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December 01, 2017

Unemployment insurance for all - nice idea, but does it work?

Emmanuel Macron promised a universal unemployment insurance for a modern society, in which job changes occur more often and the share of self-employed is rising. But the idea of universality sounds more attractive on paper than it is in practice, writes the editorialist Etienne Lefebvre. The first challenge is what to do with those who voluntarily resign from their job. A full coverage could end up being costly for the insurance fund. Most likely there will be special rules in this case. The political risk for Macron is that it undermines the idea of universality, and that this could then easily be understood as a simple extension of existing provisions. The inclusion of the self-employed is even more daunting. The self-employed are a heterogeneous group of people with different needs, where income is difficult to measure and the line between voluntary and involuntary job loss gets blurred. The insurer is not necessarily able to verify that the self-employed do not organise their own end of activity. And this is not even about the implementation difficulties. It is not even clear the self-employed want unemployment insurance. It is more in the interest of the employees to get them into the system.

The task is now to find objective criteria to distinguish involuntary loss of work, and to focus on basic fixed payments rather than a relative income payment to make this idea of an universal unemployment insurance work. The current proposal on the table is a fixed monthly payment of something between €600 and €700 for a duration of six months, and limit this to those independents whose businesses went bankrupt, according to an exclusive in Les Échos

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December 01, 2017

Hard border paradox

What to do about the hard border? The Irish are clear that they don't want to have one with Northern Ireland. The DUP insists on Northern Ireland not having a hard border with the UK. Arlene Foster made this clear again yesterday, warning Theresa May not to make any concessions to the EU which affected Northern Ireland’s relationship with the rest of the UK. She seemed sufficiently alarmed at the prospect of concessions to make this statement, as Brexit talks enter into a critical phase ahead of the meeting between May and Jean-Claude Juncker. The DUP MP Sammy Wilson made the threat even clearer by saying that, if there is any hint of concession, the DUP can no longer be relied upon to support May’s minority government.

To get one's head around this whole question of a hard border, just have a look at this map, with a hat tip to @StewartWood, showing the logical inconsistency of the UK position. 


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December 01, 2017

Could Jeremy Corbyn be the politician to defeat the banks?

We recalled when, during the financial crisis, the head of a UK bank that had just been nationalised defended the high salaries on the grounds that the banks needed to attract talent. His comments were met with derision at the time, but the reaction to similar statements today is of a different kind, as we saw in a comment by Jeremy Corbyn yesterday. While it is our baseline scenario that Theresa May will remain prime minister until Brexit in 2019, we believe that the probability of Corbyn becoming UK prime minister at the next elections is significant. And Corbyn yesterday laid into the banks like no prime minister has done before, as the FT reports.

Jeremy Corbyn said that Morgan Stanley is right to write that he would be a threat to their business. The FT noted that what they called his "anti-City rhetoric" would drive business away from London. But, unlike in 2008, the departure of a bank is no longer seen by the Labour Party as a problem, but as a promise.

We believe that the banking industry massively underestimates the degree of public outrage, and the determination by political parties to do serious damage to them - even if such an exercise were to produce collateral damage to the economy. 

Also not very helpful was a comment by Sergio Ermotti, the chief of UBS, who responded to a former Bank of England official's criticism of the high pay in the banking sector by saying this:

"I think this discussion is made by people who are maybe frustrated that they do not make that kind of level of money."

Ermotti might want to recall the saying that you cannot fool all of the people all of the time. There is often a time delay between an event like the financial crisis, or the eurozone crisis, and a political backlash. Just as the political backlash against austerity is only beginning to happen now, so is the political backlash against the likes of Ermotti, and the bankers at Morgan Stanley who warn about the economic consequences of a Labour victory.

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