THE STATE OF THE EUROPEAN UNION Towards a new legislative term

77 With low economic growth and high inflation rates, the social stability of the EU is once again at risk in 2023. While the labour market is still relatively robust, the threat of poverty or social exclusion remains high, with vulnerable groups at increased risk of exposure. Dur- ing the pandemic, the European Pillar of Social Rights (EPSR) – proclaimed in 2017 – experienced its first ma- jor challenge. To what extent has the EPSR been able to contribute to supporting social progress in the EU in the five years of its existence? In this chapter, I will outline the current socio-economic, employment and social situation of the EU. I will then go on to describe the EPSR and its role in the pandemic, and I will analyse developments in social indicators over the last five years. Economic stagflation in the EU While the growth rate of real gross domestic product (GDP) in the EU in 2022 was still quite positive at 3.5 per cent compared to the previous year, the economic situation has clouded over again in 2023: with annual growth predicted to be only 1.0 per cent (European Commission 2023a). After the end of most restrictions to contain the Covid-19 pandemic, a clear catch-up ef- fect in private consumption was noticeable. However, this increasingly slowed down from autumn 2022 on- wards due to several factors. These included supply bot- tlenecks that could not be resolved in certain sectors until the Chinese government lifted its zero-Covid strat- egy at the turn of the year 2022–23. Another factor was the further increase in the inflation rate, which led to falling disposable household income and thus reduced purchasing power. Inflation in the EU peaked in October 2022 with 11.5 per cent year-on-year price increases and has since fallen to 6.4 per cent by June 2023. 1 How- ever, there are major differences between the Member states in the EU. While price increases in the energy sec- tor could be contained by political measures, core in- flation has become entrenched. Although the European Central Bank (ECB) has been resisting price increases with interest rate hikes since July 2022, this restrictive monetary policy, with a key interest rate of 4.25 per cent in August 2023, has hindered business investments. The burden of stagflation – a combination of low economic growth and inflation rates still well above the ECB’s inflation target in 2023 – comes at an inoppor- tune time, as it does not allow the EU any breathing space after the string of severe economic crises over the past 15 years. It also complicates the necessary adjust- ments to the changed geopolitical environment, namely the partial decoupling or redirection of international trade flows by reducing international dependencies, in the context of the Russian war of aggression against 1 All data from Eurostat unless otherwise indicated. Five years with the Pillar of Social Rights: Europe’s social situation in times of crises Björn Hacker