June 20, 2018 / 7:15 PM / 3 months ago

Germany and France want euro zone unemployment insurance fund

BRUSSELS (Reuters) - France and Germany want to set up a fund to help euro zone countries pay unemployment benefits in a severe economic downturn and will make a detailed proposal by December, a document agreed by Paris and Berlin shows.

Rising unemployment has contributed to euro-scepticism in several EU states. Italy has had double-digit jobless rates since the 2012 debt crisis and has seen anti-establishment and eurosceptic groups rise to become its main parties.

The French and German road map, outlining their position on deepening euro zone integration, will be discussed by finance ministers on Thursday and by EU leaders on June 29.

The European Unemployment Stabilization Fund would work through loans rather than transfers to the country in need.

It assumes that each euro zone country would have a national system for unemployment insurance, which would have to be balanced over the economic cycle and build up reserves in good times.

“In a severe economic crisis the national systems could then be supplemented by a stabilization fund at the Eurozone level,” the document says.

“The fund could lend money to a national social-security system in the midst of an economic crisis which is resulting in significant job losses.”

Once the economic crisis was over, the country would have to pay back the funds it borrowed.

The idea echoes a proposal by the head of the euro zone bailout fund, Klaus Regling.

Another way for the euro zone budget to stabilise an economy hit by a “significant shock” would be to temporarily suspend that country’s contributions to the euro zone budget and have the European Stability Mechanism bailout fund pay the contribution instead, the document said.

The contribution would then be reimbursed over time by the country when its economy recovers.

The European Commission made a different proposal last month, targeting unemployment only indirectly.

It suggested that in the next seven-year budget of the whole EU, 30 billion euros be earmarked just to support investment in euro zone countries during economic bad times.

The proposed trigger for spending that money would be a sharp rise in unemployment.

Reporting by Jan Strupczewski; editing by Andrew Roche

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