Introduction The EU and the social legacy of the crisis: piecemeal adjustment or room for a paradigm shift? David Natali, Bart Vanhercke and Riley Johnson Let’s not fool ourselves: while prudent recovery in the European economy seems to be underway in 2014/15, the robustness of this recovery is far from guaranteed. Much work still needs to be done at the EU level in areas such as macro-economic policy, financial market regulation, banking supervision, and, especially, taxation and social policymaking. Some may fear that because economic recovery has begun (at least in some Member States), the sense of urgency that motivated European leaders during the crisis will evaporate. Policymakers might indeed come to think, once again, that incremental changes in this or that area will do the trick, thereby neglecting the social legacy left behind by the economic crisis. The social legacy of the financial crisis is deeply worrying. Total unemployment rates stood at 10.3% in 2014 (11.6% in the Eurozone) and projections for the next years are far from encouraging: unemployment in the Eurozone is expected to average 10.6 per cent in 2016 and 9.3 per cent in the EU as a whole: this is considerably above the pre-crisis levels of 7.5 per cent and 7.2 per cent (Diamond et al. 2015).1 In particular, young people have been hit hard by the recession. All in all, young people are on average 2.6 times more likely to be unemployed than adults. The wide difference in the performance of EU members continues, but last year a number of high-income countries 1. Unemployment rates ranged from 26.8% in Greece and 24.8% in Spain to just 5.1 and 5.3% in Germany and Austria respectively (ETUI, 2015). Social policy in the European Union: state of play 2015 13 David Natali, Bart Vanhercke and Riley Johnson ................................................................................................................................................................. performed badly while some lower-income countries experienced some improvement (ETUI 2015: 33). Things are no better when looking at other factors. For example, an overall reduction of public investment in the EU is further compounding the problem. In 2014, the level of total investment (both public and private) was 15% below the peak of 2007. Total fixed investment fell from 22.0% of GDP in the 2004-8 period to 19.4% in 2014. In some countries, little net change occurred over this period, while in others, investment fell: Cyprus, Ireland, Greece, Latvia and Spain all saw falls in investment of 10% of their GDPs. Most of the decline occurred in the area of private investment, but public fixed investment also fell by more than 50% in Southern Europe (ETUI 2015: 13). Unsurprisingly then, increasing numbers of people face a lack of access to basic goods and services in the EU. The number of people lacking essential items like housing, food and clothes rose to nearly 16% of the total population in 2012. Furthermore, just over 24% of the European population is at risk of poverty and social inclusion2. There has been a significant fall in real household income per head from 2008-2014 (in line with the fall in GDP per head and the fall in employment rates). In other words, an increasing share of Europe’s middle class is now at risk of becoming poor at some point in their lives. These trends should worry policymakers: doing nothing or enacting only incremental changes should not be an option. Yet despite the worrying statistics, EU political institutions have not effectively addressed these problems. While EU policymakers have taken some steps in the right direction, much remains to be done. The following chapters show that 2014 and early 2015 were not a watershed for the EU. While both the policy strategy and institutional contexts have seen some changes when compared to earlier years, these changes may be ‘too late and too little’: a piecemeal adjustment that does not address the fundamental problems of the EU. 2. If we consider the at-risk-of-poverty indicator calculated on the basis of the median average household income in 2008, before the crisis started, the share of the population at risk of poverty in the EU27 had risen in 2012 by an average of 10.8% (1.8 p.p.), and in the Eurozone (EA17) it had risen by 18% (2.9 p.p.) (ETUI 2015). 14 Social policy in the European Union: state of play 2015 Introduction ................................................................................................................................................................. The present introduction is organised as follows: section one presents the key facets of the EU’s current situation. We refer to the events that have marked the EU in the last months: the European Parliament with a strong euro-sceptic component; the new strategy pursued by the Juncker Commission to regain a central role; the more growth-friendly programme based on the European Investment Fund and aimed at boosting economic growth, and the initiatives of the European Central Bank (ECB) to reduce interest rates and increase liquidity. These initiatives were then finalised through the introduction of a quantitative easing programme in 2015. Sections two and three provide a critical review of the state of the EU and its social dimension, which give two opposite but still complementary visions of the EU. Section two, in line with a more pessimistic reading, shows evidence of a very disappointing state of the Union. There is a risk that both the EU (potential exit of the UK) and EMU (with the never-ending Greek crisis) may collapse, and, in parallel, there is an utter lack of improvement in terms of EU fiscal capacity. While in 2013 the Social Investment Package was presented as an opportunity to fix and implement a new growth-oriented paradigm, it has proved to have limited effects. Tensions concerning migration and the weak EU position in the Ukraine crisis are also a worrying threat to the feeble sense of solidarity between EU members. Section three takes a more optimistic stance vis-à-vis the EU and the progress of its social dimension. The new Commission has placed some emphasis on the need for a stronger social dimension in Europe (including social dialogue). In this context, the ECB has attempted to encourage more growth, while a prudent ‘socialisation’ of the European Semester has taken place. The Juncker Commission has emphasised the need to reinforce the social dimension of the EU. At the same time, the revised governance of the structural funds is an opportunity for a more balanced and effective approach to growth. Section four outlines the main themes in the book and stresses that, beyond optimism and pessimism, the incremental changes introduced to EU governance are not enough to address major socio-economic and political problems. Essential challenges are putting the EU at risk while there is a danger of further damage to its social dimension. Social policy in the European Union: state of play 2015 15 David Natali, Bart Vanhercke and Riley Johnson ................................................................................................................................................................. 1. Some new features in the EU institutional landscape since the European elections In political terms, the European Parliament elections were a key moment in 2014. This political event has had further institutional and political consequences that marked the last months of the year and early 2015. 1.1 European Parliament Elections: not an earthquake, but growing tension Between 22 and 25 May 2014, elections to the European Parliament (EP) were held in the European Union: 500 million voters living in the 28 different sovereign states elected 751 parliamentarians for a five-year mandate. While the European People's Party lost ground to the Progressive Alliance of Socialists and Democrats, it remained the largest faction in the new parliament. But the big novelty was the increased consensus in favour of anti-establishment parties: their representation more than doubled to about 24% of seats in the Parliament. These forces are not exclusively on the political right of the spectrum. They include a huge range of parties and groups from the Right (e.g. the French Front national) and the Left (e.g. the Greek Syriza) (Emmanouilidis and Stratulat 2014; Reguly 2014). While the centre-right and centre-left will still hold the majority of seats – they currently have more than half of the 751 seats in the EU legislature – they will face a key challenge from the anti-EU opposition (Taylor and Emmott 2014). Anti-EU movements suffered from their own heterogeneity and fragmentation in the first months of the legislature. But in late 2014 and early 2015 they started to regroup. This is shown by the formation of two parliamentary groups: the EFDD (Europe of Freedom and Direct Democracy) with Britain’s UK Independence Party (UKIP) and the Five-star Movement from Italy; and the Europe of Nations and Freedom (ENF) led by Marine Le Pen’s Front National and the Dutch PVV and which will also include representatives of Austria’s FPO party, Belgium’s Vlaams Belang, and Italy’s Lega Nord. The priority of these two groups is to dissolve the 16 Social policy in the European Union: state of play 2015 Introduction ................................................................................................................................................................. Eurozone. These parties could be able to influence discussions in Parliament on very divisive issues such as immigration. The success of these parties is a massive threat for the EU (see the concluding chapter). 1.2 Top candidates for the Presidency of the Commission One of the key novelties of the Lisbon Treaty was implemented for the first time in 2014: the identification of top candidates for the post of President of the Commission. According to Art. 17.7 of the Consolidated Version of the Treaty on European Union (TEU), ‘taking into account the elections to the EP and after having held the appropriate consultations, the European Council, acting by a qualified majority, shall propose to the EP a candidate for the President of the Commission’.