The mood in Brussels has shifted. Rearmament, competitiveness, simplification, and strategic autonomy now crowd the agenda, and an ostensibly common-sense consensus holds that higher defence outlays must be paid for out of welfare. Some, such as Friedrich Merz, the German chancellor, treat benefit cuts not as a regrettable necessity but as an overdue correction. The Draghi and Letta reports, for all their ambition, narrow the case for social spending to marketable skills, and the risk is that Europe’s social agenda is quietly pared back to a mere “Union of Skills”. Having looked back on a decade of genuine social-policy progress, we believe the siren calls are misplaced. Here is why.

Consider first the substance. Europe’s growth strategy has moved a long way from the punitive unit-labour-cost mitigation of the early 2010s towards more capability-oriented thinking: fostering gender-balanced employment and productivity through skills, lifelong learning, active ageing, flexible retirement, and support for dual-earner families. This is, in effect, a quiet paradigm revolution – a growth model that has become social-investment-oriented. Traces of it run even through Letta and Draghi, if narrowly conceived. The emblem is Mario Draghi himself: the man who in 2012 pronounced that “the European social model has already gone” now invokes the need “to preserve the European model”. That is progress, even if he still stops short of recognising the active welfare state as a productive factor in its own right.

Second, and closely related, a governance revolution has accompanied the substantive one. The standard neo-classical benchmark launched policy analysis from an idealised, self-clearing market in an optimal currency area, from which vantage point the messy realities of regulated labour markets and hefty welfare commitments appear as distortions to be redressed. These were the decontextualised models behind the Annual Growth Surveys of the Great Recession. As the objective has shifted towards resilience, analysis has become contextual and comparative – attentive to what is empirically present in terms of institutional strengths and weaknesses. That is the logic of the European Semester: from decontextualised growth surveys to country-specific recommendations, with the help of social scoreboards and related benchmarks.

Third: where did these shifts come from? Credit is certainly due to DG EMPL, which argued patiently from the late 1990s – through the open method of coordination and, later, the 2013 Social Investment Package – that social policy can be a productive factor. What was once dismissed as Third Way lip service is now substantially shared by DG ECFIN. The 2017 European Pillar of Social Rights consolidated and strengthened these breakthroughs. Its 20 principles bind inclusive buffers, gender-balanced flows, and lifelong human-capital investment into a coherent whole, while the rights-based framing gave the Union normative traction as a legitimate social actor – and a reference point for the Semester, the Recovery and Resilience Facility, and national reform plans alike.

Fourth, the evidence has never been stronger. Employment is up and poverty down; NEET (not in employment, education, or training) rates and early school-leaving have fallen; tertiary attainment and adult learning have risen; working lives are lengthening through active ageing; gender gaps are narrowing; and wage growth has been robust where statutory minima and collective bargaining are in play. Job quality, including access to social protection, is now widely understood as integral to competitiveness rather than a drag on it. These are no longer contested claims. Yet the remaining vulnerabilities are just as instructive: growth driven more by rising employment than by productivity; temporary contracts concentrated among the young and among women; low-paid platform work and protection gaps for the self-employed; minimum-income floors too meagre to lift people out of poverty; single-parent households worse off almost everywhere; stubbornly high child poverty; post-pandemic learning losses; and housing costs that fall hardest on the poor while choking labour mobility. Both the gains and the gaps point the same way – towards more social investment, not less.

Fifth, successive crises proved the value of what was already there. We speak of a Great Recession rather than a Great Depression precisely because the automatic stabilisers – dismissed as moral hazards by orthodox economists and by Draghi and Trichet during the eurozone crisis – were already in place in most mature welfare states, cushioning both the macro-economy and lower-income households, most effectively where buffers were inclusive. The more social-investment-oriented welfare states rebounded to high employment fastest, vindicating the double dividend at both the macro-demand and micro-supply levels. During the pandemic, a temporary leap in fiscal solidarity allowed hard-pressed countries to sustain an investment impulse, and the furlough schemes that had worked wonders in the Great Recession were scaled up across the continent. We were fortunate to have functioning welfare states when those two shocks struck.

Sixth, demography makes social investment even more urgent. Accelerating ageing is producing labour shortages that make investment across the life course – including in affordable housing – indispensable to keeping employment high and to mustering the revenue base for popular commitments: pensions for the old, education and training for the young, and insurance and active labour-market policy for those of working age. This is what one of us has termed, with David Bokhorst, the “welfare commons”. This is no moment to be wasteful with the development, protection, and allocation of human capital – AI notwithstanding.

Seventh, both the fiscal debate and the politics are moving in social investment’s favour. Thanks to the work of Gabriel Zucman and Thomas Piketty, there is growing support for the broadest shoulders contributing more; fair taxation remains as hard as ever, but at the epistemic level of the OECD, the World Bank, and the EU, proposals to broaden the tax base towards capital and away from labour are gaining ground. And the electoral calculus has turned. Jean-Claude Juncker once quipped that “we all know what to do, we just don’t know how to get re-elected after we’ve done it”. The honest truth is that, at the time, we did not really seem to know. Now we do – and an active, generous welfare state is a far more attractive proposition at the ballot box than pro-cyclical austerity that blames its victims.

Nor is the social investment narrative disappearing. Even as competitiveness dominates the headline discourse, a variety of EU policy actors have continued to carry it forward. Building on earlier efforts by Spain and Belgium in 2023–24, the current Irish Council Presidency has framed social investment as a motor of growth: by investing in people and combating exclusion, it argues, the European social model builds the skilled, agile workforce on which innovation depends. Its planned Council conclusions on “Equality as a driver for economic growth and competitiveness” stand the old equity–efficiency trade-off on its head. This is the productive-factor logic that a narrow “Union of Skills” risks losing sight of: social investment yields its returns not from skills alone, but from the interplay of human-capital stocks, life-course flows, and inclusive buffers.

None of this guarantees a bright future. Policymakers are conservative by instinct, holding on to past successes in path-dependent fashion. But those successes are now anchored, more than ever, on social investment, whose life-course multiplier logic is far better understood than it was at the turn of the century, when deregulation, liberalisation, and retrenchment still played first fiddle. The real danger is not that Europe lacks answers, but that a genuine sense of urgency curdles into panic and easy fixes – the simplification reflex, or worse, the supposedly inescapable trade-off between welfare and warfare. A stingy welfare state is an expensive welfare state. These are self-defeating omens. If policymakers can keep their cool, social investment and contextualised governance – learning by monitoring – are here to stay.

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