The European Semester and its Impact on the Welfare State

Since the onset of the global financial crisis a decade ago, social policy reforms have become increasingly prominent in EU governance and policy debate. The decline in annual growth rates of social expenditures in EU-28 was not only triggered by rising public debt levels but indicates a retrenchment bias of the social policy reforms after 2008. While some see the EU as a catalyzer of the debasing of national welfare states, mainly driven by the imperatives of fiscal discipline and international competitiveness, others stress the broad scope of action left to national decision makers. Many member states have undertaken more or less far-reaching social and employment policy reforms, which they have often sought to justify by reference to EU requirements and recommendations. The article identifies and discusses specific trajectories and causalities explaining the retrenchment and deregulation bias in social policy. Two hypotheses are investigated: (1) Strengthening the fiscal rules has led to a decline in social expenditures and (2) the more conservative a government, the more likely are cuts in social spending. Econometric analysis suggests that political orientation variables are almost irrelevant in explaining variation in the growth rates of social expenditures. Institutional variables reflecting fiscal rules and conditions imposed on crisis countries (financial assistance programs (ESM/EFSF) and the Excessive Deficit Procedure (EDP)) show negative effects but only in the absent of the austerity variable, which captures the fiscal policy stance of national governments.