Additional effects of a European unemployment benefit scheme

The European Unemployment Benefit Schemes (EUBS) analysed within this study are a fiscal stabilization mechanism whose primary objective is to smooth income over the business cycle. It would complement, and possibly reinforce private risk sharing mechanisms, and thus provide a potential tool to fill one of the main gaps in the architecture of the Economic and Monetary Union (EMU). This section of the study extends the assessment of EUBS as an automatic stabilizer by providing a qualitative analysis of its potential effects on three policy areas that have recently been identified as key problem areas within the EMU. Part one analyses the effect of EUBS on labour mobility, assessing under which conditions and in what direction EUBS may affect the level of labour mobility. Part two shifts the focus to the effect of EUBS on citizens' trust in European institutions and assesses its impact on financial market sentiment by reviewing the relevant literature. The final part weighs the potential negative effects of EUBS on the incentive to implement country-level structural reforms against the positive effects stemming from EUBS as an insurance against the potential short-term costs of structural reforms.