Tuesday, February 16, 2010

The Euro and the European Welfare State

The crisis in Europe over Greek debt problems is only the beginning of the end for the European welfare state myth. The myth is that the welfare state "works" in Europe. The truth is that the coming demographics spell doom for the European welfare state. Greece is simply the opening salvo in what is to come.

The "pay as you go" nature of European welfare funding depends upon a growing population and strong and vibrant economies. Europe has neither. Basically, "pay as you go" is a ponzi scheme. Benefits are provided today to folks who have not paid for them. Instead, you kick the can down the road on payment to the next generation of citizens. That is what it means to run big deficits to finance current profligacy. Europe and the US are poster children for this fiscal insanity.

If Germany and France agree to a bailout of Greece, Spain, Portugal, and Italy (and there will be others), then Germany and France will become the future countries in need of a bailout. Who will bailout Germany and France? Good question.

For many years, there has been a naive belief in the European myth: that somehow you can provide huge benefits -- medical, retirement, unemployment, education -- without any of the beneficiaries paying for the benefits. It is complete nonsense. If there are no squirrels setting aside acorns during the summer and fall, then there will be no acorns to consume in the winter. It is wintertime in Europe.

Only dismantling the welfare state will solve Greece's problems and Europe's problems. The same is true for the US.

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