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October 20, 2010 / Lukasz Cerazy

Reform Europe!

A great depression has been avoided because governments injected huge amounts of money into their economies all over the world. Now that money has to be paid back to creditors, which is a process that is going to take many years. Governments are feeling the strain as the pressure on public finances has reached unsustainable levels. Greece’ troublesome and inefficient public sector was the first to crack and needed to be bailed out to the discontent of many European taxpayers. Likewise, many demonstrators went to the streets in Athens to protest against the austerity package the IMF and EU presented them with, however reforms needed to be made. When creditors became more alert and looked around, the rotten state of many country’s financial situations were all to clear. Some of them that came under particular scrutiny were: Spain, Portugal, Iceland and even the UK because of their big deficits and debt burdens. Fortunately speculative attacks were avoided on these country’s currencies and capital markets kept their composure.

Demonstration during the Greek Financial Crisis

Something different is happening in France at the moment, however, its timing has also been accelerated by the global financial crisis. Police and labour unions say France is currently experiencing the biggest strike actions the country has ever seen. Demonstrators are protesting against pension reforms, which are to set the minimum retirement age up from 60 to 62. This is despite the French being recipients of some of the most generous schemes in Europe and having an average labour market exit age more than 2 years prior to the European average. According to Eurostat statistics, France had the earliest exit age of any European country of the sample in 2008. The same sample also shows that individuals over 65 years of age were in the top 3 when it came to retaining their level of incomes. France seems to be reluctant to give up on any of their worker protections, while the police have been given permission to use special interventions against the protesters blocking fuel depots. With scenes resembling civil disorder the problems of a superabundant public system will not go away.

Protest against pension reforms in France 2010

 

All these cases exhibit different symptoms, but are caused by the same disease: unsustainable public finances. Greece was simply not fit to join the EURO and it also failed to reform its huge deficit and public debt. France is far behind in reforming pension schemes to match an European average, all the while the proportion of individuals in the Euro Area over 65 years of age has grown from 10% in 1960 to 18% in 2008. Reforms are not only necessary but also make sense if Europe is interested in retaining its welfare state. The challenge, however, is far from easy and poses serious dangers to compromise the recovery and social equality. The UK government has just presented its spending cuts to reduce its public debt. According to many observers they appear more severe then expected, which shows how serious some governments are with fiscal stability. Protests are already planned in London against what appears to be a 500.000 cut in public jobs over the next 4 years and a reduction of all main departments by a third.

More demonstrations are planned in London

 

Much of Europe shares the same fate of a painful transformation to a modern welfare state. Reforms are necessary across Europe however the complex composition of the European states means that local governments should target different areas; however, in an integrated and globalised economy it should be a collective effort towards a common goal. The urgency of reforms also varies, but one place where the EU and government should hear alarm bells ringing is Italy. This country has an enormous debt, an obsolete labour market policy and seriously violates the growth and stability pact. Italy scores amongst the worst in Europe when it comes to years of schooling or training, labour market participation, exit from the labour market, unemployment benefit rates and other social securities. Italy also has a the highest proportion of individuals aged 65 and above, which is likely to cause the same problems as it is doing right now in France. Whatever governments choose to do, taxpayers should get value for their money. People would be more willing to accept these reforms if they came more gradually and not as a result of sloppy or corrupt governing or passivity. There is still a way forward for Europe, so let us seize the moment and not pass the burden onto the next generations.

Statistics: EuroStat, OECD & World Bank

by Lukasz Cerazy

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One Comment

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  1. Spriet Alexandre / Oct 20 2010 20:07

    Look how they are crazy, working 35h a week, and going on retirement at 60yo, they still saying it’s to much… BTW, i had to wait 30min to take fuel on Monday, and i was very lucky because a fuel truck just arrived! But now it’s crazy!! No fuel (4000 fuel station closed on 12000 in all the country), strikes so : 1/2 train are running, 30-50% of flight cancelled, and students are fighting with the police… I think a country like New Zeland is more appropriate for me 😉
    Nice article.

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