Latest developments in Social Europe: Promising steps in need for future monitoring

Abstract

After 2 years of dealing with the social consequences of the pandemic, European citizens and policy-makers entered 2022 with glimpses of hope regarding the prospects for economic, labour market and social recovery. Despite cross-country and within-country variation, the real output in the European Union (EU) had returned to its 2019 level by 2021. By spring of the same year, the average EU unemployment rate had reached January 2019 levels. Then, less than 2 months into the New Year, the Russian invasion of Ukraine brought war on the EU borders, altering previous patterns of recovery and established policy agendas. At the social level, the most relevant implication experienced by European citizens was the deepening of the inflationary trends that had started manifesting in 2021, which turned into a cost-of-living crisis over the course of 2022. While the actual impact of this further shock will be assessed fully in the coming years, the insecurity and precariousness that characterized the most vulnerable social groups revealed once again the existing gaps within welfare states and social protection systems from the local level to the supranational level.

Similarly to what happened after the outbreak of the coronavirus pandemic, the responses by national policy-makers were swift and largely in the form of compensatory measures. The EU contributed to the financial effort by allowing member states to redirect recovery funds to finance emergency social protection schemes at the national level through the Temporary Crisis Framework enacted in March 2022. The other two main axes of intervention by EU institutions involved the European Central Bank's maneuvers to mitigate inflation, by starting to raise interest rates in July 2022 for the first time since 2011, and the granting of temporary protection to people fleeing Ukraine. The latter was among the first decisions undertaken at the EU level in response to the war, which gave refugees access to key rights, including entitlement to welfare benefits.

Concurrently to the immediate reactions to the war and cost-of-living crisis, the EU social policy agenda maintained the path of expansion and strengthening initiated in the previous years. Significant policy milestones were reached in 2022, whose potential benefits resonated even more in the midst of an inflationary context, as it was the case, notably, of the Directive on Adequate Minimum Wages. However, the recent social policy developments need to be analysed as part of a broader process of re-orientation of the European social dimension, undoubtedly characterized in recent years by significant new impetus. While the latest advancements have been encouraging, the full extent of this new period of expansion will need to be monitored closely and evaluated over the coming years. The article proceeds as follows. The first section illustrates the main aspects of the social consequences of inflation during 2022. The second section analyses the evolution of the EU social dimension between the adoption of the European Pillar of Social Rights and 2021. The following section zooms in on the policy advancements of 2022. Finally, the last section discusses the developments addressed throughout the article and their implications for Social Europe.

After a prolonged period of ‘great moderation’ in which European inflation had remained at modest levels, complying with the European Central Bank's (ECB) 2% target almost uninterruptedly for a decade (Theodoropoulou 2023), in 2022, EU countries had to deal with the implications of a new inflationary wave. Signals had started already in 2021, when consumer prices began to rise as a result, first, of the ‘lockdown’ measures introduced to contain the Covid-19 pandemic, and second, to the lifting of restrictions and the phase of recovery that followed. Between 2021 and 2022, the global consumer price index more than doubled, jumping from 3.7% to 9.2% (Stoevska 2022), while it more than tripled in the EU (Eurostat 2023a). This was due to a combination of demand and supply factors: on the one hand, the disruptions in global supply chains resulted from Covid-related restrictions caused supply shortages of important commodities, such as semi-conductors, and raised production costs; on the other hand, social distancing and travel restrictions changed consumption patterns, increasing the relative demand for goods while reducing that for services (which rapidly grew again after the end of the health restrictions), altering the production planning of manufactured and intermediate goods. Concurrently, the growing consumption connected to the ‘return to normality’ that followed the end of the most acute phase of the pandemic generated a higher demand for energy and a lower gas supply in Europe in the second half of 2021 (Theodoropoulou 2023). This spiral continued into 2022, and by the end of the first quarter of the year, inflation had reached record highs in most of the largest world economies, driven especially by energy and food prices, while underlying inflation (i.e., excluding food and energy), connected to changing demand patterns and supply shortages, also continued (Barrett 2022; OECD 2022). These trends were then exacerbated in the weeks that followed the Russian invasion of Ukraine on 24 February 2022, which triggered a further shock to the global economy and especially in energy and food markets, via its impact on global oil prices and the supply of natural gas. The European region and Euro area countries (EA) were particularly affected due to their dependence on imports for energy, fertilizers and certain food commodities (such as wheat) of which Russia and Ukraine were key exporters (Arce et al. 2023; Bodnár and Schuler 2022). Shortages in the supply of the latter items contributed to further increases in the main drivers of inflation across Europe for the rest of 2022. Figure 1 shows the average inflationary trends for the European Union, the Euro area and the United States between the end of 2019 and the end of 2022. As it can be seen in the graph, within the EU and EA, annual inflation peaked in October 2022 at 11.5% and 10.6%, respectively (Eurostat 2022). Rates continued to slow down in 2023, and at the time of writing, the EA annual inflation is expected to be 5.3% in July 2023 (Eurostat 2023b).

At the social level, high inflation has an impact on real wages and weighs especially on lower-income households. From experiencing an inflationary wave, in 2022 the European region entered a phase of cost-of-living crisis, as individuals and households started reporting growing difficulties to make ends meet. While nominal compensation per employee had increased at rates close to those of prices in 2021, the acceleration of the former during 2022 was not enough to offset the loss of purchasing power for wage earners in all but a few EU member states, causing a ‘historic drop’ in real compensation (Müller et al. 2023). This is well illustrated in Figure 2, which shows the evolution of real compensation, namely, compensation's purchasing power, over the past two decades. Inflation generally has a regressive effect, having a stronger impact on lower income groups, but this was especially true in the case of the recent crisis. As highlighted in the previous paragraphs, the general price surge was driven mostly by those of energy and food, as depicted in Figure 3. The latter items typically constitute the largest part of total expenses in low-income households, making them relatively more exposed to inflationary waves than upper income groups. Important differences in the level of inflation, and consequently in its social impact, were registered across EU countries. In October 2022 (when EU and EA averages reached their peak), year-on-year inflation rates ranged between 22.5% in Estonia and 7.1% in France (Eurostat 2022). Especially after the beginning of the war in Ukraine, cross-country variability depended mostly on member states' exposure to different energy sources, the relative weight of energy-intensive sectors in their economy and their dependence on global supply chains (Müller et al. 2023). The combination of within-country and cross-country variability thus created significant inequality in the depth of the cost-of-living crisis within European societies.

Inflation also entails a variety of second-order social consequences, which contribute to worsen the effects of the cost-of-living crisis. The heightened costs of energy generate a growing incidence of energy poverty: as reported by an online survey conducted by Eurofound (2022), 53% of respondents claimed to be struggling in making ends meet (an 8-point increase from 2021), 28% of which found themselves in arrears with their utility bills. Once again, the situation varies greatly between countries: the percentage of people declaring to be behind in paying their bills ranged from 7% in Denmark and Sweden to half of the respondents in Greece. The study also highlights the differential impact of the cost-of-living crisis across social groups including the gendered consequences, with women being reportedly at a greater risk of energy poverty than men. Being unable to keep the home adequately heated and ventilated may then be the source of health issues, such as respiratory diseases connected to mould and damp environments, which tend to affect especially children and people with existing medical conditions. Another health consequence of inflation, especially for low-income households, is food insecurity, namely, being unable to maintain a sufficient and nutritious diet and turning to relatively low-cost food, or skipping meals entirely (The Lancet 2023). The breadth of the cost-of-living crisis, in its multifaceted dimensions, is perhaps best expressed by the outcomes of the Autumn 2022 Eurobarometer survey released in January 2023. Results showed that in every EU member state, the main worry, shared across all sociodemographic, educational and professional groups, was the increasing cost of living for more than 70% of respondents, with peaks in the Southern European region (in Greece concerning 100% of respondents, in Cyprus 99%, in Italy and Portugal 98%); the second main worry, for an average of 82% of respondents across Europe, was the threat of poverty and social exclusion (European Parliament 2023). To fully understand the ways in which this social crisis was tackled at the national and supranational levels, the following section reviews the latest developments of the European social dimension.

Recently, it has become common to find optimistic interpretations, in the academic literature, of the current evolution of the European social dimension. This is mostly related to the period of legislative and regulative developments in the area of social policy that observers started witnessing since 2018. With the outbreak of the Covid-19 pandemic, the measures undertaken at the supranational level further reinforced the idea that we might have entered a new phase of expansion for Social Europe and for EU solidarity at large. The beginning of this new period is generally traced back to the adoption of the European Pillar of Social Rights (EPSR, or the Pillar) in November 2017, which marked a departure from previous policy patterns in the EU social dimension. With its 20 principles in the areas of ‘equal opportunities and access to the labour market’, ‘fair working conditions’ and ‘social protection and inclusion’ (European Commission 2017), the first notable novelties of the Pillar lay in its comprehensive scope (addressing all fields of social policy, including areas in which the EU does not have direct competence), and in its rights-based approach (Hendrickx 2018; Sabato and Corti 2018). First assessments of the capacity of the EPSR to trigger substantial changes in EU social policy were generally positive although cautious, due to the lack of binding mechanisms attached to its implementation (Garben 2018; Hacker 2019; Rasnača 2017).

With hindsight, the policy advancements that occurred in the years that followed, and the continuous references by EU institutions to the EPSR as a source of guidance, led scholars to interpret with more confidence the adoption of the Pillar as a turning point for Social Europe (De la Porte and Madama 2022; Huguenot-Noël and Corti 2023; Keune and Pochet 2023). These developments spanned across the areas of social protection and strengthening of working rights and included the adoption, in sequence, of the Posting of Workers Directive (Dir. 2018/957); the Directive on transparent and predictable working conditions in the EU (Dir. 2019/1152); the Directive on work-life balance for parents and carers (Dir. 2019/1158); the Recommendation on access to social protection for workers and the self-employed (2019/C 387/01); the 2020 Youth Employment Support Package 1; the EU Strategic Framework on Health and Safety at Work 2021–2027 published in June 2021; and the European Platform for Combatting Homelessness launched in November 2021. Other legislative initiatives currently in the pipeline include a Directive on improving working conditions in the platform economy, for which the European Commission produced a proposal in December 2021. Beside the Posting of Workers Directive, these developments occurred all under the present European Commission led by Ursula von der Leyen, appointed in 2019. However, as highlighted in the literature, the policy innovations introduced by the current Commission appear in strong continuity with the seeds planted during the previous cycle, the Commission led by Jean-Claude Juncker (2014–2019). Juncker introduced the idea for a European Pillar of Social Rights in his State of the Union address of 2015, and throughout his mandate, he advocated for a changed approach to social policy at the EU level (Juncker 2014; Juncker et al. 2015; Vesan et al. 2021). Taking on her role as President of the Commission, Ursula von der Leyen fully endorsed the agenda set by her predecessor in the realm of social policy (European Commission 2019). Two years into her Presidency (and one into the pandemic), with most of the announced policy initiatives already adopted, the Commission introduced an Action Plan to contribute to the realization of the EPSR principles (European Commission 2021), which set new social policy targets to be reached by 2030 at the EU level. 2 As highlighted by Kilpatrick (2023), referring to these developments as the ‘Pillar period’ should not be intended to establish a chain of causality between the Pillar and the following initiatives, or the latter as its direct implementation, because the document per se, as we discussed above, did not entail any binding actions and could therefore have been marginalized over the years. Instead, the EPSR ‘has become an important reference point for Social Europe developments […] The Pillar should be seen as an unfolding process, defining a Social Europe period, as much as it is a source.’ (Kilpatrick 2023, p. 3).

Parallel to these initiatives, EU institutions have taken measures since 2020 to address the socioeconomic consequences of the Covid-19 pandemic, with important implications for the supranational involvement in the social policy sphere and for the direction of European integration as a whole. One of the first policy interventions adopted after the outbreak of the coronavirus crisis was in the field of employment, an area that was severely impacted during the health emergency: following the proposal advanced by the Commission on 2 April 2020, on 19 May, the Council released Regulation 2020/672 that introduced a new instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE). The programme was aimed at supporting short-time work schemes at the national level to help protect employees and the self-employed against the loss of work, by providing member states with financial assistance backed by the issuance of EU bonds (‘social bonds’). The earmarking of these funds to financing national short-time work schemes, or similar measures, is the only conditionality attached to the provision of funding. As noted by Laulom (2023), while SURE was designed as a temporary instrument and it has not entailed the harmonization of short-time working mechanisms, its adoption was grounded ‘in a spirit of solidarity’, as stated in Article 122(1) TFEU, mentioned as legal basis for the programme. Together with the introduction, in July 2020, of the NextGenerationEU package (NGEU) and the related Recovery and Resilience Facility (RRF), such developments certainly appeared to represent a deepening of intra-European solidaristic linkages (Ferrera et al. 2021). The measures that followed the Russian invasion of Ukraine and the beginning of the war, which caused devastating humanitarian consequences and, indirectly, a new shock to European societies, have remained on the paths taken in the previous years.

At the policy-making level, 2022 was characterized first and foremost by the responses to the war. Among these, the measures taken by national and supranational executives also involved the social sphere. EU member states introduced policies to support refugees from Ukraine and ensure their access to welfare services and emergency policies aimed at mitigating the impact of the war on EU citizens and workers. Most of these were temporary, ad hoc measures in the form of one-off, lump sum payments, or tax cuts and credits, directed at contrasting in the short term the effects of the cost-of-living crisis, especially the rising cost of energy bills, and approximately two thirds of them were not targeted at any specific social group (Eurofound 2022). Among the first policy responses by EU institutions, on 2 March 2022, the European Commission proposed to activate the Temporary Protection Directive, on which the European Council unanimously agreed 2 days later. The Directive, introduced in 2001 for circumstances of exceptional mass influxes of displaced persons, reduces pressure on national asylum systems, by allowing beneficiaries to move freely on EU territory and choose the country where they want to benefit from the temporary protection rights. The Directive (2001/55/EC, Art. 13(2)) ensures that persons enjoying temporary protection will ‘receive necessary assistance in terms of social welfare and means of subsistence, if they do not have sufficient resources, as well as for medical care’. The implications in terms of protection of social rights represent a further sign of solidarity, in stark contrast with the positions maintained over the course of the 2015–16 migration crisis (Fabbrini 2023). EU institutions also intervened substantially within the economic sphere. On 23 March, the Commission adopted the Temporary Crisis and Transition Framework, later amended several times, to support EU countries in granting state aid to companies affected by Russia's aggression against Ukraine. In July 2022, the European Central Bank started raising interest rates to counter the inflationary wave (the latest increases, at the time of writing, occurred on 2 August 2023). Towards the end of 2022, on 9 November, the Commission released a Communication on ‘orientations for a reform of the EU economic governance framework’ (European Commission 2022), on which the Council adopted related Conclusions on 14 March 2023. The documents set the stage for future reform of EU macroeconomic procedures regarding debt sustainability, fiscal planning and policy surveillance.

In the area of social policy, the most significant achievement of 2022 was the reaching of an agreement between Council and European Parliament and then the final adoption of the Directive on adequate minimum wages in the European Union (Dir. 2022/2041). The document establishes two reference values for assessing the adequacy of statutory minimum wages (60% of the gross median wage and 50% of the gross average wage), which, without imposing a uniform minimum wage level, will represent ‘a strong normative benchmark for setting minimum wages at national level’ (Müller et al. 2023, p. 84). Moreover, the Directive introduces various provisions aimed at strengthening the role of trade unions, by granting them the prerogative for collective bargaining and defining 80% as the minimum coverage level for collective bargaining, below which member states need to develop action plans in cooperation with social partners to increase it. Other significant policy advancements included the launch of a new European Care Strategy in September 2022, with proposals for two new Recommendations on early child education and care and on access to affordable and high-quality long-term care, and in the first part of 2023, the adoption of a Recommendation on adequate minimum income in January 2023 (2023/C 41/01) and a Directive on strengthening the application of the principle of equal pay for equal work or work of equal value between men and women (Dir. 2023/970). While developments in the area of social policy were not directly a consequence of the new social crisis experienced in Europe during 2022, they go in the direction of strengthening social protection and labour rights, which altogether should increase the capacity of EU member states to cope with social emergencies in the future.

The interventions undertaken over the past year point to an ongoing activism on the side of EU institutions in the area of social policy-making. Alongside the emergency measures established in response to the socioeconomic consequences of Russia's invasion of Ukraine and the deepening of the cost-of-living crisis, the EU has also maintained the course of social reforms it had established in the previous years. The adoption of the Adequate Minimum Wage Directive, the Recommendation on adequate minimum income, the Directive strengthening gender equality in the labour market and the new initiatives in the realm of care show continuity with the other policies introduced by the von der Leyen Commission and with the principles enshrined in the European Pillar of Social Rights of 2017. Keune and Pochet (2023) highlighted three main dimensions of innovation in the policies adopted between the Juncker Commission and early 2023, namely, increasing protections at the labour market margins (viz., the measures regarding posted workers, platform workers, minimum wages and transparent working conditions), the strengthening of the industrial relations system, and the financing of Social Europe (most notably through SURE and RRF). Regarding their policy content, Huguenot-Noël and Corti (2023) argued that recent initiatives brought the EU social dimension in the direction of more universalizing and capacitating functions. Moreover, the authors claimed that the measures adopted to mitigate the social and employment consequences of the pandemic, albeit not establishing directly new entitlements for citizens, turned the EU into a ‘co-guarantor’ of social citizenship. Similarly, Miró et al. (2023, p. 2) considered that, with the new supranational redistributive instruments adopted over the past decade, ‘the EU stepped up to act as a provider of social protection’.

The new wave of social crisis triggered by the Covid-19 pandemic, first, and the Russian aggression against Ukraine, then, is however far from over. The expansionary measures taken at the national and supranational levels in response to these shocks were mostly temporary in nature. While the EU has defined policy targets and financing instruments in the context of the green and digital transitions, therefore adopting a more long-term view in its policy objectives, the direction of the upcoming reform of the economic governance framework will need to be fully compatible with such objectives. The European Trade Union Confederation has recently warned against the risk of a new wave of austerity as soon as the rules limiting national budget deficits to 3% of GDP and public debt to 60% of GDP will come into force again in 2024 (ETUC 2023). The extent to which social objectives have effectively acquired a more prominent role among EU policy priorities will be able to be assessed only when the phase of emergency is over.