A Fair Europe: Strengthening European Regions for a Just Twin Transition

In our recent blog series on the future of European cohesion, we discussed how EU regions diverge in terms of their economic output, as well as their capabilities and vulnerabilities with regard to the challenges of the green and digital transitions.

This fourth and final article in the series argues that investing fairly and inclusively in regions is key to ensuring the success of the twin transition. This means overcoming one-dimensional economic output perspectives and fortifying the European social pillar – ultimately fostering social wellbeing and prosperity for all.

In response to the demands of the twin transition and the fallout of the war on Ukraine, the European Union has unveiled ambitious plans to establish energy independence and digitalize and green the economy quickly. Now, If the EU wants to truly fulfill the promise of its Cohesion Policy,  then it must keep the improvement of social cohesion in European regions at the heart of its efforts to fight climate change and achieve digital sovereignty.

Social Cohesion: The EU’s promise to its citizens

The process of European integration, particularly the European single market, has spurred economic growth across the continent. However, the EU aspires to more than just to reduce trade barriers and improve productivity. It aims to link upward economic convergence with societal progress.

Article 3 of the Treaty of the European Union states that the EU “shall combat social exclusion and discrimination and shall promote social justice and protection.” Promoting equality of opportunity and high quality of life for its citizens is, therefore, a self-proclaimed aim and duty of the EU. This remains especially true in times of crisis and transformation, as evidenced in European Commission President von der Leyen’s speech at the Porto Summit 2021 when she emphasized the “social promise” for all.

This is not just a priority for the Commission but also an important desire of European citizens. Opinion polls show that social cohesion is a key demand of European citizens. For example, Eurobarometer surveys in 2021 have found that 9 in 10 Europeans consider a social Europe important to them personally.

88% of Europeans consider a social Europe to be important for them personally (March 2021)

Defining prosperity beyond GDP

Knowing whether the EU is succeeding in fostering social cohesion requires measuring prosperity beyond economic growth. However, the primary lens through which socio-economic success is measured continues to be gross domestic output (GDP), even though the issues with a single output indicator are numerous.

Most importantly, GDP ignores the distribution and concentration of economic resources. It is also not suitable for understanding the levels of broader social wellbeing. For instance, GDP figures give no information regarding the distribution of life chances, which can also be relevant for future economic growth prospects in a region. Nor do they provide insight into structural inequalities and the general quality of life.

And although GDP and social indicators – such as access to the labour market, education, poverty risks, demographics, healthcare and security – often display a certain degree of correlation, confining the analysis of the state of cohesion towards closing the output gap does not help one understand the issue comprehensively. In addition, these correlations become increasingly unstable with higher levels of total economic development.

In sum, GDP needs to be complemented by a comprehensive set of social indicators when measuring cohesion between and within regions and member states. This growing realization is inter alia reflected in the European Commission’s “beyond GDP initiative” and the ongoing development of stronger social initiatives in the EU within the last decade.

Building a European social framework

In the aftermath of the Euro crisis, the European social framework experienced significant change. Divisive austerity politics have gradually been overcome, and we have witnessed the further development of the European welfare model through the implementation of various social initiatives and legislation, including workers’ rights directives, the European Social Fund, and most importantly, the European Pillar of Social Rights.

Although the European Commission has long been vocal about improving social conditions for Europeans, it has mostly fallen short in defining clear social targets beyond employment. In 2021, however, a major leap was made with the Porto declaration for a more social European Union, amended by European leaders and social partners.

At the core of the declaration, a 13-point action plan aims to strengthen the European Pillar of Social Rights as the EU’s principal agenda to promote social cohesion. It is spearheaded by three headline targets to ensure social mobility and protection as well as equal life chances by levelling the playing field by 2030:

• At least 78% of the population aged 20 to 64 in the EU should be employed
• At least 60% of all European adults should be participating in training every year
• The number of people at risk of poverty or social exclusion in the EU should be reduced by at least 15 million

European regions, however, still exhibit substantial differences in their current positions relative to achieving the Porto targets. For instance, while the employment rate for the EU has consistently increased during the last decade, regional data indicates that employment growth has not reached every region equally. Regional disparities persist primarily along the lines of north-south and centre-periphery divides between and within countries.

Employment rate (20-64 age group), 2020                           

Change in employment rate (20-64 age group), 2013-2020

And although the number of people at risk of poverty in the EU consistently fell by a total of 17 million between 2012 and 2019, the COVID pandemic increased the number again by 5 million in 2020 alone. Low-income groups are now also disproportionately affected by the current surge of inflation and energy prices in the EU, threatening to increase the risks of poverty and social exclusion further over the coming months.

Population at risk of poverty or social exclusion, 2019

The pandemic engendered a bold policy response in the form of NextGenerationEU – the first European large-scale fiscal programme financed by common debt. The programme dedicated large amounts of funding to strengthening social resilience in regions, reflecting the realization that coping with shocks requires not only economic but also social investment.

Within the social arm of the program, investments are made in the areas of social protection, health, education, inclusion and poverty relief to enhance the recovery and resilience of member states and regions.

The determined policy response to the pandemic did ease social hardships. But the struggle for social cohesion remains challenging considering that more structural transformations lie ahead.

The twin transition demands social action

In light of the increasing frequency of crises and the structural adjustments that will come with the green and digital transition, it is essential to provide European regions with the tools to adapt effectively. A big part of that process requires enhancing social resilience along the way.

The Commission defines social resilience as the “ability to tackle economic shocks and achieve long-term structural change in a fair and inclusive way.” This ambition must also translate to the regional and local level because the green and digital transitions imply a major overhaul to industries and the impacts are likely to be felt unevenly.

Regions, especially those dependent on carbon-intensive industries, are under pressure to adjust to a carbon-net-zero economy. It is essential that the EU help the most affected. This can mean assisting coal regions in their energy transition or workers in re-skilling, as well as protecting those who become permanently unemployed.

Now, as the EU strives to accelerate energy independence due to Russia’s invasion of Ukraine, the ambitious process mapped out in the REPowerEU plan requires further support measures and generally larger re-distributional efforts. Green progress cannot turn a blind eye to social cohesion, as France was painfully reminded by the yellow vest protests in 2018.

Digitalisation, too, can be a threat or an opportunity depending on social outcomes. Rethinking the industrial mode of production through automation and restructured supply chains means having a social plan for displaced workers. Without this, the EU will be risking social unrest and stagnation.

Against this backdrop of major structural overhauls, Europe needs to close not only the economic development gap between regions but also the social gap to promote territorial cohesion. Not doing so will carry severe political dangers, as new populist threats are already looming. The energy crisis, inflation and the current sense of insecurity are a new breeding ground for populist voices, and growing disparities could provide fertile ground for their influence.

The lack of just and inclusive societies is a constraint for EU cohesion. Not just economic growth but high-quality, widely-shared economic growth will provide a path for for mastering the green and digital transitions. So, for all these reasons, it is vital that Europe delivers on its promise to “leave no one behind” on the way to a green, smart and fair future.

Read more in our EU Cohesion series

Green, Smart and Fair: Rethinking European Cohesion in an Era of Structural Change

A Smart Europe: Digitalization and Regional Economic Development

A Green Europe: Regional Strengths and Weaknesses and the Green Transition

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About the Bertelsmann Stiftung’s work on cohesion in Europe’s economy

Jake Benford, Lucas Resende Carvalho, Nathan Crist, Sabine Feige, Katharina Gnath, and Thomas Schwab are the team that drives forward the Bertelsmann Stiftung’s work on Europe’s economy.

They investigate which economic, social and territorial disparities matter for Europe. They analyze how structural changes that come with decarbonizing and digitizing Europe will affect its economy and its cohesion.

This will include identifying the resources, potentials, but also the vulnerabilities of European regions. And they develop proposals on how to strengthen the EU single market and how the EU can better use its policies and resources to strengthen cohesion across Europe.