This chapter argues that welfare states and labour markets constitute a central issue in European political economy. It then discusses the main theoretical and empirical theories and concepts in regulating social policies and labour markets in the multi-tiered EU institutional setting. Under the Economic and Monetary Union (EMU), Member States aimed to enhance labour market participation, while modernizing their welfare states and maintaining a high level of social standards. The chapter presents three case studies on social investment. It also looks into the re-regulatory approach embodied in the European Pillar of Social Rights and the possibilities for selected social policies being fiscally supported through the Next Generation EU.