New European Semester cycle: how much space for social investment?

February 6, 2025

The 2025 European Semester cycle has officially kicked off with the release of the Autumn Package at the close of 2024, marking the first under the new austerity-driven economic governance framework. The Semester aims to achieve macroeconomic stability, growth and fiscal sustainability, while at the same time encouraging investment. But here’s the pressing question that many will ask upon reading this for the first time: How can this be accomplished, especially given the massive public investments required to promote social justice while protecting people and the planet from climate change?

We sought answers in the Commission’s documents but found none. Instead, we are left with a discouraging conclusion: the Commission is claiming to put investment and reform on the same level as growth and macroeconomic sustainability, but the last two are the only things that really matter (does the Draghi report ring a bell?) if forced to choose. And they will have to choose because this is what the fiscal rules mandate the member states to do. To be more specific:

In the proposed recommendation on the economic policy of the euro area for 2025 the Commission clearly states that the EU has shown resilience during recent crises, including Covid-19, and also acknowledges that this resilience was largely due to the intervention of the EU, for instance through the activation of the general escape clause of the Stability and Growth Pact. Sadly, it does not draw the logical conclusion that this flexibility is clearly what is needed to face other epochal challenges, like the green and digital transition, nor that the return to rigid fiscal rules marked by the new economic governance will undermine this process. The necessary fiscal space to promote social justice, environmental and climate targets beyond a competitiveness-led logic must be ensured.

The fact that an increased employment rate does not correspond to an increase in quality jobs and that wages are not adequate across the EU is mentioned. However, no clear call to the Member States to ambitiously implement the Adequate Minimum Wages Directive is made. More should be done to remind Member States of their obligations, also considering the underwhelming transposition process of the Directive. Or are social rights less relevant than an excessive deficit?

The socially just transition approach should be mainstreamed across the European Semester to ensure that country-specific reform and investment recommendations equally support economic, environmental, and social dimensions. For real.

It is positive that a shift from labour taxation to other forms of taxation is recommended by the Commission. However, the solution should go beyond the property taxation suggested by the Commission and include a broader overhaul of the tax base, including increased wealth taxation.

Even if we appreciate the inclusion of employers’ and trade unions’ views in the Autumn Package, social dialogue should be further strengthened across the board. Generally, there should be a greater emphasis on participation through a broadened approach as well. We call for a more meaningful involvement of democratic and representative civil society in the European Semester.

Concerning the documents focused on macroeconomic stability, it is positive that a certain level of flexibility and ownership is granted to Member States and that public investment is encouraged, but there are many elements that remain problematic and strongly limit the potential benefits of the reviewed economic governance. Among these is the lack of prioritisation of social objectives. These are instead put on the same level as defence objectives, potentially leading to increased securitisation at the expense of social and green investments. As mentioned, the arbitrary fiscal rules contained in the Stability and Growth Pact have been fully reintegrated, which results in a schizophrenic approach: encouraging public investments while imposing strict fiscal rules. Finally, the maintained focus on growth leads the Commission to lose sight of what should be the main priority: pursuing the well-being of all people while respecting planetary boundaries.

An overview of the documents contained in the Package below can help locate the elements flagged so far.

In April 2024, the new economic governance framework of the EU entered into force. The aim of the Commission is to ensure more national ownership for Member States and, allegedly, to focus on both fiscal sustainability and investment and reforms, while stimulating growth. This new focus was reflected in the Autumn Package 2025 first set of documents released on 26^th November, including:

The assessment of the Medium-term Fiscal Structural Plans;

The Commission’s opinion on the Draft Budgetary Plans;

The recommendation to end the excessive deficit in 8 countries;

The Commission Communication “2025 European Semester: bringing the new economic governance framework to life”.

In the first document, the Commission assessed 21 out of 22 submitted Medium-Term Plans and proposed Council recommendations for them. According to the Commission communication, national investment in the priority areas identified by the Commission, which include inclusive growth, digital and green transition and defence, will be maintained or increased. In light of their commitment to pursue investments in such areas and to act on the Semester recommendations, 5 member states have had their recommended fiscal adjustment period extended from 4 to 7 years, which gives them more time to adjust their finances in line with the fiscal sustainability rules of the EU.

The Autumn Package also includes eight recommendations for the Council to set the fiscal path correcting the excessive deficit for Member States under an excessive deficit procedure and for one country (Austria) the Commission will consider proposing the opening of an excessive deficit procedure.

The second set of documents of the Package, published on 18^th December, focused on defining the socio-economic priorities of the EU and providing guidance to Member States on how to achieve them. These documents will be the basis for the formulation of the Spring Package. They include:

The Commission’s proposal for a recommendation on the economic policy of the euro area for 2025;

The 2025 Alert Mechanism Report;

The Commission’s proposal for the 2025 Joint Employment Report.

The Alert Mechanism Report (AMR) highlights which member states require in-depth reviews to determine whether they are experiencing macroeconomic balances. This year’s AMR adds Estonia to the list of countries for which a more in-depth analysis is needed beyond the nine countries identified in 2024, Cyprus, Germany, Greece, Italy, Hungary, the Netherlands, Romania, Slovakia and Sweden.

The Joint Employment Report (JER) gives an overview of the EU social and employment situation across member states and identifies areas where intervention is needed. With the introduction of the Social Convergence Framework (SCF), that has the objective of identifying potential risks for – or rather existing issues of – upward social convergence and act upon those, the Joint Employment Report also analyses this aspect, through the so-called first-stage analysis. Overall, ten countries will go through a more in-depth analysis (second-stage analysis) in the next phase of the Semester. However, how these analyses will reflect into the CSRs is still unclear.

The proposed recommendation on the economic policy of the euro area for 2025 is where the direction that the EU wants to give to its fiscal, social and economic policies is the most visible. This is what SOLIDAR’s observations are based on.

Next steps

The Autumn Package will be discussed by the Council and the Commission will also engage in dialogue with the European Parliament and the relevant stakeholders. We urge the European Commission to take into account the above-mentioned observations in the next phases of the Semester to finally transform it into a tool for upward social convergence and to ensure a participatory and democratic process, by meaningfully involving civil society organisations.