Developing the EU’s Renewed Social Contract is a necessity

by Joaquín Almunia*

The social component of the European market economy paradigm – the so-called ‘European social model’ – needs to be strengthened.

Social cohesion is weakening, and inequalities are growing within our societies. Demographic trends put pressure on our welfare states, increasing the risks for the sustainability of health public services and pension systems, as well as the burden on the shoulders of the active population. Gender balance has not been fully achieved.

Young generations are facing bigger uncertainties about their future, due to structural changes in the productive system and more unstable professional careers. Unemployment levels are far from full employment in some member states, and the quality of jobs and working conditions is not adequate for many people. Wage disparities are on the rise. Immigrants are at pains to be accepted by sectors of our societies.

Behind these inequalities lie multiple causes: over the last decades, the unintended consequences of globalisation and the impact of technological changes are generally considered among them. The uneven distribution of efforts to tackle the consequences of climate change, as well as the impact of the digital transition, add new elements to those obstacles. More recently, inflation affects the disposable income of the population’s weakest social sectors most negatively.

The social pillar of European integration is not able to counter most aspects of this negative evolution. The existing tools are not relevant enough to produce significant effects at the European level. A large majority of the social policy instruments are under the responsibility of member states, whose capacity is strongly dependent on their respective economic strength. Furthermore, cohesion policy at the European Union level is unable to correct the relative weaknesses of some member states. The prospect of further enlargements, more obviously in the case of Ukraine, is a powerful reminder of the need to prepare a deep revamp of the present framework.

Despite several EU statements regarding the need to reinforce the social dimension of European integration, the practical consequences fall far short of political expectations. The broadening and persistence of inequalities not only create obstacles to a sustainable path of inclusive growth but are also triggering increased levels of polarisation and fragmentation at the political level.

Populists, nationalists, anti-Europeans and all kinds of radicalisms find opportunities to capture the support of citizens worried by their national institutions’ lack of capacity to improve their welfare levels, while at the same time rejecting the possibility of compensatory actions taken at the European level.

The social contract under which welfare states were built after World War II in Europe needs to be revisited in view of society’s new characteristics and the challenges of this century.

To do so, the European dimension cannot be ignored. Such a contract must answer key questions about ‘who does what’ in social policies from the standpoint of the EU, given that national policies are not efficient enough. Member states will continue to be primarily responsible for those areas but not excluding the presence of European institutions to complement their actions and make them more efficient.

If fighting climate change and developing a fair digital transition are common priorities of the 27 member states, the social consequences of both strategies should be considered. If the current cohesion policy is not efficient enough, its revision is obligatory. If industrial policy has emerged again as a tool for European competitiveness, its social dimension cannot be ignored or simply delegated to the national level.

Therefore, the renewal of the social contract seems to be required to better connect EU strategies and policies with the demands of citizens, thereby closing the gap between their daily problems and the prolonged impression that the national social policies toolboxes are unable to come up with the right solutions, while Europe maintains a passive attitude. To cope with this situation will not only improve the strength of our model of society but also contribute to the health of our democratic institutions and the protection of our common set of values.

*Visiting Professor at the London School of Economics and PSIA-Sciences Po Paris, former vice-president of the European Commission and Trustee of Friends of Europe

**first published in FriendsofEurope.org