The end of the welfare state? 0

Most west European governments have known for the last thirty years at least that it is impossible to maintain the welfare state. None has had the courage to start dismantling it. No matter what party was in power, whether outrightly socialist or nominally conservative, each successive government tried only to postpone the day of reckoning.

It seems that day has now arrived.

Vasko Kohlmayer writes at Front Page about the eurozone’s ‘skyrocketing debt’ and its likely consequences:

The European Monetary Union lays down strict regulations … The so-called Stability and Growth Pact requires each country’s to hold down its annual budget deficit below 3 percent of gross domestic product (GDP). The Pact also stipulates that any member’s public debt is not to exceed 60 percent of GDP.

This year only one eurozone country is expected to have a budget deficit that falls within the three percent limit. The rest will go over, most by a large margin. Germany, which was the country that lobbied most rigorously for the strict fiscal requirements, was among the first to break them. Greece is currently the leading offender with a deficit that equals 12.7 percent of its GDP. But the figures are generally abysmal throughout the monetary union. Ireland’s deficit, for example, is 11.5 percent, Spain’s 11.4 percent, Portugal’s 9.3 percent.

As far as public debt is concerned the average European ratio is 88% of GDP, nearly 50 percent above the “allowable” limit. The worst offender is Italy whose public debt stands at an astounding 127 percent GDP. Greece’s debt is 113 percent, Belgium’s 105 percent, Germany’s nearly 80 percent. High as these figures are, the reality is probably worse as EU countries routinely use an assortment of accounting tricks to understate their deficits and obligations.

It is becoming increasingly obvious that if the euro is to continue as a viable currency, eurozone states must take decisive measures bring their finances under control. This, however, appears to be a nearly impossible task. Greece shows us why. Shortly after the government announced a package of budget cuts and tax increases the country’s civil servants took part in a nation-wide strike. Plans are afoot for another one next month. At the same time, Greece’s umbrella private sector union is planning an extensive walk-out for the last week of February. The Associated Press observed that the Greek government “may find that unions and voters push back against cutbacks that will take years to show results. With a potential public backlash, their chance to win approval for such measures remains unclear.”

Memories are still fresh of the protests that took place early last year. Angry at cuts in their subsidies, Greek farmers blocked major roads and paralyzed the country. Parts of the nation were thrown into chaos as lines of vehicles stretched for 12 miles or more. Unable to restore order, the prime minister was forced to beg the farmers to remove the roadblocks. “There is an urgent need to free up the roads. A whole society cannot be held hostage,” he pleaded.

This time around far more substantial steps must be taken in order to put Greece’s fiscal house in order. This is certainly not going to sit well with the Greek public and there is fear that things could deteriorate in dramatic fashion. …

The Eurozone … faces a seemingly unsolvable conundrum. Even though it is steeped deeply in debt, almost every serious effort to curtail spending meets with popular rage. The problem is that they cannot have it both ways. It is impossible to have a large welfare state and a sound fiscal house at the same time. It is either one or the other.

Until recently the euro was considered a possible alternative to the dollar as the world’s reserve currency. It was thought that the Monetary Union’s strict guidelines would safeguard its debasement. But it turns out that the Union’s respect for its founding documents is only paper deep. It is now becoming apparent that the disregard will have dire consequences. It may even bring about the break up of the eurozone and the demise of what once seemed like a solid currency.

Given that the United States is taking the same path of unrestrained spending, we would do well to take heed and learn from Europe’s painful lessons.

*NOTE: The eurozone is not the same as the European Union (EU). The European Union has twenty seven members as of this year. The eurozone is made up of those countries within the European Union that use the euro as their sole currency. The eurozone currently has sixteen member states.

The crisis may cause the break-up of the eurozone. Undesirable as this may be for economic reasons, one highly desirable political consequence could be the end of the welfare state as such, with the proof of its unsustainability so incontrovertible that no one – not even Barack Obama – would attempt to resurrect it.

The welfare state pays people not to work, not to produce, not to innovate, not to marry, not to have children – or if they do, not to take care of them themselves.

It may be that the peoples of Europe are dwindling away (which they are) because they have no incentive to beget children and strive to raise them. Or to put it another way, they may be dying out because they have nothing to go on living for.

Posted under Commentary, Europe, Socialism, United States by Jillian Becker on Friday, February 19, 2010

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