June 1, 2010 | Standpoint

Welfare Despair

Northern Europeans' anger at their southern cousins may be justifiable. An already stressed yet lethargic eurozone had to absorb the full shock of Greece's public debt in the full knowledge that any measure, no matter how costly, might be too little too late. It was feared that unless a serious deal was cobbled together, the Greek contagion might spread to bigger economies such as Ireland, Portugal, Spain and possibly Italy. A sovereign default, in the heart of the EU and its ambitious single currency project, could ultimately undo both. For sound economies in central and northern Europe — primarily Germany — it looked as if the party might be spoiled by those pesky southerners, whose public-spending spree will now be reprieved by the Germans.

Meanwhile, across Europe, markets plummeted, pulverising the wealth that had patiently been accumulated after the September 2008 financial crisis. Pundits sought to dispel the confusing and frightening circumstances by blaming speculators for an assault on the currency. They denounced “greedy” bankers who resisted measures that would slash their hard-earned privileges. Greece took the lead. Its public finances are a testimony to bipartisan madness and public-spending folly — a treasure trove of tales about the welfare state gone mad. Yet, faced with the dilemma of bankruptcy or austerity, Greeks said no to both and took to the street — in a deadly carnival of strikes and violence that left three people dead and little doubt about the real culprits of what the BBC dubbed “a Greek tragedy” and Angela Merkel “a existential crisis for the euro”.

There are systemic explanations for the gravity of this crisis: the euro project became more vulnerable by the limited powers of the European Central Bank (ECB) and the fact that fiscal policies reside mainly in the hands of member states. This meant that with a currency made up of percentages of the national currencies, Greek spending sprees and German rigour would eventually cause a crash.

There are also institutional responses to this crisis which will probably further erode EU members' sovereignty. After all, the financial shield set up to save sovereign debts and the banks that owned it comes with a heavy price. The ECB has bought much of the debt to inject liquidity and restore confidence. But the aid package offered to Greece and the new rescue fund come with a dramatic price: austerity, draconian cuts in spending and an overall restructuring of public spending.

Eurosceptics will cry in horror as they see measures designed to rescue a project they never endorsed — the single currency — which in the process will place even more power in Brussels. This time, however, they should see a silver lining. For this crisis, sooner or later, means the end of the welfare state as we know it in Europe. The simple fact is that Greece's near-default shows that our way of life is unsustainable. Public debt financed a collective joyride. No wonder so many people are angry. But it's their fault: our societies took too much for granted, mistaking the welfare state for a hefty bonus rather than a social safety net.

This does not mean that certain hard-won social rights should be revoked. It means that the average European will no longer be entitled to a number of benefits and privileges. And that will be the hardest sell. Our societies have grown accustomed to buying — through cheap credit — consumer goods they thought they should have. Before long, driving a car, owning a house and going on an expensive holiday stopped being a reflection of what one earned but a result of what one could borrow, which in turn had to do with the sense of entitlement.

Simply put, we allowed ourselves to afford long holidays, short working weeks, extravagant social benefits, generous pensions and an early retirement age on top of free universal education and healthcare. Too many people came to see government handouts as entitlements rather than redistributive justice — itself a notion prone to runaway spending. Now, across Europe, for its overspent welfare services and overstaffed bureaucracies, it's crunch time.

This is what Greece means. And that is the trade-off that Europeans must accept. A more perfect union will require a further erosion of state sovereignty in the economic sphere to police fiscal rigour and spending prudence on a continental level. Efforts to delay that by national strikes, appeals to social solidarity and demonisation of corporate greed will only delay the inevitable. As the curtain comes down on the Greek tragedy, the axe must fall on the welfare state.