In 2024, the general escape clause of the Stability and Growth Pact is set to be deactivated. According to the Annual Sustainable Growth Survey, fiscal policy needs to support monetary policy in reducing inflation and safeguarding fiscal sustainability, while providing sufficient space for additional investments and supporting long-term growth. It is of concern that EU fiscal policy, through the recommendations in the Annual Growth Survey with a focus on limiting the increase on general government expenditure, prudent fiscal policies, competitiveness would seem at odds with a concurrent focus on protecting investment, and the increased investment that will be required to address current social challenges, the green and digital challenges and meet the needs of an ageing population on the coming decades.
The High-Level Group on the Future of Social Protection and of the Welfare State in the EU in its report ‘The Future of Social Protection and of the Welfare State in the EU’ earlier this year made makes a series of recommendations designed to ensure an inclusive, fair and robust welfare state, one that is resilient, offers protection across the lifecycle and is able to respond to the challenges and needs facing the EU and member states. One of the key recommendations is that there should be a ‘golden rule’ applied to public finances at EU level allowing borrowing for social investment and investment in social infrastructures. The report argues ensuring social investment is exempt from the new Stability and Growth Pact rules, this would both allow and stimulate Member States pursue ambitious social investment strategies and accelerate productive reforms and it would spur social innovation by helping vulnerable economies to achieve more inclusive growth.
Social Justice Ireland welcomed the focus of the report on the need for a new and strengthened social contract, and in particular the recommendation that there should be a ‘golden rule’ applied to public finances at EU level allowing borrowing for social investment and investment in social infrastructures. The report highlights the decisive contribution of the welfare state to overcoming the ‘Great Recession’ and the economic and social effects of the Covid-19 pandemic in the EU, it also finds that despite some improved fiscal flexibility towards social investment in the EU, existing EU economic governance rules affect the Member States’ room for manoeuvre in financing social investment and social protection.
There is widespread agreement on the value of social investment for sustaining the inclusive welfare state in the EU, in terms of employment and productivity, prevention of social risks, activation, and inclusion and emancipation. But there is an important caveat, particularly in relation to Member States facing severe financial difficulties. Efforts to obtain the long-term benefits of social investment constantly come up against short-term pressure for fiscal consolidation. And although the returns to social investment are substantial, both in economic and social terms, so can be the immediate costs. One of the lessons of the Great Recession in hindsight is that fiscal consolidation driven by EU fiscal rules deepened recessions in Greece, Italy, Spain and Portugal, triggering downward spirals of low growth, higher unemployment, larger deficits and more public sector debt.
Social Justice Ireland continues to support calls for a golden rule to be applied to social expenditure, allowing borrowing for social investment and calls for a new system for monitoring public finances in the EU to support productive social investment. We have consistently advocated for a social imbalances procedure to be embedded into the European Semester as a counterbalance to the macro-economic imbalances procedure – this would help to ensure that economic and fiscal rules do not have a negative impact on social investment. Beyond the golden rule, social investment and social expenditure in an era of rising needs requires new sources of finance.