In the course of the 1990s, the welfare states of modern western societies were confronted with new and changing challenges that were, in part, contradictory. These challenges were caused by exogenous processes, including globalisation and EU integration, as well as endogenous processes involving social and economical change within European societies (Esping-Andersen, 1999, Esping-Andersen et al, 2002). As a consequence of such processes, social security systems came under pressure (Ferrera and Rhodes, 2000; Scharpf and Schmidt, 2000; Hinrichs, 2001). At the same time, new demands pertaining to social security developed as a result of changes in the life histories of individuals (Naegele et al, 2003; Guillemard, Chapter Four, this volume). Processes such as increasing rates of unemployment in the 1990s, increasing labour-force participation of women, increasing migration to EU member states, demographic developments (particularly an increase in the proportion of older people) and the proliferation of unstable forms of employment, together with the related prospect of insecure income, have contributed to these changes (Lind and Møller, 1999). At the same time, new discourses concerning the legitimacy of welfare state spending have emerged at the cultural level. These have often been based on neoliberal and communitarian thinking and have led to the active alignment of welfare states towards the market, resulting in part in the questioning of the state's role in redistribution.

As a consequence of the processes by which welfare states have attempted to find solutions to these new challenges, many European welfare states were restructured in the 1990s and at the beginning of the new millennium. The nature of these changes is a contested issue among social-policy researchers. Some argue that European welfare states are converging towards a neoliberal type of welfare regime in which the welfare state assumes a more marginal role in relation to the market (Gilbert, 2002). Alan Walker (Chapter Three) argues that neoliberal economic globalisation has led to a transformation of European welfare systems along at least two dimensions: firstly, in deregulation, privatisation and marketisation and secondly, in the shift from social justice to economic investment (the productive role of welfare) in the guidance of social policy. Other things being equal, these new developments may increase the risk of poverty and social exclusion.