The key to implementing the Draghi report.

In a recently published Article, the authors Anton Hemerijck and David Bokhorst took a closer look at the Draghi report. As part of their analysis, they especially focussed on social investment and its untapped potential to promote economic progress and social well-being in the European Union (EU). They specifically addressed two key approaches in the Draghi report: On the one hand, with the correlation between social spending and economic growth and, on the other, with the call for a new coordination framework for competitiveness.

Draghi report

The report published in September 2024 proposes a comprehensive agenda to secure the EU's long-term competitiveness. Among other things, the report points to a major investment gap that could jeopardise the EU's future economic strength in global competition. In order to close this gap, Draghi recommends an annual investment of around 4 to 5 per cent of the EU's gross domestic product (GDP).

He also believes that the current European Semester has proven to be ineffective and bureaucratic and is therefore calling for a new European Competitiveness Coordination Framework that focuses exclusively on competitiveness and should replace the European Semester.

European Commission President Ursula von der Leyen recently incorporated the core statements of the Draghi report into the Commission's Political Guidelines as a new European narrative.

Social spending and competitiveness

Contrary to the statements in the Draghi report, Hemerijck and Bokhorst argue in their article that there is no negative correlation between social spending and economic growth or competitiveness. It is not social spending per se that is decisive, rather the structure of social spending. In their article, they use the examples of Denmark and the Netherlands to show that there can indeed be a positive correlation between competitiveness and high social spending. Both Member States have far above-average social spending, measured as a proportion of gross domestic product (GDP), and are particularly competitive in a European comparison. These countries are characterised by equal distribution of social spending in education, activating employment policy measures, social protection and the integration of older people.

Social investments

In their article, both authors show that social protection also has an investment character. Education, active labour market policy, prevention and rehabilitation enable people to actively participate in working life and prepare for future challenges. In this regard, they refer to the final Report of the High Level Group (HLG) commissioned by the European Commission on the future of social protection and the welfare state in the EU. According to both authors, Draghi could have benefited from the HLG's comments on his report.

European semester is important

The researchers strongly disagree with Draghi's call to replace the European Semester with a new coordination framework for competitiveness. The European Semester deals equally with issues of financial and economic governance as well as labour market and social policy objectives. The Member States and the EU as a whole have benefited from the resulting reforms. The authors cite the first joint meeting of the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) and the Economic and Financial Affairs Council (ECOFIN) as an example of how the European Semester has successfully addressed future challenges. It was decided to jointly develop the analytical framework for social investment and to make it part of the European Semester.