Europe's Bankrupt Welfare State
[Europe's
Bankrupt Welfare State: The vaunted social model has struggled to generate
growth or jobs for decades Review & Outlook Europe Wall Street Journal] "The
euro survived 2012 intact, and once again Europe's leaders are declaring victory
in the fight to preserve the single currency. In a speech in Portugal Monday,
European Commission President Jose Manuel Barroso said the existential threat to
the euro was a thing of the past. If only.
Mario Draghi's offer last summer to buy unlimited quantities of government bonds
to keep yields under control has certainly calmed down the bond markets in
Spanish and Italian debt. The ECB President has achieved this even without so
far having to act on the promise.
But the euro-zone unemployment numbers out Tuesday are a reminder that the euro
crisis is not so much over as quiescent. Joblessness in the single-currency bloc
hit a record 11.8%. Youth unemployment stands at 24.4% and is above 50% in Spain
and Greece.
Some observers will blame the joblessness and lack of growth in the euro zone on
the austerity supposedly being imposed on the Continent by Berlin. But the real
story is more ominous.
Europe's vaunted social model has struggled to generate growth or jobs for
decades. Prior to the creation of the euro, national governments masked this
problem with a combination of deficit spending and devaluation. The borrowed
money would help pay for generous welfare benefits for those driven out of work
by inflexible labor-market rules and economic stagnation. Currency devaluation
would ease the burden of all that borrowing by allowing governments to pay back
debt with devalued lire and francs while offering a short-term boost to
wage-cost competitiveness.
The euro closed off that release valve for Europe's most sclerotic welfare
states. But because it also lowered their borrowing costs initially, it
facilitated a spending binge that kept the party going for a time. More sober
economic observers warned that if the euro was to survive, reforms were
necessary in countries for whom beggar-thy-neighbor devaluations had become a
way of life. But until Greece stopped the music in late 2009, political leaders
in most countries largely disregarded the warnings.
Germany was a notable exception, pushing through painful reforms of its tax
system, labor markets and welfare benefits in the euro's early years, and it is
now vilified for its trouble, even as it outperforms its neighbors and helps
keep the euro zone afloat.
The discovery of Greece's serial budget deceptions also helped close off
Southern Europe's other main release valve—permanent deficit spending. It is
commonplace to say that Europe can't afford to keep borrowing and spending the
way it's done in recent years, but it's closer to the truth to say it could
never afford it. What's changed is that the biggest spenders have run out of
palliatives.
And this is Europe's present and continuing danger. Budgets are being cut in
places like Greece, and there are halting, reluctant signs of reform around the
edges of the welfare state. But there remains no clear consensus, at least
outside Germany, that the European way of welfare itself is bankrupt, that it
never worked as well as its defenders pretended, and what we're witnessing is
the coming due of all the checks kited over decades to keep it afloat.
The euro zone may be enjoying a respite. But the economic evidence shows how
little has been fixed. Mr. Draghi's blank check addressed the symptom, but not
the cause, of the euro zone's economic woes. And unless those are addressed—with
more flexible labor markets, a smaller state and lower taxes—the crisis will be
back in the form of social unrest, political populism and a generation of young
Europeans who don't know what it is to be able to find a good job."
Europe's Bankrupt Welfare State
Am 8:5,
Eccl 10:2,
Jn 10:10
