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Enhancing social policy objectives in EU policymaking

Social Europe / COMMENTARY
Lieve Fransen , Elizabeth Kuiper

Date: 15/11/2023
The current permacrises demand an expansion of social policy objectives and better coordinated social outcomes in EU policymaking. The European Semester is the EU’s main policy reform instrument, and it has nudged member states into necessary reforms. However, more and better coordination is needed before new initiatives are launched. We call on the incoming Belgian EU Presidency to translate this agenda into concrete policy recommendations for the next EU political cycle.

In today’s world, we face inter-connected challenges, increasing income inequality, and significant economic and social disparities within and between member states. This is coupled with rising nationalism and populism (partially because of the growing disparities), which means EU cohesion and solidarity are stretched. What the European social model needs now is protection but also modernisation to face these challenging times.

The impact of demographic ageing and the resistance against migration is felt in the EU. Furthermore, the number of people over 65 is rising rapidly, and the number of employees financing the social welfare model in Europe is decreasing. At the same time, some critical jobs do not find suitable candidates to fill open positions. This demographic shift is not only leading to a shrinking workforce but an increased demand for healthcare, a need to reinforce long-term care and social services, and an imperative to rebalance public spending, including through complementary crowding in of private investments for social systems and infrastructure using innovative instruments from the European Investment Bank (EIB) and public banks.

Boosting public and private social systems and infrastructure investments in Europe is essential to confront better the transformations of our social models needed in the 21st century and ensure adequate social and human capital and services for preparedness and growth. This was the outcome of the final report of the Commission’s High-Level Group on the future of social protection and of the welfare state in the EU that was presented in early 2023 and chaired by Anna Diamantopoulou, former European Commissioner for Employment, Social Affairs and Equal Opportunities.

Lack of focus on social outcomes and social infrastructure

One of the conclusions of the High-Level Group was that the current European instruments are not focused enough on social outcomes and social infrastructure. They also recommended that the Stability and Growth Pact (SGP) rules regarding social investment and infrastructure need to change towards long-term investments and financial instruments need to become less fragmented and more blended and bundled.

During the tenure of the von der Leyen Commission, the European Union was confronted with multiple crises, which led to a rethink of economic governance and a renewed focus on the need for growth, flexibility, investments, and social rights. When the pandemic hit in 2020, the Eurozone’s economic governance was radically and quickly transformed. The European Commission suspended the fiscal and state aid rules and created the temporary SURE programme to support those who are unemployed. Countries were allowed to increase their public spending to protect their economies, lives, and livelihoods to support employment.

In response to the COVID-19 pandemic, the EU created new funding mechanisms - NextGenerationEU and the €800 billion Recovery and Resilience Facility (RRF) - focused on the green and digital transformation, and to a certain extent, social inequalities. These recovery grants for green, digital and social projects were proposed by countries in exchange for structural reforms addressing countries’ challenges and social inequalities at the national level. If nothing changes, once the RRF runs out on 31 December 2026, the national spending gap for investment will become more problematic for highly indebted countries in subsequent years in view of the fiscal rules. This is even more relevant considering the deactivation of the general escape clause by the end of this year, allowing Member States less budgetary flexibility than during the COVID-19 pandemic.

Along with the Recovery and Resilience Facility, the EU has many instruments that contribute to social expenditure, such as the European Investment Fund, the Cohesion Funds, and social policies, such as the European Pillar of Social Rights and the European Semester. In various ways, they are designed to promote cohesion, social and economic justice, and to close the gap between the EU's well-resourced regions and those lagging to allow Europe to redevelop and achieve upward social convergence. Although these instruments are designed to address the challenges of climate change, inequality, ageing societies and technological progress, more stringent coordination between these policies and further alignment with EU fiscal and economic instruments is needed.

Fragmentation of existing funds and financial instruments

The general problem is that existing funds and financial instruments are too fragmented. New funds, grants, loans and guarantees have been created over the years due to the crisis and not as part of a more autonomous strategic reflection per se, on top of already existing (multiple) funds. Not only is this confusing to Member States and citizens and threatens a more bottom-up approach, but it also requires additional administrative capacity from countries. This calls for an overall review of existing funds, especially as difficult trade-offs will be needed across policy areas in the current geopolitical context. Due to the sobering economic outlook, social spending is unlikely to increase, and the primary focus should be on better spending rather than more spending.

Furthermore, policies and outcomes should be dealt with in an integrated and holistic way, as the multiple instruments and poor coordination between them are not conducive to implementing reforms at a national level. Last year, the EPC’s Rethinking EU Economic Governance Task Force came up with recommendations to reform the European Semester in a way that incorporates the lessons of austerity and prioritises social outcomes alongside fiscal and public administration reforms. Others have come up with the idea of an integrated scoreboard of economic, social, and environmental indicators to be used at the start of the yearly Semester process. Such a scoreboard would not only facilitate the monitoring of developments and draw attention to deviations between member states but should also allow for more coordinated policymaking at the EU level.

Most of these proposals have proven too ambitious for policymakers, and they should be reexamined in light of the next institutional cycle and the 2025 review of the EPSR. This provides calls for an opportunity to more clearly and concretely define reform outcomes, review existing funds, streamline social investment, and recommend further strengthening of the principles of the EPSR in the European Semester as the main mechanism to oversee broad economic and social policymaking.

Need to review existing funds and streamline social investment

Two years after the Porto Declaration called for more social investment, and despite the sobering economic outlook, the EU should continue to call for strengthening social models and social cohesion. As research has shown, countries that invest in transforming their social services and social infrastructure fared best during the COVID-19 crisis, while in other countries people suffered. Major reforms in the green and digital transition will not happen without public support and social investment, as seen in several EU countries.

More thinking is needed, with policymakers in listening mode prior to the 2024 elections on how the EU can contribute to balancing economic growth objectives with social fairness, improved social outcomes and environmental sustainability. Most of all, more joined-up, preventative, strategic policymaking and bundled funds are needed to refocus on social outcomes and guide the next EU political cycle.

The Belgian Presidency of the Council of the EU, starting in January 2024, aims to include an ambitious social chapter in the next Council Strategic Agenda with a view to the mandate of the new European Commission. We call on the incoming Presidency to focus on the coordination and streamlining of existing social funds and the European Pillar of Social Rights within the context of an improved economic governance system, and monitoring tools for social outcomes are critical for the next mandate of the institutions. We urge them not to mainly start the discussion of how existing financing tools should be changed as the starting point of the deliberations, but first consider which reform outcomes are needed in which countries and only then look at how these outcomes can be achieved with the existing or transformed tools. By taking this approach, the Belgian Presidency might shape EU policy thinking and, thus, EU policy and outcomes for years to come.

This agenda should come with a clear commitment to invest in the EU’s future, including through the transformation towards social investment, better outcomes of reforms and funds and innovative large and bundled investment vehicles to combat climate change and social inequality while responding to the EU’s security risks. We hope to see these recommendations as part of the inter-institutional declaration adopted during a High-Level Conference on the future of Social Europe that we will be organised under the Belgian Presidency. The EU is at a crossroads; reorientation for the future coming from the new leadership of the EU institutions will be critical and needs to be prepared now.

Dr Lieve Fransen is a Senior EPC Adviser on Health, Social, and Migration Policies and a Former Director of Social Policies at the European Commission.

Elizabeth Kuiper is an Associate Director and Head of the Social Europe and Well-being programme at the European Policy Centre.

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