Can Next Generation EU guarantee fair, inclusive recovery?

Adequate indicators are needed to identify country-specific needs and ensure tailor-made intervention which takes inequalities seriously.

In mid-October European Union member states presented the draft national plans for reform and investment they intend to implement in the next four years, to secure financial support from the Recovery and Resilience Facility. The success of the RRF in building a recovery that is more sustainable, resilient and fairer—as in the ambitions of the European Commission—thus largely depends on the effectiveness of the mix of policy instruments adopted at national level. The commission is in charge of assessing these plans, checking whether they are in line with the priorities set in the country-specific recommendations within the European Semester, and will later monitor their implementation.

Commentators have so far focused on risks deriving from the notorious shortcomings of the EU budget in which the RRF is embedded—such as the slow absorption rate and slow implementation of EU funding—or on the fitness of the semester as a tool to control whether funds are correctly directed towards the national structural reforms that matter. We want to add to the discussion the capacity of the semester to steer member states’ reforms and ensure effective responses.

To put it differently, is the current set of indicators adequate to identify country-specific needs, in particular social needs? Without thorough monitoring of deficiencies in health, educational and employment outcomes, how can the commission provide country-specific recommendations that point towards an inclusive recovery?

Sets of problems

A recent study by two of us for the Foundation for European Progressive Studies and Solidar sheds light on the limits of the current semester framework in monitoring and addressing inequalities and social imbalances. There are two sets of problems.

First, in the area of social protection and employment, the attention of the semester is solely on the bottom of the income distribution. Little or no attention is paid to the deteriorating condition of intermediate segments of the population (the so-called ‘squeezed middle’), which have been significantly affected by the Covid-19 crisis. Indicators on insecurity of employment, job tenure and finance, which interest an increasing portion of individuals living in Europe, are missing.

Secondly, in areas which might be described as ‘social investment’, no indicators measure inequalities in access to services. So the current set of indicators does not provide a full account of inequalities of opportunity.

Major disruption

Take the situation of European children. With education and care suffering major disruption in the aftermath of the lockdown, the consequences for educational goals, family wellbeing and inclusiveness deserve attention.

The semester includes two related indicators: ‘children aged less than 3 years old in formal childcare’ and ‘children at risk of poverty or social exclusion’. To assess properly increased inequality among children and families as well as imbalances in education, different aspects should however become part of the picture: child material deprivation and household disposable income, parents’ employment status and work-life balance, along with access to key social services—adequate housing, healthcare and education, including early childhood education and care—and outcomes in terms of health status, competences and skills.

Looking at the two indicators in the semester’s scoreboard, that on the risk of poverty only considers children falling below 60 per cent of median income, thus excluding a large part of the middle class. On the other hand, when considering indicators on social investment, such as access to childcare, disaggregated data based on the socio-economic background of families are not available, preventing inequality in access to services being monitored.

According to another recent FEPS study by two of us, only 20 per cent of children from bottom-income households have been enrolled in childcare, while the proportion rises to 70 per cent for top-income households. Lower access for the most vulnerable children not only increases their disadvantage—in terms of acquisition of key competences and skills—but also undermines opportunities for parents, especially women, to enter (or remain in) the labour market and reduces disposable income. These dynamics are even more cumulative because of Covid-19 and the recession.

Impact limited

The lack of adequate indicators to measure distribution of socio-economic performance directly affects the capacity to elaborate appropriate recommendations for member states. This has a twofold consequence. On the one hand, it decreases the capacity of the commission to steer member states’ reforms towards inclusive recovery. On the other, it risks limiting the impact of the funds allocated under Next Generation EU, given the latter are transferred based on national plans which are meant to be in line with the commission’s country-specific recommendations.

Too often, the institutional response to calls for enhanced monitoring of social and employment imbalances is ‘No, we do not want to make the semester even more complex’. However, now that financial meat is attached to the bones of the country-specific recommendations, there is little room to argue that the commission has no capacity to run some more statistics.

It is also understood that prioritisation should apply when it comes to selecting the most relevant recommendations. But, in these dire times, having a prompt look at which parts of our society risk being left behind is of the essence—starting with monitoring the wellbeing of children and families.

Next Generation EU represents a unique opportunity, which must be seized to guarantee a recovery that meets citizens’ expectations. The crisis has hit hard the most vulnerable groups: non-standard (self-employed, part-time and temporary) workers, low-skilled labour, women disproportionately and younger generations. Adequate targeting and tailor-made intervention are necessary to build a stronger basis for a resilient economy and inclusive society.