Whereas in 2000 the EU had heralded the knowledge-based society with as its motto "with more and better jobs and stronger social cohesion", the past decade has led to greater inequality and (at best) a status-quo in poverty. EU2020 seems to acknowledge this failure and aims to reconnect social inclusion with the knowledge-based strategy. This article discusses the education-inequality nexus and shows what strategic and institutional measures need to be implemented for a "smarter" social inclusion policy: a better balance between knowledge-intensive and knowledge-extensive policies, an extension of EU anti-discrimination law in the field of education, integration of the OMC in education and training with the social OMC (including the social re-orientation of the structural funds), and peer learning focused on structural reform of E&T systems.