Policy Study

14/05/2024

Assessing social consolidation risks amid tweaked EU fiscal rules

As fiscal consolidation demands are currently re-emerging, this study shows why social and labour market protections are at risk. To place ourselves in possible scenarios, we look at the past. In a mixed-method design, we gather evidence from two decades of interactions between national welfare priorities and EU fiscal rules. Our findings notably provide evidence that countries under the excessive deficit procedure (EDP) between the Great Financial Crisis and the pandemic saw, on average, greater social investment spending reduction than those not embraced by the EDP. Social protection spending and employment protection legislation also saw a significant decline. Exploring the critical cases of France and Italy, our country case comparison sheds further light on the mechanisms underlying recent recalibrations.

These findings have implications for the well-documented revival of Social Europe: while the Resilience and Recovery Facility (RRF) clearly promoted a social investment (SI) recovery, our analysis of recent crisis dynamics shows that SI spending is particularly impacted in those countries facing heightened fiscal consolidation pressures.

Meanwhile, with some exceptions, social and labour market protection have received lower support from RRF initiatives. As the appetite to reduce deficits by stealth re-emerges, EU institutions should consider how to secure the institutional resilience of these programmes to ensure that the Social Pillar actually serves as a safety net for social citizenship rights.

This policy study was written as part of the FEPS Young Academic’s Network.

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Karl Renner Institut
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