Belgium proposes focussing on human capital.

According to the European Commission's proposal for a reform of economic governance of 26 April, investments that promote growth in line with the common European priority should allow debt adjustment plans to be extended over time. From the point of view of the European social and labour ministers, investments in line with the common objectives of the European Pillar of Social Rights (EPSR) should also be taken into account (see News 10/23). From a social security perspective, the question arises as to whether social investments should also be categorised as growth-promoting in the future? If this were to happen, the importance of social issues at European level would be significantly increased. Belgian Deputy Prime Minister Vandenbroucke is driving the issue forward and has set up an informal working group together with Spanish Social Affairs Minister Escrivá.

At an event held on 8 November by the current Spanish and forthcoming Belgian Council Presidency together with the Centre for European Policy Studies (CEPS), differences in the views of financial and social policy have now become clear with regard to the issue of including social investment in European economic governance. This appears to be due less to the subject matter than to issues of competence between the Directorates-General for Finance on the one hand and Employment and Social Affairs on the other. As a possible solution to bridge these different positions, the Belgian Deputy Prime Minister and Minister of Social Affairs and Health Frank Vandenbroucke has suggested focussing on investment in human capital.

Clear gap between financial and social policy perspectives

However, it also became clear at the joint event that the financial side is focussing on issues relating to transparency and the methodology used in the current fiscal retrenchment process. A group of Member States, including Germany, believes that the Commission's proposal risks watering down the common goal of sustainable public budgets. An additional inclusion of social investments is viewed with scepticism.

Social investment cannot reflect the full contribution of social policy to economic growth and the resilience of our economies

Many social policy services that contribute significantly to the resilience and growth of EU economies cannot be defined as social investments. Nevertheless, they make a significant contribution to economic development. Minister Vandenbroucke cited the example of efficient healthcare systems at the event. During the COVID-19 pandemic, these have made a decisive contribution to the resilience of the Member States. Even though social protection systems make an important contribution to economic growth, their primary goal is to provide social security and ensure the participation of all citizens. It is therefore important that the principles and tenets of the EPSR as a whole are taken into account in the European Semester.

Is human capital the solution?

In the economic literature, people's skills are regarded as human capital. Investments in human capital - for example in the form of education or further training - then enable people to contribute more productively to the economic process, thereby increasing economic growth. Investments in human capital also increase citizens' opportunities for participation.

The report of the European-Commission-appointed high-level expert group on the future of social protection and the welfare state in the EU also placed investment in education and qualifications at the centre of its social policy recommendations. This puts people, and therefore society as a whole, in a better position to respond to future challenges and potential shocks. The authors emphasise the importance of investing in qualifications and education over the entire life cycle.

Minister Vandenbroucke also emphasises that there is already a broad consensus on the definition of investments in human capital and that these are reflected in the public budget according to standardised criteria. In many cases, the success of education and training programmes is evaluated. This means that the dialogue with the finance and economics ministers is no longer about technical issues, but about a common understanding that investment in human capital is just as important in the context of economic policy management as, for example, investment in infrastructure.

The first joint EPSCO and ECOFIN Council in March 2024 should make a decisive contribution to this.