Europe forced to re-examine the concept of “reality”

By Bruce McQwain

QandO.net

It’s something we’re ignoring, for the most part, as well:

Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.

But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead.

With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions.

“We’re now in rescue mode,” said Carl Bildt, Sweden’s foreign minister. “But we need to transition to the reform mode very soon. The ‘reform deficit’ is the real problem,” he said, pointing to the need for structural change.

The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable.

Reality can be a real problem – in the real world.  And Europe has begun to bump up against it.  Greece is simply the worst of the bunch.  The “social paradise”, as European nations have fashioned it with some variations here and there, is unsustainable.  There are a number of reasons, not all having to do with economic profligacy.  And we face precisely the same future problems as they are beginning to face now.  For instance, just like Europe, we have fewer and fewer people paying for the retirement of more and more people.  Unlike Europe, though, we’re projected to have a positive population growth in the future (not that it will make what we have promised to pay in the future any more affordable), whereas Europe has a negative population growth among native Europeans.

This sort of a drop in workers vs. pensioners is not at all uncommon, even here in the US. Unless something is done now, we stand a good chance here of having the very same problem Europe is now facing in the not too distant future.

According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1.

One of the things the liberal side of the house likes to do is point to how little the Europeans spend on the various styles of government run health care they have. But since the financial crisis, which pushed the due date on all the debt they’ve piled up and promised to incur within their social welfare states, they’re talking about cuts to their health systems as well:

Figures show the severity of the problem. Gross public social expenditures in the European Union increased from 16 percent of gross domestic product in 1980 to 21 percent in 2005, compared with 15.9 percent in the United States. In France, the figure now is 31 percent, the highest in Europe, with state pensions making up more than 44 percent of the total and health care, 30 percent.

If you wonder why the Tea Party types and libertarians are screaming about cuts in spending and the size of government, it’s because they’ve been watching Europe, understand that’s the way this administration and the Democrats want to push us and are warning of the obvious eventual outcome of such an move. We have the opportunity now to stop what Europe will soon be going through.

But, as one French pensioner says:

“For years, our political leaders acted with very little courage,” he said. “Pensions represent the failure of the leaders and the failure of the system.”

And we’re in exactly the same position now for the very same reason.

~McQ

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