Excerpt from summary: EU member countries all face similar challenges to their existing social protection systems. Demographic transformation promotes new household vulnerabilities, augments the risks of poverty, spurs a decline in fertility, and accelerates population ageing. The welfare state must manage new needs all the while that its long-term sustainability is questioned. Large parts of Europe suffer from sub-optimal employment levels and, at the same time, labour markets spur new inequalities and exclusion. These are all long-term structural changes that are unlikely to correct themselves autonomously. Hence, we face a genuine Gordian Knot: how to sustain Europe's normative commitments to social justice while aspiring to be a truly competitive force in the evolving knowledge economy… Any realistic solution to the 'Gordian Knot' must include a far more active policy directed at children and women. The household constitutes the basic context for policy rethinking. If our concern is with social justice and equal opportunities, we need to design policy that diminishes the effect of intergenerational social inheritance. If our concern is with maximising our future productive potential we need to invest far more in the cognitive development of children. And if our aim is to avert social exclusion, we need to equalise the resources that citizens command beginning in childhood and youth, and extending throughout their adult lives. We know that the parental effect, combined with the economic and social conditions in childhood (especially early childhood), have an overpowering effect on subsequent school performance, career prospects and, more generally, life chances. We also know that remedial policies, such as 'activation', are only truly effective if people already possess sufficient abilities and motivation to begin with. Hence, the pursuit of all three goals stated above boil down to one overriding prescription, namely to invest massively in children.