The Future of the European Model

The European model of social welfare has long been accused of being unsustainable. The related but often ignored phenomena of low birth rates and aging populations have led analysts to wonder how an ever smaller proportion of workers could continue to pay for an increasing population of elderly dependents. With Europe in the throes of a debt and Euro crisis, it is possible that the social welfare system is now headed towards decline.

Greece is on the verge of bankruptcy. Portugal, Spain and Italy all have serious debt or liquidity problems. While a coordinated European effort seems necessary to resolve these crises, the major powers seem unwilling or unable to come to an agreement on the solution. It has become so bad that there is open talk of a possible disintegration of the Eurozone.

Before analyzing the current situation, however, it is important to look at the prospects of the “European model” before the world economy collapsed. At the dawn of the new millennium it was estimated that Europe had two working aged people for every retired one. Due to low birth rates and subsequent population loss, it was projected that sometime before mid-century there would be one working aged person for every two retired people. It doesn’t take advanced mathematics to see the problem that these projections would cause for the social safety net.

There were three obvious solutions to this problem: Europe could increase its birth rate; it could accept a large influx of new immigrants over time; or it could cut back government benefits and thus reduce the size of the welfare state.

Despite the efforts of some European governments to promote larger families, birth rates have not reached the replacement rate of around 2.1 children per woman. Even before the economic collapse, the prospects of Europe opening its borders to widespread immigration seemed remote. In recent years, the increase in popularity of right wing populist and anti-immigrant parties throughout Europe makes it far less likely that immigration will be an acceptable solution.

Now we have arrived full circle. The current economic crises have led to a consensus in Europe that austerity measures, in addition to bailouts, are necessary to fix economies on the verge of collapse. The question is to what extent these austerity measures will lead to decreased benefits from Europe’s famously generous social welfare systems.

The crises have already forced reforms that would have been near impossible in happier times. In France, the retirement age was increased from 60 to 62 in 2010. Germany has increased the retirement age to 67 and has publicly told France to do the same.

These reforms are just the beginning. Europe is now stuck in a stalemate over how to permanently resolve Greece’s financial problems and ward off the potential catastrophes of government defaults and the disintegration of the Eurozone.

Core countries like Germany argue that further austerity is necessary to offset any new bailout funds. Periphery countries argue that austerity is making a bad situation much worse.

Whatever is done at this point, the best case scenario is probably another mild recession in Europe. The worst case scenario could see the Euro fail and the world thrust back into the economic doldrums. Even in the best case scenario, it is hard to imagine Europe’s social welfare systems ever being the same.

Cuts need to come from somewhere. Europe already spends next to nothing on defense, making the possible cuts there relatively minor. In addition, the US military is shifting its focus, and likely its forces, to the pacific. This can only mean more European responsibility and possibly expenditure for European security.

Unless major changes are made, Europe in the near future is likely to be old and feeble; the people, and the continent. It will be interesting to see how much of the social welfare system will be there to care for it.