the member countries and the central governments of member countries are managed these funds as they want and always in conjunction with the budgetary fund resources that they have approved from their own central government budgets, which they are assigned their resources for in these sectors (unemployment and growth).
In our analysis entitled «The Proper way to Organize and Manage the development funds of NSRF to achieve growth in the Eurozone» published in https://www.liberalglobe.com, 10/01/2019, category: fiscal, we have developed the organizational structure that will have to exist in the Eurozone and the Commission for the effective management and implementation of the NSRF’s development funds in order to achieve the maximum development effect both on an individual level member country and the entire territory of the Eurozone.
In the same organizational structure that we presented for the management of both public revenues in the Eurozone as a whole (see analyses with titles «The Proper way to achieve the Single Operating Budget of the Eurozone-Part I & II» equally, published in https://www.liberalglobe.com, 27/12/2018 & 3/01/2018 correspondingly, category: fiscal) as for the management of the National Strategic Reference Framework (NSRF) the member state administration responsible for the unemployment and employment agencies in each Eurozone member country must have a separate administration.
This separate administration will be an independent authority that will be reported in administrational and organizational terms only in the competent European Commissioner responsible for the portfolio of Employment and Social Affairs.
The role of this separate administration-independent authority will be to thoroughly monitor any incremental unemployment rates, but also the structural and qualitative problems of the member state’s unemployment in immediate time.
Their role will be to inform the Commission immediately so that the any funds which are eligible for transfer with aim to support the exaggerated unemployment rate (in the form of benefits and labor/employment grants) to be managed by this independent authority with specialized targeting for the solution of the problem.
This means that the human resources of this service-independent authority will have full access to the centralized and analytical information systems of the central offices of the employment agencies of each member country.
In this way and in the second stage, the Commission will must set the same information systems on all the employment agencies in the Eurozone/EU member-countries. In this way, all that will change will be the local language of the member country and nothing else.
With the homogeneity of information systems across the Eurozone/EU dominion, these services-independent authorities, will be able to inform and be informed in a direct time:
1. On the demand for manpower on the territory of the Eurozone so that to properly steer the unemployed workforce of the specific member-country for any transfer to another member country and before it starts to gigantic the problem.
2. To discern any problem of rising unemployment before it starts to gigantic by proposing and implementing the appropriate policies in the member country that presents the problem.
3. The implementation of this independent authority strategy with the same information systems across the Eurozone will force all employers in the Eurozone to follow the EU labor standards, removing from “frame” the any uncertainty and risk involved in an unemployed person’s decision to move from one member-country to another member country, due to a different language and culture.
The movement of the unemployed from a member-country to another member-country will must be carried out through these independent authorities and will must be monitored by these independent authorities until the unemployed person is fully installed in his new work.
4. At the same time, they will be able to advise the central government of the member-country on the appropriate policies that will have to apply for the greater flexibility of the member-country’s labor market.
Simultaneously, the Commission and having knowledge of the demand for projects seeking funding through the net of the Independent Development Fund Management Authorities (IDFMAs) which will be located in each member-country of the Eurozone and to select the funding projects from the funds of the NSRF, will be able to direct any project financing to this member-country based on the qualitative structure of unemployment.
Their aim will be to bring unemployment back to the point of equilibrium below the maximum pre-determined annual rate of unemployment, operating independently but also in addition to the efforts of the central government of member country.
With this organizational structure the central government of the member country whose economy is experiencing high unemployment is avoiding increasing taxation in its economy while creating a deficit in its state budget due to increased costs for unemployment benefits and employment/labor grants.
The objective of the central government of the member-country that presents the unemployment problem will be the funds that will save in this case from the non-increase in taxation to use them through its own forces and policies in such a way that to exit its economy from the slow growth or recession in a minimum period (is achieved a higher degree of adjustment in its state budget).
The criteria to be characterized by projects financed by the Eurozone’s development funds
Increasing public spending both in the budgets of the central governments of the Eurozone member countries and in the central government budget of the Eurozone does not mean that funds will must be spent needlessly on useless and non-productive investments-projects, only to reduce unemployment in the short term and to increase the votes of certain political parties before the national and EU elections respectively.
The funds that are earmarked for use in public spending programs, both in the total budget of the central government of the Eurozone/EU and in the individual central government budgets of the Eurozone/EU member countries, will must be distinguished by three elements׃
1. The first element is the distinction that will have to be made between the amount of funds (public expenditures) which are used and the quality (return) of the investment projects carried out.
This does not mean that the performance of these public works must be measured solely and only in monetary terms. This is because the Commission is obliged to consider the social performance of these projects.
2. The second element is the distinction between the benefits which are achieved by these expenditures, short-term benefits and long-term benefits.
3. The third and final element is whether the amount of public expenditures which each time are used leaves relatively unchanged-unaffected the total level of money supply and the level of taxation both in the Eurozone economy and in the member-country being applied.
For example, let us assume that the Eurozone/EU Commission has i.e. funds totaling €50 billion for public works, with the aim of creating gas pipeline networks across the Eurozone and EU territory.
In order to achieve the first element, we will must quantify the performance of these projects, initially in the GDP of the economies of the member-countries that will be built the pipelines and the facilities of the liquefied natural gas storage areas respectively.
Then we need to calculate the performance that will be shown with the quality of these projects (sluggish maintenance costs, ease of replacement and maintenance of pipelines and materials, possibility of using pipelines from many gas suppliers at the same time etc.).
In addition, will must be measured the quantitative and qualitative yield resulting from the increase in production in these economies (low cost-high quality of produced products in industry, processing, etc.) using qualitative factors measuring quality performance (Qualitative Factors).
The second element is the categorization of short-term benefits which are achieved by these projects. Indicatively, it can be said that short-term benefits are, for example, the creation of new jobs for the implementation of these projects-reducing unemployment in member countries, increasing GDP, etc.
On the other hand, long-term benefits are considered the creation of a free market for natural gas, the competitive pricing of gas with increasingly competitive (low) prices that will increase the real income of citizens, the energy independence of EU from one gas supplier etc.
The third and final element which must characterize the funds that are used for public expenditures for the implementation of public works is the degree of influence that they cause both in the level of the money supply and in the change in taxation in the economy which are implemented.
In this example above, when €50 billion is used as public expenditures, the projects that will be financed will must give the possibility of their privatization
a) either their privatization takes place at the start of the projects (e.g. use of Partnership of Public & Private Sector (PPPS) programs),
b) either during the implementation of the projects (public offer of the organization/company which undertake the implementation-exploitation of the project),
c) or by completion of the projects (sale of all the shares of the organizations/companies which complete and exploit the projects).
In any case, there are public works that cannot be privatized by their nature. The objective will must always be the funds which are used as public expenditures to return for the most part to the state treasury and the budget of the Eurozone respectively while giving parallel to the private companies, which will then maintain and exploit these projects to have enough profit margins.
At the same time the end user of these projects, the Eurozone/EU citizen will must have the best possible cost/benefit from the use of these services/goods in relation to the cost/benefit that would have been with whether these projects were advantage by the public sector (this is achieved through the free market and free competition regime in the goods and services offered).
In our example, if the implementation of this project requires a time horizon of ten years and will be used €50 billion in their entirety, they will must be reimbursed to the treasury and state budget of the Eurozone respectively, through privatization process of these projects, about €25-€30bln.
Next, these funds, for example, €25-€30bln will be able to finance more public works over the next decade, without affecting the money supply in the economy, nor should there be any increase in taxation for the concentration of these funds if the Eurozone/EU should spend and renounced from its budget, per decade, the amount of €50 billion.
Essentially, the Eurozone should increase the money supply by €100billion in two decades to implement the specific projects, either by printing a corresponding amount of money either by increasing taxation or by borrowing or by combining the three options, to gather these amounts. With this organizational and investment logic and structure there is an additional control of the money supply in the Eurozone economy.
The results from the proposed fiscal and organizational framework
Given that in this case would achieve the accomplishment of the fiscal targets for the annual balanced general government budgets in all Eurozone member countries (including in this budgetary size and the annual public debt service costs), then and only then:
1. The Eurozone member-countries that present trade surpluses and generally permanent surpluses in their current account balances could increase the level of nominal wages in their economies in order to further increase the real disposable incomes of their citizens.
This policy would then trigger the increase in aggregate demand and consumption respectively and the saving rate of their citizens by achieving a further increase in the turnover of Eurozone companies.
In such a situation the Eurozone economy will start to develop on solid foundations, constantly creating new permanent full-time jobs for the absorption of unemployment, without the necessary increase in bank credits in Eurozone territory.
2. With the homogeneous application of the proposed fiscal upper limits on total government expenditures in the annual state budgets of the central governments (e.g. 15% of GDP and 4% of GDP) of all the Eurozone member-countries and as presented in the series of analyses entitled «The Sustainable Solution for the Eurozone Economy» Part Ι, ΙΙ, ΙΙΙ, ΙV, correspondingly and always in combination,
a) with the immediate achievement of the fiscal objectives set out in a new revised Stability and Growth Pact,
b) with the organizational structure for the control of the public revenues and management of the NSRF development funds throughout the Eurozone and as they presented in a series of analyses (see analyses with titles «The Proper way to achieve the Single Operating Budget of the Eurozone»-Part Ι & Part ΙΙ» correspondingly, published in https://liberalglobe.com, 27/12/2018 & 03/01/2019 equally, category: fiscal) & («The Proper way to organize and manage the development funds of NSRF to achieve growth in the Eurozone» published in https://liberalglobe.com, 10/01/2019, category: fiscal).
It will enable the Commission to institutionalize the adoption of the total external sovereign debt of Eurozone member countries as the external sovereign debt of the general government of the Eurozone (European Commission).
In this way, the Commission will also be given to ECB “the green light” to issue Eurobonds under the guarantee of the Eurozone’s general government to finance the Eurozone’s external sovereign debt.
Once all these objectives have been achieved, common low tax rates will have been imposed on the Eurozone territory, which will finance the Eurozone’s central government unique operating budget.
The budget of the Eurozone’s central government will also be bound by the above presented upper fiscal limits that we propose to establish for the annual public sector expenditures in the state budgets of the central governments of Eurozone’s member-countries.
The Commission will then be able to increase its public investment in the Eurozone, e.g. increasing defense spending in order to finance the creation of the European army and European defense (see analysis with title «The Creation of EU Defense & its Defense forces», published in https://www.liberalglobe.com, 25/10/2018, category: geopolitics).
The increase in defense spending will also trigger a further increase in the GDP of the Eurozone in order to re-fuel growth in the Eurozone economy. In addition, the Commission will also be able to finance the existence of an Interior ministry for the entire Eurozone/EU and with the same organizational structure that I proposed for controlling public revenues throughout the Eurozone.
Surely all these political and organizational structures that we are proposing to the Commission and the leaderships of the Eurozone/EU member-countries involve transferring of political power from the Eurozone member countries to the Commission.
But the whole of the Eurozone/EU leadership will must understand that the Eurozone project must move forward. When we say move forward, we mean unifying key structures for the further smooth functioning and development of the Eurozone economy.
Which in turn will cause prosperity, which prosperity will must be spread evenly across all the Eurozone/EU societies and especially in low and medium-sized income social classes.
In turn, this evenly spread prosperity in the whole of the Eurozone/EU societies will strengthen the democracy and will act as a dike in any disruptive and nationalistic political and separatist movements that appear today powerful in the Eurozone/EU societies.
