Social Policy and Rising Inequalities: Squaring the Circle between Austerity and Investment?

Historically, an implicit understanding among European decision makers has prevailed whereby the EU should promote the integration of economic and financial markets, while social integration would either follow automatically where needed, or remain the competence of national states where appropriate. This is reflected in the inherited asymmetric EU governance where economic integration based on competition has consistently been more powerful than policy tools available to counter the socially undesirable effects of said competition. Moreover, ideological and institutional factors have made pan European political agreements on social policy more difficult to achieve. Meanwhile, depending on national resources and politics, the modernisation of national welfare states has been piecemeal and uneven. This paper shows how the financial and debt crises (2008-2010) have exacerbated these trends, as public resources for social policy shrunk almost everywhere. Shortly after the heated phase of the crisis, coordination of social policy in the EU was absorbed by the European Semester. Social policy objectives were even more tied to fiscal and budget issues as well as to macro-economic governance (read structural reforms). Although, since November 2014, as the European Commission has sought to go beyond the top-down enforcement of austerity, some room for manoeuvre has been created for national governments to conduct reforms aiming at modernising their welfare state through social investment. However, this strategy remains highly constrained by the prevailing orthodox conception of fiscal discipline and competitiveness with EU strategies still failing to address rising social inequalities across and within European countries.