Saturday 21 September 2013

End of Europe's welfare state?

The Straits Times, 19 Sep 2013


Dutch must create own safety nets with less govt help: King

AMSTERDAM - Newly inaugurated King Willem-Alexander has delivered a stark message to the Dutch people in a nationally televised address: The welfare state of the 20th century is gone.

In its place a "participation society" is emerging, in which people must take responsibility for their own future and create their own social and financial safety nets, with less government help.

"The classic welfare state is slowly but surely turning into a society of participation," the King told Parliament on Tuesday. "It is asked of all those who can to take responsibility for their own life and that of those around them."

The king said the shift is especially visible in social security and long-term care, where the welfare system has resulted in arrangements that are "unsustainable in their current form".

King Willem-Alexander, who ascended the throne after his mother, former Queen Beatrix, abdicated in April, was laying out the Liberal-led government's plans for the year. The "participation society" has been on its way for some time: benefits such as unemployment compensation and subsidies on health care have been regularly pruned for the past decade. The retirement age has been also been raised to 67 years old.

Think-tank Stratfor said the Dutch king's comments were "highly symbolic". Though limited reforms have been introduced over the decades, the European elite have resisted challenging the welfare state as it is part of the social contract between Europe's rulers and the ruled.

For decades, the Europeans have enjoyed the benefits of a welfare system without questioning its costs. But the European crisis is forcing most Western European countries to face the consequences of their inability to implement reforms, said Stratfor. European governments are deciding whether to open broad debates on the fate of the continental bloc and the difficult reforms ahead, or to continue to delay them in the hope that Europe will recover from the crisis, said the think-tank, adding that the Dutch king's speech indicates that a national debate has begun in the Netherlands.

Recent polls have shown that confidence in the government is at record low levels, and that most Dutch people - along with labour unions, employers' associations and economists - believe the Cabinet's austerity policies are at least partially to blame as the economy has worsened even as recoveries are underway in Germany, France and Britain.

On Tuesday, Dutch Finance Minister Jeroen Dijsselbloem unveiled his budget in Parliament, as the trade-dependent Dutch economy is in the fourth quarter of a recession. A growth prediction of 0.5 per cent for 2014 is less than previous forecasts and unemployment is expected to climb beyond 9 per cent.

"A quick and painless solution does not exist," Mr Dijsselbloem said, referring to 6 billion euros (S$10.1 billion) in additional budget cuts for 2014. Those savings come on top of austerity measures agreed by previous governments since the financial crisis started in 2008.

The government hopes that all of the cuts agreed since then will result in overall savings of 30 billion  euros in 2014. The austerity measures will reduce Dutch households' purchasing power by 0.25 per cent in 2014, but at the same time, bring the public deficit down to 3.3 per cent of gross domestic product.

The Netherlands' Central Planning Bureau, whose predictions the government uses to draw up its budget, said in June that without the additional measures, the deficit would rise to 3.9 per cent of GDP next year. European Union rules mean that the Dutch deficit cannot be over 3 per cent of GDP. It was 4.1 per cent in 2012.

The monarchy itself was not immune to cost-cutting and the king's salary will be cut from around 825,000 euros this year to 817,000 euros in 2014.



No cutbacks, but France 'must limit growth in welfare'

PARIS - President Francois Hollande's government must limit growth in its welfare spending or risk a dangerous debt spiral that could threaten France's social fabric, the public audit office has warned.

Cherished in France as the cornerstone of an egalitarian state, the social security system is running huge deficits that are behind only Greece and Spain in Europe, the independent Cour des Comptes said in an annual report.

The social security deficit has gradually fallen from a peak in 2010, but the pace of decline is slowing and at best would only be stable this year. "It fuels a particularly abnormal and dangerous spiral of the social security debt," Cour des Comptes head Didier Migaud told journalists, adding that the debt had reached 159 billion euros (S$268.5 billion) last year.

"Balancing the accounts is more than an accounting exercise. It's a national interest which demands a considerable effort to maintain a high level of social protection in our country," he said.

The audit office estimates the social security deficit will stand this year at 17.3 billion euros, much more than the 14.3 billion euros targeted in this year's budget.

The shortfall accounts for nearly 20 per cent of the overall public-sector deficit, which the government acknowledged last week would be worse than expected this year and next year.

Rather than prescribing cutbacks, the audit office said spending growth should be slowed and savings could be made by better managing hospitals and outpatient treatment. "At every level of social spending, savings can be made without undermining our social model or taking drastic austerity measures other countries have undertaken," Mr Migaud said.

France's social security system is mostly financed by taxes on both employers and employees paid directly into an array of social security funds, rather than to the central state. Such taxes have grown more than the overall economy in recent years and the Socialist government has said there is no more scope for further hikes without hitting growth and jobs.

Facing weak tax revenues as the economy struggles to gain momentum, the government raised its public deficit targets last week to 4.1 per cent of national output this year from 3.7 per cent previously. It also lifted next year's target to 3.6 per cent, up from an initially projected 2.9 per cent.


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