Europe is now drowning under the cost of welfare bills

Pensioners count the money in their pocket — The UK’s total spending on social protection is only slightly below the European average at 16.5pc of GDP Credit: Ian Jones

When she isn’t shipping in more Syrian refugees, or trying to find new ways to destroy the Greek economy, the German Chancellor Angela Merkel is fond of quoting an alarming statistic: Europe accounts for just 7pc of the world’s population, and 25pc of its GDP, and yet it also accounts for a massive 50pc of its welfare spending.

The point is an important one. Europe’s welfare spending is out of control, and is on a scale that is both lavish and unaffordable compared with the rest of the world. There is a problem, however. Neither she, nor any other political leader in Europe, has the will to do anything about it.

Eurostat, the statistical agency of the European Union, has this week published updated figures on the total welfare bill across Europe. It is rising, and in some countries is getting up to a quarter of national output. Meanwhile, the percentage of spending on stuff like infrastructure or education, which increase an economy’s potential output, is falling.

So long as that is true, it is very hard to see anything other than a bleak future for any of Europe’s economies.

If you dip into the blogs, there is a mildly entertaining debate about whether Merkel’s often-quoted figures are correct. On close inspection, it turns out that nations that make up the EU currently account for 7.2pc of the world’s population and a shade over a quarter of total output. When the World Bank crunched the numbers on social spending, however, it found that in fact Europe accounts for a massive 58pc of global welfare spending.

What is certainly true is that Europe’s welfare budget has turned into a juggernaut that is careering out of control.

On the World Bank data, the United States accounts for 18.8pc of global welfare spending, as you might expect from the world’s biggest economy. But Germany, around a third of its size, currently spends 12.5pc of the global total. France, a smaller country still, accounts for 9.9pc. The UK racks up close on 7pc. Contrast that with some far bigger, and faster- growing, countries. China, with 20 times our population, accounts for 2.4pc of the total. Russia accounts for 2pc and India just 0.6pc.

According to Eurostat, the total cost of welfare across the EU now amounts to 19.5pc of total GDP, compared with 17.5pc as recently as 2006. If you restrict that to the eurozone countries, the total rises to 20.5pc. In Denmark and France it is now close on 25pc.

For all that the Left complains about austerity in this country, our total spending on social protection is only slightly below the European average at 16.5pc of GDP. In controversial areas such as disability benefits, where the Government has now abandoned some modest cuts, we are in line with the EU average, spending 2.8pc of GDP. (Our welfare bill is only less than average because a fantastic performance on job creation means we spend just 0.2pc of GDP on unemployment, compared with a eurozone average of 1.8pc, and 2pc in a country such as France).

Overall, in almost every country, it is going up. With ageing populations, that is hardly likely to decrease – poverty-stricken Greece is now spending 15pc of GDP on pensions, and Italy 14pc. Europe is literally drowning under the cost of its welfare bills.

At the same time, spending on the things that might make the economy more productive is actually going down. Take infrastructure. Total spending on that across the EU has dropped to 2.7pc of GDP. The three biggest countries in the eurozone – Germany, France and Italy – have reduced their infrastructure spending by between 15pc and 20pc over the past decade.

Europe has a rich legacy of constructing buildings, bridges and transport links

That compares badly with the rest of the world. The United States is often criticised for the state of its airports and roads. But it is now spending 3.4pc of GDP on infrastructure. Japan is now spending 3.6pc. Europe spent plenty of money in the past, so there is a rich legacy of buildings, bridges and transport links. But if you don’t keep repairing those things, and don’t keep building new ones, they go into decline very quickly. Or take education. Spending on that is either stagnant or declining right across Europe. In Italy, for example, it has gone down from 4.6pc of GDP to 4.2pc since 2007. And yet all the evidence suggests higher spending on education improves the level of human capital and makes the economy more productive very quickly.

Across the EU, welfare spending is three times the total spending on the next biggest expense, healthcare, which accounts for just over 7pc of the total. At the same time, spending on things that might actually improve its long-term competitiveness is going down.

Of course, it is important to have welfare systems in place so that those in need are looked after. It is one of the hallmarks of a civilised society. No one wants to see the disabled left to fend for themselves or allow pensioners to remain in poverty. The trouble is that welfare spending is pure consumption. It does not represent any kind of investment and it doesn’t pay for itself. The money for it has to be found from the productive part of the economy, and it has to be raised somehow – the more you spend on it every year, the more you have to tax or borrow to keep the books in balance. At a certain point, it becomes a drag on the productive economy.

There are too few people producing stuff, and the levels of tax they are required too pay are too high to keep them motivated. You can debate where that point is, but a limit has to be set somewhere and at some point it has to stop rising.

Merkel gets many things wrong. But she is right about the levels of welfare spending being far too high. Until that starts to change it is hard to feel optimistic about the prospects for the European economy.

telegraph

66 Comments on "Europe is now drowning under the cost of welfare bills"

GregT on Fri, 25th Mar 2016 4:24 pm

76% of Americans are living paycheck-to-paycheck

http://money.cnn.com/2013/06/24/pf/emergency-savings/

Most Americans are one paycheck away from the street

http://www.marketwatch.com/story/most-americans-are-one-paycheck-away-from-the-street-2015-01-07

Over half of Americans have less than $1,000 saved: What this means for you

“Many American families, even those with relatively high incomes, are walking a financial tightrope,” said Erin Currier, director of Pew’s financial security and mobility project. “Many have little, if any, cushion to absorb an unexpected financial setback. It’s a precarious state that threatens not just financial security, but upward mobility.”

http://www.clarkhoward.com/over-half-of-americans-living-paycheck-to-paycheck

Davy on Fri, 25th Mar 2016 4:46 pm

Greg, is there a reason why you are so ready to criticize but get so bent out of shape when told your country has a deep cultural defect? Canadians are an insignificant little country with many citizens like you with oversized illusions of greatness. Any people who find their meaning and nationalism from being against a neighbor is a sad representation of a nation. What do you asshole Candians on this board talk about other than anti-Merikan thAngs. What a bunch of delusional losers. Get a friggen life.

Boat on Fri, 25th Mar 2016 5:01 pm

GregT,

You want to show me when that wasn’t the case? My grandfather would hitch the team and drive 5 miles to church to put a borrowed dime in the offering plate.
If you were around I am sure you would have thought his upward mobility was threatened. Lol.

GregT on Fri, 25th Mar 2016 8:23 pm

It isn’t my country Davy. Canada is ‘owned’ by the British Royal monarchy, and is set up as a Crown corporation. It’s a tax farm, no different than your tax farm, just controlled by different ‘owners’. The fact that you don’t have the slightest clue what I am talking about, speaks volumes to your indoctrination. You are way too far gone Davy to have a rational conversation with on this particular subject. You are so brainwashed that it is beyond comprehension to me.

GregT on Fri, 25th Mar 2016 8:27 pm

Boat,

You make absolutely zero sense. Do you have the slightest fucking clue what you are constantly rambling on about?

Give it a rest already.

Davy on Fri, 25th Mar 2016 8:30 pm

Greg, you are the ass that attacked first. Don’t start something and bitch because it is not over you wak.

GregT on Fri, 25th Mar 2016 8:40 pm

You’re beginning to sound like Boat, Davy. WTF does wak mean?

Boat on Fri, 25th Mar 2016 8:49 pm

wac, as in wacked out, crazy on drugs…..Idiot

GregT on Fri, 25th Mar 2016 9:00 pm

Boat,

So you and Davy do speak the same language? That does not reflect well at all, on Davy.

Bloomer on Fri, 25th Mar 2016 11:37 pm

Since Morning in America, the so called entitlements in the Western World have diminished. The age for retirement eligiblity has risen, unemployment insurance is a scam, as it’s not there if you need it. Health care is so expensive many can’t afford it. Education has been scaled back to the point that many of our youth don’t have the skills to survive on their own.

The social safety net has been dismantled. One has to be destitude to quality for welfare or disabilty. Minimum wages are so low most workers use the food bank to avoid starvation.

Trickle down economics for the vast majority of working people has been a disaster. The more the government and their corporate masters beat down the unfortunate who have fallen through the cracks, the further the global society gets sucked down the rat hole.

makati1 on Sat, 26th Mar 2016 12:53 am

Bloomer, you are describing a 3rd world country and it is America, the land of the never free. An average American has no idea what true freedom is because he has always been a slave to the government and the Federal Reserve. I have lived outside the police state for 8 years now and would never go back to live there again. It gets worse every time I visit.

My new home is here in the Ps where there is still freedom and the people still get in the streets to make changes in their government. You can start a business without government permission or permits. You can sell stuff on the street if you want to. Try that in any American city and you would be arrested and/or fined. You need to license your car, your dog, any desire to hunt or fish, or do anything that the government wants to profit from/control. And it will get worse. Much worse. Wait and see.

Davy on Sat, 26th Mar 2016 5:51 am

Greg the T puked “So you and Davy do speak the same language? That does not reflect well at all, on Davy.”

Greg, I admire some things about you. When you are not in your warped asshole frame of mind attacking people and saying nothing you have some good impute. If you look at the board this morning you have multiple personal attacks without substance. You are just being white trash Greg.

We live similar lives leaving the rat race and working on a doomstead. We both believe in the sanctity of nature and feel pain for the destruction caused by modern man. We share the same disgust at the gutting of the public good by a few for private profit. Many things we share because many of these issues are right. What I don’t like about you is your defects of character of attacking people redundantly without saying anything. This is especially true when you decide to attack me always wanting the first and last word. Your attacks are empty and biased. You attacks because you don’t like certain people. It is as if maybe you are an alcoholic. Maybe you come on the board at night juiced up and start your redundant back stabbing because of alcoholism.

The little comment battle we got in was your dumbass deciding it was time to attack me. In fact the whole BS started from a comment I made that had nothing to do with what I was accused of. You just decided it was Davy’s turn. You lost my respect because of this disposition of acting righteous but in the end being hypocritical and pathetic. Say something smart. An occasional attack is fine for board “numb-nuts” but the endless routine of personal attacks makes you look stupid and mentally lacking.

Something is wrong with your disposition. I know you got some board buddies that support you but that does not make it right. Show some maturity Greg. If you have an alcohol problem like many Canadians in the wet and rainy NW get some help. If you are going to spit in my eye I am going to spit back. This is why we can’t be friends. You want friendship on your terms. I even mention friendship because we have been on here years now and in the past given each other some good prepper support but then you slipped into your asshole mentality of attacking people who don’t see the world as you do.

GregT on Sat, 26th Mar 2016 12:05 pm

“Oh come on Greg “indoctrination and nationalistic programming” give me a break. You just don’t like what I say because I am a thorn in the anti-Merikans side. I try to balance extremism for a life I know and a life most Canadians and other anti-Merikans think they know. I despise many of you but not hate. I despise you anti-Merikans because you hate me and my country. Many things about my country deserve hate but not blanket hate. I resent being told daily and with extremism how bad everything about me is. You assholes don’t know my local and my life. This is a big country and very easy to cherry pick the worst as Ape Hole, Makati-dumb, Toronto Anonymous, and Truth is he is a liberal dumbass from Montreal do with passion and fervor.
It is amazing how Canadians find their identity through hatred for America then try to deny they hate America because it is such a shameful cultural defect. You then have the anti-Merikan Americans who want to be part of the group so they show how much they hate America. Hell, I hate plenty about American but I am not into extremism and you Greg and your board bud-spuds are extremist. Ape Hole is an extremist. He admits his Merikan hate as a badge of honor. Nearly all his post reference America negatively in some way. How is that balanced? Anyone who likes Makati shows their extremism. The guy preaches daily hate, resentment, and extremism. He revels in the idea of death of all Americans at all levels. Greg you are an intelligent guy but not objective and your credentials do not deserve your high and mighty attitude.

See the pattern Davy?

Apneaman on Sat, 26th Mar 2016 12:13 pm

Davy been watching too many superhero movies.

Apneaman on Sat, 26th Mar 2016 12:13 pm

Captain anti-Merikan

Davy on Sat, 26th Mar 2016 1:30 pm

Yea, Greg, the pattern is you start shit and continue the shit. Eventually your dumbass sidekick Ape Hole chimes in with his ignorance. This goes on every month or so because you idiots run out of people to “fuck with” so you decide to fuck with me. What a pair of losers. You see the pattern?

Europe is now drowning under the cost of welfare bills

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