The Spinelli Fund: A European Compact for Skills

Many economists agree one such reform is ensuring the stability of the Eurozone through a fiscal union.[1] Though fiscal coordination within the zone is fraught with difficulty, every country for itself is not a viable strategy. Setting up a common fiscal policy capable of stabilising a country or a group of countries in deep financial and economic crisis can only be achieved through a series of fiscal measures, not simply a single one. Current proposals include a European unemployment benefits scheme,[2] which would help rebalance the economy while at the same time represent some form of European solidarity for citizens on a highly concrete matter.[3] 

There is another measure that would not only combine these two aspects but would also avoid financial transfers among member states. This would entail a fund to train citizens and provide them with new skills for the job market. It would be reactive in that it would be activated quickly in the event of a serious economic downturn and would comprise of financing for four different measures:

• An additional year of study for students already enrolled in higher education
• A one-year training scheme for the unemployed and young people
• Training programmes for employees in companies with temporary staff surpluses in times of crisis (similar to Germany’s work-sharing Kurzarbeit scheme, which limited the number of redundancies during the 2008-09 crisis)[4] 
• Training for refugees to increase their chances of landing a job

Several conditions would need to be met and a specific financing mechanism would be required.

• Training would be provided by educational and training institutions selected through a European call for tender. This would be done in a matter of weeks by first mobilising existing educational and training institutions. The call for tender could even be organised when macroeconomic conditions are good so the scheme can start without delay when macroeconomic conditions deteriorate.
• Training would target skills shortages like data mining and management, coding, etc. The needs would be defined upstream through a network of existing national institutions in charge of matching training schemes and job offers. 
• The content of training schemes would be established upstream to correspond to the best pedagogical practices and technical content. Competition would be defined and organised according to the same standard at the European level so as to provide for European-wide diplomas. 
• By way of example, the full cost of a year of higher education is around €14,000 in France, which is mostly financed by the state. A yearly €10,000 living allowance would be planned for on top of this. For employees who decide to work less to undertake training, a company allowance would make up for lost wages. This would therefore be a budget of €24,000 per person in the case of France, which would be adjusted according to the standard cost of living in other European countries.
• The Spinelli Fund would deliver contingent loans to beneficiaries, which they would then reimburse through a tax on their future income. This tax would be 20% of the share of the income above the minimum wage (the level would be adjusted by member states according to the standard of living).  The tax would then be paid back into the fund by the tax administration of the beneficiary’s country of residence so as to minimise management costs and guarantee repayment.
• European solidarity would take place under the form of a common guarantee provided to the Spinelli Fund, which would borrow the necessary amount of money for the training programmes on the market. The fund would pay back the money as the contingent loans are reimbursed by the beneficiaries.

The scheme would provide macroeconomic stabilisation and concrete benefits for citizens.

• It would allow a sizeable fiscal boost in countries mired in an economic downturn. For 250,000 people trained over a one year period in a country like France (roughly 1% of the active population), for example, there would be €6 billion injected into the economy with no adverse impact on the fiscal balance. There would then be a fiscal boost of 0.3% of GDP that would take place in a matter of months.
• Financing through a tax on future incomes above a set threshold would be the right incentive for people with the lowest skills to enter the scheme first. The anticipated boost on their future income due to better skills would be significant for such low-skilled workers, which would be especially beneficial as they are the most affected by unemployment in an economic downturn.
• As opposed to classic fiscal boosts such as infrastructure investment plans, the delay between the decision to start the scheme and the disbursement of the money on the ground will be a matter of weeks. Increasing training facilities in existing educational institutions does not require heavy infrastructure investments.  Moreover, the scheme would initially rely on current teachers and professors, increasing their teaching time for extra pay. New teachers would also be hired relatively quickly in a period of increasing cyclical unemployment. Finding more space to do the training would not be a major problem either because educational institutions would maximize the use of their premises or would rent additional space at a low cost.
• Educational institutions would receive a lump-sum transfer only when the students pass the exam successfully. This would incentivise them to select motivated people with a good chance of succeeding. This combination of good incentives on the part of the beneficiaries and the educational institution would allow for the best candidates to enter the schemes with the largest expected gains in income.
• People entering the training scheme would no longer be on the job market and consequently would not be competing with other unemployed people for jobs. Trainees would benefit from a fixed income for the duration of their training and from the prospective of finding a better job upon completion. Hundreds of thousands of people would therefore benefit from a steady income, thus contributing to averting a deeper economic depression.
• The mechanism would not be dependent on financial transfers among European countries, but instead would rely on a joint guarantee for the Spinelli Fund, which would likely not be drawn on as the main risk – non-repayment of loans – would be minimized. Indeed, national tax administrations would be in charge of recovering loans. If too many beneficiaries were unable to repay their loans, the national budget would plug the gap, but it would happen several years down the line when the country’s macroeconomic conditions revert to normal.

EU or Eurozone countries could then rapidly set up a European solidarity mechanism based on the Spinelli Fund. This mechanism would have a direct impact on citizens’ lives in the event of an economic downturn, improving their job opportunities and bolstering their current and future income. Again, the Spinelli Fund would play a stabilising role without implying financial transfers between countries. Moreover, it would counter mass unemployment in difficult economic times while improving citizens’ skills. It would also provide a means of decreasing companies’ payrolls during slowdowns without depleting their human capital – on the contrary, their employees would acquire valuable new skills.

There is the option of having governments subsidize beneficiaries of the Spinelli Fund. If a share of the total cost were to be covered by the public purse, it would come from the European budget with or without a reimbursement from the country receiving the subsidy. The Spinelli Fund would either exist solely for the Eurozone or for the whole of the EU. It would be set up permanently, with the subsidy component activated only during an economic downturn so as to provide a stabiliser.

[1] Pisani-Ferry, Vihriälä and Wolff (2013), “Options for a Euro-area Fiscal Capacity”, Bruegel Policy Contribution No. 2013/01; Bénassy-Quéré, Ragot & Wolff (2016), “Which fiscal union for the euro area?”, Bruegel Policy Contributions, No. 2016/05.