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The European Semester: To Spend or Not to Spend?

This section focuses on the country-specific recommendations issued by the Commission and the Council every year. While most authors focus on what the EU advocates in terms of labour market reforms (including unemployment benefits and activation policies) and pension reforms, the purpose here is to assess to what extent and in which way macroeconomic coordination at the EU level affects welfare services. Although they remain theoretically a matter of national choice, the European Semester undeniably aims at shaping national reform trajectories. A close look at the recommendations reveals evidence that the Commission and the Council do not only seek to influence the general outcome of national budgets, namely to what extent they are in balance; but they also give clear instructions as to how budgets should be structured, that is what type of spending or expenditure should prevail over others. Table 6.2 below shows that, in some respects, the injunctions formulated by the EU institutions are contradictory as they advocate to spend and not to spend at the same time, leaving national governments faced with difficult budgetary dilemmas regarding how to square the circle of austerity. For practical reasons, instead of 28 Member States, the table includes a selection of seven Member States which are both inside and outside the Eurozone, large and small, countries from the ‘core’ and countries from the periphery, countries with or without an ongoing excessive deficit procedure. As an attempt to focus on welfare services as such (as opposed to benefits), the table does not include recommendations related to unemployment benefits or pension reforms.

'Don't spend!'

'Spend!'

General budget

Welfare services

Social investment in welfare services

France

2011

Bringing the deficit down from 7 % of GDP in 2010 to 3 % in 2013

Public employment service

2015

Ensure effective action under the excessive deficit procedure and a durable correction of the excessive deficit by 2017

Further cost-containment measures in healthcare

Germany

2011

Implement the budgetary strategy for the year 2012 and beyond

Further steps to enhance the efficiency of public spending on healthcare and long-term care

Increase the number of full-time childcare facilities and all-day schools Adequate expenditure on education

2015

Investment in infrastructure, education and research

Latvia

2011

Bringing deficit down to 5 % of GDP

Cuts in public sector nominal wage and employment

Availability of training,

requalification and

activation

measures

2015

The projected structural deficit of 2.2 % of GDP in 2016 exceeds the appropriate safety margin with respect to the 3 %-of-GDP rule

Vocational education and training Accessibility to healthcare

Poland

2011

Implement the measures announced in the draft 2012 Budget Law and take additional measures of a permanent nature if needed

Lifelong learning strategy, enhance apprenticeships and dedicated vocational training and education programmes for older workers and low-skilled workers.

Childcare Energy generation capacity Railway infrastructure

2015

Achieve a fiscal adjustment of 0.5 % of GDP towards the medium-term budgetary objective both in 2015 and 2016

Vocational education and training Early childcare services

(continued)

'Don't spend!'

'Spend!'

General budget

Welfare services

Social investment in welfare services

Portugal

2011

Reduce the Government deficit to below €10,068 million (equivalent to 5.9 % of GDP based on current projections) in 2011, €7645 million (4.5 % of GDP) in 2012 and €5224 million (3.0 % of GDP) in 2013

Reduce the number of services while maintaining quality of provision

Reduce costs in the area of education Limit staff recruitment in public administration Control costs in health sector

2015

Achieve a fiscal adjustment of 0.6 % of GDP towards the medium-term budgetary objective in 2016

Fiscal consolidation must be underpinned by increased efficiency and quality of public expenditure at all levels of public administration

Training for young people Increase the digitization of services in charge of labour market matching.

Adequate coverage of social assistance

Slovenia

2011

Achieve the 2011 deficit target, underpin the 2012 deficit target with concrete measures and implement the necessary consolidation rigorously

Effectiveness of the public employment service

2015

Ensure a durable correction of the excessive deficit in 2015, and achieve a fiscal adjustment of 0.6 % of GDP towards the medium- term budgetary objective in 2016

By end of 2015, adopt a healthcare and longterm care reform

Increase the employability of low-skilled and older workers

United Kingdom

2011

Implement the planned fiscal consolidation aiming at a deficit of 6.2 % of GDP in 2012-2013

Employability of young people Childcare

2015

Ensure effective action under the excessive deficit procedure and endeavour to correct the excessive deficit in a durable manner by 2016-2017

Boosting public and private investment Education and training for young people

Affordable, high- quality full-time childcare

Source: European Commission, www.ec.europa.eu, date accessed 19 November 2015

aThe recommendations examined are those endorsed by the Council (as opposed to the draft recommendations formulated by the Commission only). The recommendations for Latvia and Portugal from 2011 are those spelled out in the two memorandums of understanding agreed in respectively 2009 and 2011

Although it is difficult to draw general conclusions from recommendations which are, by nature, specific to particular national configurations, three points can be underlined. First, contrary to what one may think, the country-specific recommendations addressed to national governments contain not only recommendations for cutting expenditure but also for increasing expenditure in certain areas. While this may be interpreted as a general strategy for modernizing welfare services and fostering a strategy of social investment, it is put into perspective by the fact that objectives for budget discipline appear overarching. If the quantity of text and the order in which items appear in documents are taken as indicators for policy priorities, it is clear that recommendations relating to budget discipline and cuts occupy the greater part of the exercise and always come before other types of recommendations. This means that the pressure for reducing expenditure is such that national governments are across the board led to prioritize cuts over investment. This is even more so in view of the fact that, going back to the issue of hybrid governance, exceeding limits of deficit and debt can trigger sanction mechanisms, while recommendations for spending have no legally binding character. And this, indeed, is reflected in the fact that, in most countries, the recommendations for spending in certain areas of welfare services made in 2011 are reiterated in 2015, thus indicating that no or insufficient government action has been taken. Moreover, the EU discipline seems to be particularly far-reaching. It is for example striking that in 2015 Latvia finds out that a deficit level of 2.2 % of GDP, while lower than the 3 % limit, is still considered to be above the ‘safety margin’. Another interesting aspect is that recommendations for spending are not limited to countries which have lower levels of deficit at the outset: even highly indebted countries (except for Portugal) are being advised to spend more in order to tackle some of their most important structural problems, such as lacking education systems or high levels of poverty. As far as the nature of cuts or expenditure is concerned, it clearly appears that EU institutions have a vision of social investment centred on labour markets. Besides unemployment benefits and pension reforms, most exhortations to reduce spending concern healthcare and long-term care as well as public administration. Implicitly, these areas are seen as non-productive or not growth-oriented, which is arguable both from a normative as from an economic point of view. In contrast, services in education, training and childcare are considered as good investments because they increase the ‘employability’ of certain categories of people, mainly long-term job seekers, young people and women. Finally, a growing concern over the consequences of lacking investment can be observed: in 2015, the consequences of fiscal discipline are visible in the lack of investment, whether in countries which are still fairly heavily indebted (such as the UK) or in those which appear as models of fiscal discipline (such as Germany). This can be seen as further evidence that the systematic prioritization of cuts over spending is inefficient from a policy point of view.

In sum, we may conclude that social problems are not being entirely overlooked in the European Semester, and a will to redirect public expenditure towards the modernization of welfare services through social investment (or a certain conception thereof) can be detected. However, the pressure to reduce deficits is such that it makes it impossible for national governments to square the circle, and makes modernization illusory. At the end of the day, it seems that the course taken by national governments depends, on their political orientation and variety of capitalism, on the one hand, and on their political weight and capacity to negotiate delays and room for manoeuvre, for fiscal consolidation on the other. In this regard, it is clear that countries under financial assistance programmes enjoy no space for limiting retrenchment. This, in the long run, is more likely to increase, rather than decrease, the gap in economic and social policy performance with other EU countries.

 
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