Wednesday, March 07, 2007

Bills Also Come Due

For the last several decades, Europeans have prided themselves on their lavish social welfare states, which allowed them to escape the rough and tumble of "greedy capitalism" for greater income equality, and government paid-for health, retirement and living benefits. Of course, governments do not produce wealth, they skim money from actual wealth producers - businesses and individuals. (The record of state-run business enterprises is, well, extremely dismal ... as Venezuelans, Bolivians and Equadorians are about to learn yet again.) In order to pay for all those wonderful "free" benefits the government hands out, someone has to be taxed. But now the bills are looming large. While the Europeans were enjoying their welfare states, they stopped having enough babies to keep them going. European governments recognized the long term problem decades ago and started importing more fertile foreigners from the Middle East to keep the numbers up. But that didn't work out too well (a minor inconvenience called Islamic terrorism). Now younger Europeans, who are vastly outnumbered by aging baby boomers, see the handwriting of fiscal insolvency and crushing taxes on the wall. Not surprisingly, they don't much like it.

Young adults in France, like their contemporaries across Europe, face a slew of problems never experienced by their middle-aged leaders. Consider: a 30-year-old Frenchman earned 15 percent less than a 50-year-old in 1975; now he earns 40 percent less. Over the same period, the number of graduates unemployed two years after college has risen from 6 percent to 25 percent, even if they typically have better degrees. Thirty-year-olds in 2001 were saving 9 percent of their incomes, down from 18 percent just six years before. Young people who snag stable jobs, gain access to credit and buy homes later in life are particularly angry that the older generations continue to rack up public debts for which they will get the bill. And they are very skeptical of the pledges of boomer-generation politicians. "If all this were financially possible, it would have been done long ago," says Clément Pitton, the 23-year-old leader of Impulsion Concorde, which recently circulated a petition declaring "We will not pay your debt."

Pitton's sentiments are increasingly shared by the children of Europe's baby boomers, a generation sometimes called the baby losers. Not only will they be forced to pick up the tab for a welfare system that offers far more to the elderly than to the young, but they will be forced to do so with less: Europe's economy remains skewed in favor of the old and its politicians have been shy about pushing painful reforms that might correct the balance. No wonder one recent poll in France showed that only 5 percent believed young people had a better chance of succeeding than their parents. Europe, it seems, is increasingly split—not along class or racial lines, but between its young and its old.

Europe's political class can run the numbers as well as anyone. They know the inevitability the financial crisis, but they also know - like their American counterparts - that telling the truth and reducing benefits is political suicide when confronted by an electorate that has grown so use to its welfare benefits that it cannot function without them. Thus, as bankruptcy looms, European pols promise more and more...

It's election time in France, and the promises are flowing fast. If you believe the candidates, young voters are in line for a fat slice of state largesse, no matter who wins the vote. On offer from Nicolas Sarkozy, the right's presidential candidate: interest-free loans for young entrepreneurs and a €300-a-month allowance for training. Not to be outbid, his rival, meanwhile, the Socialists' Ségolène Royal, has pledged more housing, €10,000 loans and guaranteed jobs or training after six months of unemployment. As Royal told a party rally last week: "As a mother, I want for all children born and raised in France what I wanted for my own children."

And despite the obvious evidence of long term economic decline all around them, Europe's youth are as entranced by the promise of a welfare checks as their parents:

Ironically, Europe's young don't seem to favor cutting their parents' benefits; they want the same treatment. Last year French youths mobbed the streets to protest a new bill that aimed to create more employment but offered less security; the proposal was defeated. Says Wanlin: "Their aspiration is to get the same protection for themselves." If the economics don't work out, that's a problem for the politicians—not the young. Indeed, even some boomers recognize the flaws in the status quo. "The worst thing," says French author and former political advisor Bernard Spitz, "would be if we lived contentedly with our debts and our early retirements, telling ourselves the young will pay, just like we told ourselves 'Germany will pay' after the Treaty of Versailles." As Europe has learned before, a bad peace only leads to more war—even between generations.

Like a narcotic, the welfare state entraps entire populations. Once it has been created, it is almost impossible to eliminate. America started down the welfare state path later than Europe, but the effects will be the same.


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