NPR asks: ‘Can the European welfare state survive?’
Wednesday, July 14, 2010
The European parliament building.
- By Superior Gold Group
Morning Edition, airing on National Public Radio, asks a question that many Europeans must be asking themselves - can their generous welfare states, with the promise of gold-plated healthcare, childcare and pensions for all, survive increasing levels of debt and slowing growth?
From Ireland to Italy, Europeans became accustomed to a “cradle-to-the-grave” state offering benefits that most Americans could only dream of. In return for high taxes and inflexibility in the labor markets, citizens of European nations got to retire early, go to the doctor for free and take years off for maternity leave.
Now, however, the bill is coming due. As Nicolas Doze, a French economics commentator, told NPR, “our social system in France alone has accumulated more than 100 billion euros in debt, and it just isn’t viable anymore. Today it survives thanks to one thing: France’s AAA credit rating and our ability to keep borrowing to pay for the social programs.”
With legislation in the U.S. pushing the country closer to the European model, sharper increases in debt seem inevitable. Once new entitlements are put in place, it becomes harder to scale them back.
NPR reports on the hundreds of thousands who protested in France over President Nicolas Sarkozy’s proposal to raise the retirement age by just two years - from 60 to 62. Yet regardless of how much people protest, there are budget shortfalls, which will have to be paid.
Here, state governments are learning the hard way about excessive debt. Illinois recently had to sell $900 million in taxable municipal bonds, even as it stops paying workers, social services and hospitals.
One thing that indebted governments won’t do - whether local, state or national - is stop paying the interest on their bonds. It might seem callous to cut off benefits and payments to public institutions, but if bondholders decide that the debt is too risky, the credit markets could seize up entirely.
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