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A new scheme to boost structural convergence
Given the degree of divergence between
Eurozone countries, a new scheme should be
developed within the frame of the EU budget to
boost structural convergence and potential
growth by supporting a combination of target-
ed reforms and investments. This should also
contribute to address the Eurozone periphery’s
social emergency. A very small embryo of such
a scheme has in fact already been created in the
form of the
€
6 billion Youth Employment
Initiative, helping to finance the Youth
Guarantee’s implementation in regions with
high youth unemployment rates. This positive
practice should be reinforced as well as broad-
ened to other key areas, such as re-training
plans for long-term unemployed, the moderni-
sation of public administrations, or the improve-
ment of national innovation systems. The expe-
rience with the YEI shows that such instruments
need to be more flexible in order to be effective.
This scheme should therefore be able to finance
even basic public expenditure which every ad-
vanced economy vitally needs, for instance
teachers’ salaries or basic medical supplies.
The dedicated budget line for the
Youth
Employment Initiative
only received funding
in 2014-15, meaning that from 2016 onwards,
new financial resources for the implementation
of the Youth Guarantee need to be drawn from
existing allocations of the European Social Fund
(2014-20) and fromnational budgets. Additional
financing for the Youth Employment Initiative
will be one of the major topics for the mid-term
review of the EU’s Multi-Annual Financial
Framework.
In November 2015, the Commission pro-
posed redirecting some
€
120 millions of tech-
nical assistance resources under the structural
funds into a new
Structural Reform Support
Program
which could be implemented by the
Commission in a more flexible way, responding
to current political priorities. The legislative pro-
posal is being examined by the European
Parliament and Council.
Conclusion
The key to understand the outstanding reform
needs for the Eurozone is to grasp the com-
bined role of both cyclical and structural policy
in achieving sustained prosperity and stability
over time across the whole of the Eurozone, and
to do so within a sustained dynamic of struc-
tural convergence. The EMU will neither emerge
well from this crisis nor properly manage future
shocks by relying essentially on a narrow agen-
da of structural reforms within fiscal constraints.
Reforms are needed, but in a broad way –they
must drive such structural convergence, as
much as they must drive competitiveness. They
should also be stimulated by financial incentives
to support reforms in countries that are prop-
erly engaging to make them happen.
They have to be accompanied and support-
ed by more effective cyclical policy manage-
ment. The Eurozone must be endowed with
some form of asymmetric shock absorber as a
last resort, in order to secure ultimate stability
and to build up utmost confidence in its resil-
ience. However, this must happen without cre-
ating permanent transfer mechanisms between
Member States and while securing the good
functioning of national automatic stabilisers as
the standard way to address asymmetric shocks.
Furthermore, the EMU needs to improve its
common macroeconomic steering capacity over
the longer run. This is particularly important in
the field of investment and with regard to mac-
roeconomic imbalances, which must address