Up until now, the EU has responded irregularly to significant economic crises. Europe has to improve its future readiness, particularly in the social sphere.
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| NextGenEU |
The EU's crisis management will be a major topic of discussion at the European elections in June 2024, in addition to issues addressing the EU's economic management in normal times. This covers not only how the common foreign and security policy evolved in the aftermath of geopolitical crises, but also how the latest crisis instruments will be evaluated in the interim and used moving forward. Are the SURE short-term work programme and the NextGenerationEU (NGEU) rebuilding fund acceptable models for a long-term EU crisis instrument?
In a crisis, "trial and error" is not a good plan of action. However, the EU was compelled to operate in this manner during previous economic crises due to a lack of cohesion and time constraints. Each member state initiated national economic stimulus programmes and rescued its own banking institutions during the 2008–2009 financial and economic crisis.
The French government's proposals for an EU banking fund were not widely supported at the time. Using the notion of conditioned solidarity, the EU launched a consistent response to the euro crisis from 2010 to 2015: credit lines from European rescue funds against a required austerity course in the afflicted nations' economic policy adjustment programmes.
Also because the consequences of this policy were partly devastating and as the socio-economic divide in the EU deepened , a completely new approach to crisis management was pursued during the pandemic from 2020 onwards. Community debt to provide earmarked loans and grants based on criteria of economic need and without further conditions while simultaneously easing budgetary restrictions had never before existed in the history of the EU.
After the expiration of the only temporary tools, it would be politically irresponsible, in light of the knowledge learned from these three catastrophic crises. Then there would be a genuine risk of additional ad hoc decisions, as well as disagreements among member states and inside the EU institutions about the proper route. What may be inferred from the crisis governance of the EU?
First off, we can only cooperate in times of severe economic crisis that cut across national boundaries. We are not progressing with Goethe's adage that "Let everyone sweep at his door, and every city quarter is clean" in a tightly knit economic union where one's problem affects another's economic growth. The financial and economic crisis has taught us that.
Second, strict rules might have the opposite effect of what is intended when they are applied to certain economic situations. In certain nations, cutting back on public expenditure may be acceptable, but it weakens the economy in others. The economic cycle in question is the deciding element; since the austerity measures implemented by then-Chancellor Heinrich Brüning, shutting off demand during a crisis has not been a wise move. That is what the euro crisis has taught us.
Thirdly, the economic issues brought on by a simultaneous supply and demand shock were specifically addressed in the crisis management of the pandemic. Currently, the SURE short-term work programme has been successful in keeping unemployment rates low across Europe, and the 750 billion NGEU programme assists the member states economically and most importantly structurally by implementing much-needed investments, such as those in the green and digital twin transformation.
The social growth of the EU throughout the crisis is crucial, in addition to the economic consequences of SURE and the NGEU crisis programme. In past crises, the rapid growth in youth unemployment and the possibility of poverty sparked contentious discussions about the social destiny of the EU.
The EU's crisis management during the epidemic was no longer indifferent to socioeconomic problems. It is obvious that we are leaving behind the austerity strategy of the euro crisis. The new crisis governance has social objectives in mind, whose accomplishment is, for the first time, not dependent exclusively on the performance of the economy thanks to the availability of tools with a financial backing.
The EU strengthened its attempts to pay attention to the social aspect of the pandemic with the social summit in Porto in May 2021, while at the same time highlighting the overtly societal issues of the ecological and digital twin transition. The European Commission utilises the European Pillar of Social Rights as a tool for this and accords high importance to the implementation of the Pillar in an appropriate action plan. Member states reached an agreement in Porto on quantifiable goals for 2030 for three broad social indicators related to employment, training, and poverty reduction.
As a result of the Commission's efforts to enhance the social pillar, the social aspect of EU crisis strategy has been elevated to a higher level, and the quantitative goals complement the current expenditure goals for Member States under NGEU in the areas of digitization and climate protection. While NextGenerationEU is used inconsistently by Member States for social investment, SURE has a direct social impact through employment stability.
The majority of the indicators listed as "critical" in the Social Scoreboard, which supports the social pillar, point to decreased disposable household income, an increase in the risk of child poverty and exclusion, a slow decline in poverty thanks to social security systems, and a high rate of early school and training dropouts. This demonstrates how recent crises have increased inequality and posed problems for welfare governments.
The social situation has steadily improved since 2017 in the unweighted average of the member states, despite the severe economic crisis caused by the pandemic, according to a comparison between the values published in the Social Scoreboard five years later and those announced in November 2017 when the social pillar was first introduced. On the other hand, only six nations have really seen their specific indices improve in comparison to the EU average. Europe's social progress has halted.
Where the social pillar is supplemented with complementary, financially backed actions, it seems to have the greatest impact. These include the allocation of additional financial resources for social investments and reforms under the scope of NGEU or the short-term work instrument SURE.
The EU should maintain SURE's effectiveness as a quick, economical, and social tool to support short-term job arrangements in the near future. By keeping it prepared, a crucial response mechanism for next severe economic crises would be established, and its impact might be further amplified by developing into an automated stabiliser in the form of a European unemployment reinsurance plan.
The member states have been able to make some constructive progress thanks to the NGEU package. A follow-on fund or a special security might be agreed upon in the next Multiannual Financial Framework to finance social investments for particular political objectives in Europe that can be accomplished by consensus (such as social support for the twin transition).
A convincing alternative to supranational programs is to reduce the budgetary restrictions on member states during the crisis, as demonstrated with the temporary suspension of the Stability and Growth Pact. Such financial leeway in the Member States should be taken into account when the Stability and Growth Pact is adapted as part of the reform of economic policy governance. Investments in the future as well as the focus on prosperity must be given sufficient consideration, for example via the so-called Golden Rule .
The Member States should agree on additional social goals, continuing the precedent set by the Social Pillar Action Plan. The idea of a social convergence instrument, which has recently been discussed in Brussels and is being promoted by the Council Presidency of Spain and Belgium, could stimulate the current, frequently insufficient engagement of national parliaments with the social problems and challenges of their own country in comparison to other European countries.
The new instrument would improve the EU's social monitoring by analyzing deviations from average values more intensively and triggering an early warning mechanism. The similarity to budgetary and macroeconomic surveillance in the Eurozone is deliberate. It at least promises more attention to social issues, as has already been discussed with regard to the related idea of a social stability pact.
The author Dr. Björn Hacker is a Professor of European Economic Policy at the Berlin University of Applied Sciences (HTW).
Source: IPG