The Coming End of the European Welfare State and What It Means for America

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The Coming End of the European Welfare State and What It Means for America

When the Maastricht Treaty created the European Currency Union in 1992, many observers expected it to propel Europe to a preeminent position in the 21st century. Its architect believed that creating a common currency and a master central bank would lead the way toward European countries giving up national sovereignty and uniting under the rule of faceless bureaucrats. The goal was to become as strong as the U.S., but with a progressive central government.

As implemented, the “eurozone,” which is essentially the European Union minus the UK, is the world’s largest economy, with the United States in second place and both China and Japan lagging well behind. However, the euro did not create a “United States of Europe.” Each country maintained its own industrial policy, welfare system, and national character. Rather than developing into a powerhouse, this union has led to a socialist empire that is swiftly collapsing. Notably, the weak central government has been ineffective in avoiding the decline.

The collapse is being driven by two factors in addition to ineffective responses:

  1. First, as reported in previous Trends issues, a demographic hurricane is battering Europe. In fact, the continent is losing 700,000 people each year, and will lose 3 million more each year by 2050.1 This population implosion flies in the face of a widely held fear that a harmful population explosion is looming. This once-a-millennium phenomenon is a major factor behind the European crisis.
  2. A closely related factor is that older citizens are making up a larger and larger share of that dwindling population. A report by the U.S. State Department and the National Institute on Aging reveals that there are nearly 500 million people around the world who are aged 65 and older. By 2030, the number is expected to double to 1 billion, or 1 in 8 people.

Combined, these two factors mean there are already fewer workers in the prime productive age to pay taxes and a growing segment that requires care. The result is enormous and growing stress on economies, particularly ones in countries that require favorable economics and demographics to sustain their welfare states.

In Italy, for example, 18 percent of the population was over 65 in the year 2000. In 2010, that number had risen to 21 percent, and some experts predict it will increase to 34 percent by 2050. The proportion of the population over 65 closely mirrors Italy’s numbers for most of the European Union’s 27 countries.

A report issued in 2006 by the European Commission made an even more dire prediction.2 It suggested the ratio of working-age European citizens to elderly citizens will be down to 2-to-1 by 2050...

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