Thursday

21st Feb 2019

Opinion

Future of Europe needs more social investment

  • Both the IMF and OECD called for an end to austerity, favouring investment to reduce inequality. (Photo: europarl.europa.eu)

The recent financial and economic crisis has resulted in a social crisis, with sharply rising socioeconomic inequalities in member states across the European Union.

The Rome Declaration commits member states and institutions to a social Europe where addressing unemployment, poverty and social exclusion are priorities, and where sustainable growth reduces inequality.

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This is a positive commitment to social Europe but member states and the European institutions can only achieve this ambition if there is greater momentum and mechanisms for social investment in European economic governance.

There are inherent economic returns and advantages in social investment. Economies with more social investment have proven to be more resilient to shocks and perform better in crises.

Automatic stabilisers

Adequately resourced social protection systems can work as automatic stabilisers and maintain positive effects on demand.

Furthermore, improved social cohesion prevents tremendous economic costs of inequalities in the long-run. It also generates social and economic returns, as it enables people to be more socially and economically productive.

The benefits of social investment clearly align with the Rome Declaration pledge for a social Europe to fight poverty, social exclusion, unemployment and discrimination.

However, there are limitations in the EU's economic governance framework that will prevent such pledges from being fulfilled.

Levels of social investment have been persistently low across member states - to date the EU has failed to facilitate substantive increases.

EU-level initiatives, such as the European Fund for Strategic Investments (EFSI), do not deliver sufficiently on social investment projects, whereas the Stability and Growth Pact (SGP), in many cases, restricts member states’ means of engaging in social investment themselves.

The reason for this is that necessary investment in human capital and essential services - including housing, social, health, and education - can quickly result in a breach of the SGP’s deficit rules. Accordingly, the so-called investment clause in the SGP has had limited use so far.

The European Commission should encourage more social investments through a more systematic application of the investment clause 2.2 of the Stability and Growth Pact in relation to social investment.

The Rome Declaration commits member states and the European Institutions to upward social convergence. This cannot be realised if economic policies restrict social investment and where economic governance overlooks the long-term social and economic returns of social investment.

When in Rome

Otherwise, leaders’ commitments in Rome stay in Rome and do not reach the people of the European Union.

A ‘Silver Rule’ for public social investment could be introduced to European economic governance in order to effectively incentivise member states to upscale social investment.

The rule would allow for specific areas of social investment, which yield demonstrable economic and social returns, to be excluded from the SGP’s current deficit provisions.

Public spending in fields such as health care, childcare, housing and education must be seen as an investment in both social and economic convergence and not treated merely as a burden or a cost in national budgets.

The European Commission is increasingly supportive of social investment, stating in a communication to other EU institutions and the eurogroup that it is "a prerequisite for a successful and lasting recovery."

At a time of intensive scrutiny of the European project, it’s important that EU member states follow the advice of the IMF and OECD, both of which have called for an end to austerity, favouring instead investment to promote growth and reduce inequality.

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