Assessing the Euro Area�s Shock-Absorption Capacity - Risk sharing, consumption smoothing and fiscal policyAbstract: Based on a combination of quantitative analysis and a qualitative forward-looking approach, this paper assesses both the state of play and the future capacity of the EMU to respond and adapt to asymmetric shocks. The objective is to provide a basis upon which to gauge the potential value added of a European Unemployment Benefit Scheme (EUBS), against the background of the recent plans for the Banking Union, the Capital Markets Union and the reform of the fiscal governance framework. We find that the capacity of the system to deal with asymmetric shocks (and in principle reduce their occurrence) is likely to increase due to these changes; but it will remain limited in the medium term and certainly lower than in the US. We also argue that given the broad pro-cyclicality of fiscal policy, the idea that national policies alone can deal alone with asymmetric shocks is not realistic. Lastly, we maintain that an ex-ante fiscal insurance mechanism can provide some degree of income smoothing and is likely to catalyse market insurance. Fiscal and market insurance can reduce the role of credit and borrowing, which until now has been the main channel for shock absorption in the euro area but also the least effective in times of crisis. We conclude that, from a macroeconomic point of view, an EUBS is a useful tool to improve shock absorption capacity and is not mutually exclusive with market risk sharing. This report was prepared in the context of a research project on �The Feasibility and Added Value of a European Unemployment Benefits Scheme�, commissioned by DG EMPL of the European Commission and carried out by a consortium of researchers led by CEPS. It is published by CEPS with the kind permission of the European Commission

Cinzia Alcidi () and Gilles Thirion

CEPS Papers from Centre for European Policy Studies

Pages: 41 pages
Date: 2016-09
New Economics Papers: this item is included in nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.ceps.eu/system/files/SR146%20EUBS%20As ... ption%20capacity.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eps:cepswp:11875

Access Statistics for this paper

More papers in CEPS Papers from Centre for European Policy Studies Contact information at EDIRC.
Bibliographic data for series maintained by Margarita Minkova ().