Europeans Fear Crisis Threatens Liberal Benefits

[Danno 1,228]

This just in from the NEW YORK TIMES.

May 22, 2010

Europeans Fear Crisis Threatens Liberal Benefits

By STEVEN ERLANGER

PARIS — Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.

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.

In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. “They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions,” he said. “As for us, the way things are going we’ll have to work until we’re 70.”

In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply pessimistic about his pension. “It’s going to go belly-up because no one will be around to fill the pension coffers,” he said. “It’s not just me; this country has no future.”

Changes have now become urgent. Europe’s population is aging quickly as birthrates decline. Unemployment has risen as traditional industries have shifted to Asia. And the region lacks competitiveness in world markets.

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.

“The easy days are over for countries like Greece, Portugal and Spain, but for us, too,” said Laurent Cohen-Tanugi, a French lawyer who did a study of Europe in the global economy for the French government. “A lot of Europeans would not like the issue cast in these terms, but that is the storm we’re facing. We can no longer afford the old social model, and there is a real need for structural reform.”

In Paris, Malka Braniste, 88, lives on the pension of her deceased husband. “I’m worried for the next generations,” she said at lunch with her daughter-in-law, Dominique Alcan, 49. “People who don’t put money aside won’t get anything.”

Ms. Alcan expects to have to work longer as a traveling saleswoman. “But I’m afraid I’ll never reach the same level of comfort,” she said. “I won’t be able to do my job at 63; being a saleswoman requires a lot of energy.”

Gustave Brun d’Arre, 18, is still in high school. “The only thing we’re told is that we will have to pay for the others,” he said, sipping a beer at a cafe. The waiter interrupted, discussing plans to alter the French pension system. “It will be a mess,” the waiter said. “We’ll have to work harder and longer in our jobs.”

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.

The challenge is particularly daunting in France, which has done less to reduce the state’s obligations than some of its neighbors. In Sweden and Switzerland, 7 of 10 people work past 50. In France, only half do. The legal retirement age in France is 60, while Germany recently raised it to 67 for those born after 1963.

With the retirement of the baby boomers, the number of pensioners will rise 47 percent in France between now and 2050, while the number under 60 will remain stagnant. The French call it “du baby boom au papy boom,” and the costs, if unchanged, are unsustainable. The French state pension system today is running a deficit of 11 billion euros, or about $13.8 billion; by 2050, it will be 103 billion euros, or $129.5 billion, about 2.6 percent of projected economic output.

President Nicolas Sarkozy has vowed to pass major pension reform this year. There have been two contentious overhauls, in 2003 and 2008; the government, afraid to lower pensions, wants to increase taxes on high salaries and increase the years of work.

But the unions are unhappy, and the Socialist Party opposes raising the retirement age. Polls show that while most French see a pension overhaul as necessary, up to 60 percent say working past 60 is not the answer.

Jean-François Copé, the parliamentary leader for Mr. Sarkozy’s center-right party, says that change is painful, but necessary. “The point is to preserve our model and keep it,” he said. “We need to get rid of bad habits. The Germans did it, and we can do the same.”

More broadly, many across Europe say the Continent will have to adapt to fiscal and demographic change, because social peace depends on it. “Europe won’t work without that,” said Joschka Fischer, the former German foreign minister, referring to the state’s protective role. “In Europe we have nationalism and racism in a politicized manner, and those parties would have exploited grievances if not for our welfare state,” he said. “It’s a matter of national security, of our democracy.”

France will ultimately have to follow Sweden and Germany in raising the pension age, he argues. “This will have to be harmonized, Europeanized, or it won’t work — you can’t have a pension at 67 here and 55 in Greece,” Mr. Fischer said.

The problems are even more acute in the “new democracies” of the euro zone — Greece, Portugal and Spain — that embraced European democratic ideals and that Europe embraced for political reasons in the postwar era, perhaps before their economies were ready. They have built lavish state systems on the back of the euro, but now must change.

Under threat of default, Greece has frozen pensions for three years and drafted a bill to raise the legal retirement age to 65. Greece froze public-sector pay and trimmed benefits for state employees, including a bonus two months of salary. Portugal has cut 5 percent from the salaries of senior public employees and politicians and increased taxes, while canceling big projects; Spain is cutting civil service salaries by 5 percent and freezing pay in 2011 while also chopping public projects.

But all three need to do more to bolster their competitiveness and growth, mostly by changing deeply inflexible employment rules, which can make it prohibitively expensive to hire or fire staff members, keeping unemployment high.

Jean-Claude Meunier is 68, a retired French Navy official and headhunter, who plays bridge to “train my memory and avoid Alzheimer’s.” His main worry is pension. “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.”

In Athens, Mr. Iordanidis, the graduate who makes 800 euros a month in a bookstore, said he saw one possible upside. “It could be a chance to overhaul the whole rancid system,” he said, “and create a state that actually works.”

Reporting was contributed by Maïa de la Baume and Scott Sayre from Paris, Niki Kitsantonis from Athens, and Elisabetta Povoledo from Rome.

http://www.nytimes.com/2010/05/23/world/europe/23europe.html?th&emc=th

[JohnSmith2007 353]

Europeans Fear Crisis Threatens Liberal Benefits

By STEVEN ERLANGER

Published: May 22, 2010

PARIS —

Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.

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.

In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. “They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions,” he said. “As for us, the way things are going we’ll have to work until we’re 70.”

In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply pessimistic about his pension. “It’s going to go belly-up because no one will be around to fill the pension coffers,” he said. “It’s not just me; this country has no future.”

Changes have now become urgent. Europe’s population is aging quickly as birthrates decline. Unemployment has risen as traditional industries have shifted to Asia. And the region lacks competitiveness in world markets.

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.

“The easy days are over for countries like Greece, Portugal and Spain, but for us, too,” said Laurent Cohen-Tanugi, a French lawyer who did a study of Europe in the global economy for the French government. “A lot of Europeans would not like the issue cast in these terms, but that is the storm we’re facing. We can no longer afford the old social model, and there is a real need for structural reform.”

In Paris, Malka Braniste, 88, lives on the pension of her deceased husband. “I’m worried for the next generations,” she said at lunch with her daughter-in-law, Dominique Alcan, 49. “People who don’t put money aside won’t get anything.”

Ms. Alcan expects to have to work longer as a traveling saleswoman. “But I’m afraid I’ll never reach the same level of comfort,” she said. “I won’t be able to do my job at 63; being a saleswoman requires a lot of energy.”

Gustave Brun d’Arre, 18, is still in high school. “The only thing we’re told is that we will have to pay for the others,” he said, sipping a beer at a cafe. The waiter interrupted, discussing plans to alter the French pension system. “It will be a mess,” the waiter said. “We’ll have to work harder and longer in our jobs.”

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.

The challenge is particularly daunting in France, which has done less to reduce the state’s obligations than some of its neighbors. In Sweden and Switzerland, 7 of 10 people work past 50. In France, only half do. The legal retirement age in France is 60, while Germany recently raised it to 67 for those born after 1963.

With the retirement of the baby boomers, the number of pensioners will rise 47 percent in France between now and 2050, while the number under 60 will remain stagnant. The French call it “du baby boom au papy boom,” and the costs, if unchanged, are unsustainable. The French state pension system today is running a deficit of 11 billion euros, or about $13.8 billion; by 2050, it will be 103 billion euros, or $129.5 billion, about 2.6 percent of projected economic output.

President Nicolas Sarkozy has vowed to pass major pension reform this year. There have been two contentious overhauls, in 2003 and 2008; the government, afraid to lower pensions, wants to increase taxes on high salaries and increase the years of work.

But the unions are unhappy, and the Socialist Party opposes raising the retirement age. Polls show that while most French see a pension overhaul as necessary, up to 60 percent say working past 60 is not the answer.

Jean-François Copé, the parliamentary leader for Mr. Sarkozy’s center-right party, says that change is painful, but necessary. “The point is to preserve our model and keep it,” he said. “We need to get rid of bad habits. The Germans did it, and we can do the same.”

More broadly, many across Europe say the Continent will have to adapt to fiscal and demographic change, because social peace depends on it. “Europe won’t work without that,” said Joschka Fischer, the former German foreign minister, referring to the state’s protective role. “In Europe we have nationalism and racism in a politicized manner, and those parties would have exploited grievances if not for our welfare state,” he said. “It’s a matter of national security, of our democracy.”

France will ultimately have to follow Sweden and Germany in raising the pension age, he argues. “This will have to be harmonized, Europeanized, or it won’t work — you can’t have a pension at 67 here and 55 in Greece,” Mr. Fischer said.

The problems are even more acute in the “new democracies” of the euro zone — Greece, Portugal and Spain — that embraced European democratic ideals and that Europe embraced for political reasons in the postwar era, perhaps before their economies were ready. They have built lavish state systems on the back of the euro, but now must change.

Under threat of default, Greece has frozen pensions for three years and drafted a bill to raise the legal retirement age to 65. Greece froze public-sector pay and trimmed benefits for state employees, including a bonus two months of salary. Portugal has cut 5 percent from the salaries of senior public employees and politicians and increased taxes, while canceling big projects; Spain is cutting civil service salaries by 5 percent and freezing pay in 2011 while also chopping public projects.

But all three need to do more to bolster their competitiveness and growth, mostly by changing deeply inflexible employment rules, which can make it prohibitively expensive to hire or fire staff members, keeping unemployment high.

Jean-Claude Meunier is 68, a retired French Navy official and headhunter, who plays bridge to “train my memory and avoid Alzheimer’s.” His main worry is pension. “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.”

In Athens, Mr. Iordanidis, the graduate who makes 800 euros a month in a bookstore, said he saw one possible upside. “It could be a chance to overhaul the whole rancid system,” he said, “and create a state that actually works.”

http://www.nytimes.com/2010/05/23/world/europe/23europe.html?hp

[JohnSmith2007 353]

Looks like Danno beat me to it. Different title got me.

[Otto 83]

**Duplicate Topics Merged

[Hilarious Clinton 452]

All is well. I heard Obama has authorized an emergency shipment of printing presses.

[Danno 1,228]

Looks like Danno beat me to it. Different title got me.

Yeah, my topic name gave it the Danno Spin.

BUt the substance of the piece is quit good.

Looks like Danno beat me to it. Different title got me.

Yeah, my topic name gave it the Danno Spin.

BUt the substance of the piece is quit good.

[DEDixon 39]

using greece as an example, i wonder how liberals can ask gov't for more. i wonder when they would ever say enough is enough. unfortunately, spending is why i'm a repub and i've noticed over many yeears repubs spend as much as the dems, however it is a different kind of spending (different priorities). what really gets me is that both parties are huge spenders when in power. the repubs hate spending when the dems are in power. repubs have a no spend reputation, but they get it from when the dems are in power. once repubs are in power, they are busy buying votes just like the dems. only difference between the two parties is that the dems are willing to spend no matter who is in power.

i'm still a repub, but i'm feeling super uncomfortable as a repub. i feel both parties are selling out and that makes me feel kind of down when i think too much about it.

repubs want to spend without raising taxes which to me is stupid. if they don't want to raise taxes then they should stop spending.

[Gary and Alla 3,694]

So why would we want our future in the same hands?

Funny how what people in socialist societies fear most is INdependence

[ready4ONE 5,400]

Everyone knows shopping lists are the best way to save money!

[Heracles 417]

Danno why don't you use AUS or Canada as an example? The tea-party seems to ignore both of these countries success and social benefits.

Actually, last time I checked, AUS provides greater benefits than a majority of European countries. Not to mention, for eight straight years prior to 2009, the federal government in AUS, had a budget surplus.

Edited May 24, 2010 by Booyah!

[Texanadian 10]

Danno why don't you use AUS or Canada as an example? The tea-party seems to ignore both of these countries success and social benefits.

Actually, last time I checked, AUS provides greater benefits than a majority of European countries. Not to mention, for eight straight years prior to 2009, the federal government in AUS, had a budget surplus.

Can't speak for Australia, but Canada has a larger localized government and a smaller federal government. Canadian provinces have larger budgets and taxes compared to US states. Gas taxes are funded by the provinces to a larger degree than US states do. At the same time, national gas taxes in the US are spent on roads to a much higher percentage than in Canada. Health care is run by the provinces instead of the federal government. Even minimum wage is a provincial law (there is no national min wage in Canada).

The above shows why Canada looks great on paper when only looking at federal spending and benefits.

I don't know any Canadians who object to the idea of working past age 60. And Canadians by and large object to lavish public pension plans, ridiculously low requirements for government pensions, and there is no way you could pass Euro style tax rates on the Canadian population. Consider that after passing the GST, the conservatives went from the ruling party to losing every seat in Canada except for two. And that was for a 7% tax. Europe with their 20% VAT's is a whole different level. Canada's top federal income tax bracket is 29%. The provincial brackets vary, but count on the top brackets being about half as much.

I can't be the only one that saw that Greece cut it's public sector bonuses of 2 months pay! Sheesh. How many people where you live get a 16% annual bonus?

I disagree on harmonizing or Europeanizing the retirement age. People vote with their feet and move to where life is best. Germany may have a higher retirement age. But it also has the economy and stability that some of it's neighbours don't have. Not getting dinged for every penny you earn to support "somebody else" is also a benefit to Germany. This rewards hard work and doing all you can to get ahead. In societies like this, everybody benefits. In welfare state areas where not working is rewarded, the result is less work. Nobody benefits from this.

Edited May 24, 2010 by Texanadian

[Danno 1,228]

using greece as an example, i wonder how liberals can ask gov't for more. i wonder when they would ever say enough is enough. unfortunately, spending is why i'm a repub and i've noticed over many yeears repubs spend as much as the dems, however it is a different kind of spending (different priorities). what really gets me is that both parties are huge spenders when in power. the repubs hate spending when the dems are in power. repubs have a no spend reputation, but they get it from when the dems are in power. once repubs are in power, they are busy buying votes just like the dems. only difference between the two parties is that the dems are willing to spend no matter who is in power.

i'm still a repub, but i'm feeling super uncomfortable as a repub. i feel both parties are selling out and that makes me feel kind of down when i think too much about it.

repubs want to spend without raising taxes which to me is stupid. if they don't want to raise taxes then they should stop spending.

Lets never forget (or we fail to understand).. with Libs, there is only one question; IS THERE A NEED.

How to pay for it... or - if addressing the need is the role of Government is hardly a consideration, in fact it is irrelevant.

Thats why, no matter what one does to create his own problem, the Gov ignores this and ask "Does he have a need", then that need is provided for.

[Danno 1,228]

Danno why don't you use AUS or Canada as an example? The tea-party seems to ignore both of these countries success and social benefits.

Actually, last time I checked, AUS provides greater benefits than a majority of European countries. Not to mention, for eight straight years prior to 2009, the federal government in AUS, had a budget surplus.

You do realize,,,, everyone on the Log-Flume ride gets soaked?

You're not at that point yet ....in fact you are at the point everyone enjoys... but it's coming.

[luckytxn 2,263]

Don't worry they will just soak the rich even more and tax their productivity more and thus make themselves even less competitive. The U.S. is right behind them so we will be just a tad more competitive because they had such a head start. But again with Obama the Socialist we may catch up and surpass them and become so uncompetitive that they can rise form the ashes.

[mawilson 2,133]

Can't speak for Australia, but Canada has a larger localized government and a smaller federal government. Canadian provinces have larger budgets and taxes compared to US states. Gas taxes are funded by the provinces to a larger degree than US states do. At the same time, national gas taxes in the US are spent on roads to a much higher percentage than in Canada. Health care is run by the provinces instead of the federal government. Even minimum wage is a provincial law (there is no national min wage in Canada).

That's the way to go.