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EU leaders must face a welfare state crisis

by Guy Sorman

PARIS — In the Western part of Europe — the part that former U.S. Secretary of Defense Donald Rumsfeld maliciously labeled “Old Europe” — almost every government is in deep political trouble.

The United Kingdom’s new coalition government may be the exception — for now. In the European Union’s big member states, the popularity ratings of leaders — Nicolas Sarkozy in France, Silvio Berlusconi in Italy, Angela Merkel in Germany and Jose Luis Rodriguez Zapatero in Spain — hover around 25 percent or worse.

Whether it is conservatives like Sarkozy, Christian Democrats like Merkel, rightwing populists like Berlusconi or socialists like Zapatero, political affiliation appears to make no difference. If you hold office in Europe nowadays, you are in trouble.

What has gone so wrong?

Two years ago, when shock waves from the collapse of the U.S. housing bubble crashed onto European shores, these political leaders reacted with apparent vigor, making themselves rather popular for a while. Paradoxically, the early stages of the financial crisis appeared to favor conservative and pro-market leaders — who seemed to be in a better position to save the economy — more than socialists.

Today, this is no longer the case. Socialism is on the rise again across Europe, at least in opinion polls. And rightwing populism has become an electoral force to be reckoned with in France, Belgium and the Netherlands.

Economic stagnation has come to appear endless. Jobs are scarce and the future looks bleak everywhere. The Greek crisis has cast a pall over the entire eurozone. The common currency is now looked at with suspicion. On the fringes of public opinion, some people are even muttering suggestions that their countries should revert to their ancient national currencies — which would only bring disaster as EU countries are indebted in euros. To quit the eurozone would only increase indebtedness.

What makes this desolate economic landscape even gloomier is the striking inability of European leaders to explain what has happened and is happening to their citizens. Europe’s leaders have no vision on which to draw.

Consider the euro: No head of state or government has so far been able to present a coherent defense of the eurozone to counter the pervasive unease that now exists toward the common currency.

Or public spending: All European leaders adamantly want to reduce government spending. But these same leaders, including that supposedly stern mistress of the budget, Angela Merkel, were arguing less than two years ago that public spending would provide a “Keynesian” way out of the crisis.

Why such a turnaround?

The European public has discovered that the 2008-2009 fiscal stimulus programs, which were aimed at forestalling an even greater crisis, generated more debts than jobs. Politicians, however, hate to confess past errors and can’t seem to explain their new rationale for the spending cuts.

Europe’s leaders make things worse when they prove unable to connect isolated “reforms” — say, a lower public deficit — with any comprehensive vision of the economy. A good example is Sarkozy’s effort to raise France’s retirement age from 60 to 62. Trade unions are up in arms. Most people just do not understand how an older retirement age is linked to the crisis.

The truth that politicians are reluctant to admit is that Western Europe’s current morass is distinct from the global U.S.-made downturn. Old Europe has entered into a severe and intractable crisis of the welfare state as ordinary Europeans have come to know it.

The generous retirement pensions, unemployment compensation, health coverage and all kinds of social programs that make Western Europe a comfortable place to live were established when Europe’s economy and population were growing fast. Now, after one generation of economic and demographic stagnation, the welfare state can be financed only by issuing more public debt. Financial markets, awakened by the global crisis, will no longer support the situation in which welfare benefits have become a facade propped up by deficits.

Political leadership at such a moment demands a Churchillian accent. It needs to be explained why the euro remains the best protection there is against inflation, the most dangerous social ill of all; why government stimulus will not work and never actually has delivered sustained growth; and why a new equilibrium between welfare and economic dynamism — based on less public debt and more private investment — must be established.

Such a discourse, if clearly articulated, could be endorsed by many. At the very least, it would bring a sense of coherence to the actions of politicians, and those opposed to this search for a new European equilibrium — mostly Marxists and populists — would need to compete with a new vision of their own.

Would such an articulate vision make Europe’s leaders more popular? Maybe, and maybe not, but they would almost certainly appear more legitimate.

Guy Sorman, a French philosopher and economist, is the author of “Economics Does Not Lie.” © 2010 Project Syndicate (www.project-syndicate.org)