Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Social Progress In Europe Depends On Economic Reform

Kristian Weise 13th August 2014

Kristian Weise, Social ProgressThe social challenges in Europe are clear and will not easily be overcome over the next half decade: 25 million Europeans are unemployed, with unemployment rates at surreal levels in several Mediterranean countries and youth unemployment robbing a generation of their chance to determine their own fate. At the same time several countries see stagnating or falling wages (not least due to so-called internal devaluation), rising inequality, and public services that have been crippled by austerity.

More than ever, the European Union must have an ambitious social agenda with measurable objectives of social progress. The EU cannot solely focus on economic, competition and trade policy – what several heads of state, most notably David Cameron, wants it to be relegated to – but must have a strong social dimension. If not, we will have cooperation in the monetary and fiscal sphere but downward competition when it comes to wages, labour market standards and welfare arrangements.

However, and though it might appear counterintuitive, social progress and a truly successful social dimension of the EU depends first of all on economic policy-making and reform of economic governance. In the current context of either low growth, stagnation or outright depression, depending on where in Europe you are, isolated social policy initiatives will only be tinkering at the margins. It is indeed still the economy, stupid! If growth, employment and positive wage developments are not re-established at higher levels, there will basically be no scope for social policy and progress.

Social Progress, Benign Investment Policies And Fiscal Coordination

The most central part in need of change is the prevailing philosophy determining fiscal policy and the EU’s framework for economic governance. With the changes to the Stability and Growth Pact as well as in the introduction of the Fiscal Pact, the EU has increased its surveillance of the public finances of its member states. But as has been proven several times over the last couple of years, these vehicles of austerity have prolonged the crisis and subdued growth.

The EU must rethink its economic governance. Rather than obsessing with fiscal consolidation and limiting its member states’ autonomy to pursue different economic policies, it should develop new tools for coordinating fiscal policies and investing together. A European Investment Pact, with a few clear principles, could provide the framework for this and give Europe the policy alternatives needed to break with the crisis, rising unemployment and social collapse.

In the ideal situation, such a pact would replace the present austerity regime. But it could also have an effect as either a protocol to the present agreements or as a new pact that complements the already existing arrangements.

For a European Investment Pact to work it should have a few but clear principles. The following four principles would be the most important ones:

1)  An explicit exception of public investment in infrastructure in the broadest term, including certain technologies and similar growth-enhancing arrangements, as well as one-time investments in research, development and education from the Fiscal Compact’s rules for structural deficits (of 0,5 per cent of GDP) and the strengthening of compliance with the Stability and Growth Pact’s rules for yearly deficits (of 3 per cent of GDP).

2)  A clarification regarding the acceptable level of public deficits, which should only apply during ‘normal circumstances’. There should be various criteria to determine such a situation. These could be related to drops in GDP in the EU as a whole and in a group of member states, stagnating growth and persistent unemployment.

3)  A commitment to coordinate fiscal policy to a larger extent than what has happened so far. Economic downturns should be prevented through stronger expansive fiscal policy from all countries at the same time, just as possible over-heating of the economy should be prevented through adequate consolidation in all countries. This commitment should also mean that all countries do not necessarily move in the same direction at the same time – one group of countries can expand while a another consolidates its public finances.

4)  A commitment to investing together in the objectives of the EU2020 strategy and future strategies. It is estimated that common and coordinated investment by a group of EU-countries enhances the growth effect of such investments by close to a factor of two. Hence, when growth is expected to be low and unemployment high, the EU-countries would counter that situation by investing together.

A European Investment Pact or a similar change in policy would ensure that the economic governance and coordination in Europe moves from simple surveillance of individual countries’ public finances to using common strengths and acting together. This would enable the EU to steer the European economies safely through different economic cycles, not least crises and recessions. In the present context it would offer much needed support to growth and job creation.

If the regime is not changed it will be impossible for many EU-countries to pursue the most appropriate and suitable policies. It will, for example, be impossible for a country to finance investment in research, education and infrastructure through debt for a period of time even though the economic and social gains of such policies would be obvious. Insisting that budgets should always be balanced – except in very severe emergencies – is akin to saying that governments should have no investment function in the economy. Neither to support growth, to achieve social goals nor to develop welfare institutions.

Hence, the EU must institutionalise benign investment policies and fiscal cooperation.

A New Mandate For The ECB

In the same vain, the European Central Bank (ECB) should be given a new and extended mandate. Today, the sole aim of the central bank is to ensure price stability and low inflation. Growth and employment, however, are not to be found in its mission statement. This is in stark contrast to the US, where the Federal Reserve has both an unemployment and an inflation target. The ECB could benefit from including the pursuit of stable growth and full employment in its mandate and its mission. And if it were to be really ambitious on social progress, it could include an objective of real wage growth at an aggregate EU-level.

As an addition to these new mandates, the inflation target of the ECB should be adjusted. The current aim is to maintain “price stability” and thereby keeping inflation within a 0-2 per cent range. However, during periods of low growth, where the risks of deflation are more prominent, it would be appropriate to have an inflation target of exactly 2 per cent a year instead.

Socially Balanced Wage Developments And More Secure Employment

The labour market is the most direct determinant of the social condition of the majority of people. However, fierce wage competition within the EU and subsequent downward pressure on wages has increased inequality in  individual member states and meant that the middle class has been hollowed out in several countries. Indeed, allegedly successful countries like Germany have seen an increase in workers who are unable to make a living on their salaries, also known as the ‘working poor’.

To improve the transfer of social progress through the labour market, EU member states should cooperate on the following issues:

Strengthening minimum wages, either by law or collective bargaining, and making an extra effort to ensure decent wages or what is often called a ‘living wage’. Improving opportunities for concluding collective agreements, not least across boarders and involving workers in more than one member state. And counteracting the development in many countries by which the labour market is made more ‘flexible’ but the result is that new groups of low wage, precarious and casual workers are created.

Europe will not achieve social progress unless the economic objectives of the European union and the underlying philosophy of economic policy-making are changed. What is needed is a fitness-and-diet-type of approach, where social health is achieved through several reconfigurations of core policy priorities rather than a cure-all panacea of one or two social policy initiatives. These changes will be difficult to get. But the citizens of Europe are in dire need of them if they are to see any social progress in the next years.

Kristian Weise

Kristian Weise is Director of the progressive Danish think tank Cevea (see www.cevea.dk). He has previously been Head of Secretariat for the Danish Social Democrats in the European Parliament and an adviser and analyst for the International Trade Union Confederation (ITUC), the Danish Confederation of Trade Unions (LO) and former Danish Prime Minister, Poul Nyrup Rasmussen. He holds degrees in political sociology, philosophy and economics from the London School of Economics and Political Science (LSE) and Copenhagen Business School (CBS).

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834dafae1dc3 2 EU’s New Fiscal Rules: Balancing Budgets with Green and Digital AmbitionsPhilipp Heimberger
u42198346d1f0048 1 The Dangerous Metaphor of Unemployment “Scarring”Tom Boland and Ray Griffin
u4219834675 4ff1 998a 404323c89144 1 Why Progressive Governments Keep Failing — And How to Finally Win Back VotersMariana Mazzucato
u42198346ec 111f 473a 80ad b5d0688fffe9 1 A Transatlantic Reckoning: Why Europe Needs a New Pact Beyond Defence SpendingChristophe Sente
u4219834671f 3 Trade Unions Resist EU Bid to Weaken Corporate Sustainability LawsSocial Europe

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp