Inclusion in economic governance called for

On 26 April, the European Commission presented a proposal on reforming the economic governance framework. The aim is to strengthen sustainability of the government budget and promote sustainable and inclusive growth through gradual fiscal retrenchment, reforms and investment. An open question is to what extent social investments should also be taken into account. Against this background, the Spanish and incoming Belgian Council Presidencies have launched an Informal Working Group on Social Investment (IWGSI) following the informal meeting of the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) in Madrid on 14 July (see July 2023 News).

Commission proposal for economic governance

According to the Commission proposal, all Member States should take into account the economic and fiscal challenges listed in the country-specific recommendations as well as the EU's common priorities in their medium-term fiscal and structural plans. Reforms and public investment that promote growth in line with European priorities should thereby lead to a stretching of the adjustment plans for public debt.

These "debt adjustment plans" are intended to stretch out the period for reducing public debt. To this end, the Member States are to lay down a plan for reforms and investments for a period of 4 to 7 years, which will be coordinated at the European level with the European Commission and the Council. The implementation of the jointly agreed planning and the success of the agreed measures should be subject to constant monitoring.

Vision

The Commission proposal also explicitly mentions the European Pillar of Social Rights . Well-functioning and inclusive social protection systems are key components of a socially and economically resilient society. This reference to the pillar is to be seen as positive. However, it is unclear to what extent social investments will be taken into account in the new economic policy framework. The Spanish-Belgian initiative proposes that social investments also lead to an extension of debt adjustment plans on the basis of criteria yet to be laid down.

Evidence

The Informal Working Group on Social Investment (IWGSI), set up by the Spanish and upcoming Belgian EU Council Presidencies, aims to make a solid case for the added value of social investment and reform in promoting social cohesion, economic growth and fiscal sustainability. This is to lay the groundwork for the discussion on the inclusion of social investment in the future economic governance of the European Union. Based on the compiled empirical evidence, the criteria for considering specific social investments will also be derived. In addition, the IWGSI will discuss methods to measure the success of social investments and evaluate them accordingly.

Ownership

The question of who should evaluate the success of social investments at the European level within the framework of future economic policy management is also open. The Economic and Financial Affairs Council (ECOFIN) or the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO). From the perspective of the Ministers of Social Affairs and Labour, the evaluation of social investments is a core task of EPSCO. However, questions around the sustainability of public budgets are the responsibility of ECONFIN. Questions that will be discussed at the first joint EPSCO-ECOFIN Council in March 2024 at the latest.