Paris: Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.
Cloud over future: Elderly people at the Jardin du Luxembourg park in Paris. The number of pensioners will rise 47% in France between now and 2050, while the number under 60 will remain stagnant. Antoine Antoniol / Bloomberg
Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.
Europeans have benefited from low military spending, protected by the North Atlantic Treaty Organization and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.
But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing climbing deficits, with more bad news ahead.
With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing working hours and reducing health benefits and pensions.
“We’re now in rescue mode,” said Carl Bildt, the Swedish foreign minister and a former prime minister. “But we need to transition to the reform mode very soon. The ‘reform deficit’ is the real problem,” he said, pointing to the need for structural change.
The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable.
In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. “They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions,” he said. “As for us, the way things are going we’ll have to work until we’re 70.”
In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply pessimistic about his pension. “It’s going to go belly-up because no one will be around to fill the pension coffers,” he said. “It’s not just me—this country has no future.”
Changes that would have been required in any case have now become urgent. Europe’s population is aging quickly as birthrates decline. Unemployment has risen as traditional industries have shifted to Asia. And the region generally lacks competitiveness in world markets.
According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1.
“The easy days are over for countries like Greece, Portugal and Spain, but for us, too,” said Laurent Cohen-Tanugi, a French lawyer who did a study of Europe in the global economy for the French government. “A lot of Europeans would not like the issue cast in these terms, but that is the storm we’re facing. We can no longer afford the old social model.”
In Paris, Malka Braniste, 88, lives on the pension of her deceased husband, who sold household linens. “I’m worried for the next generations,” she said, having lunch with her daughter-in-law, Dominique Alcan. “People who don’t put money aside won’t get anything.”
Alcan, 49, is a travelling saleswoman. “I’ll have to work longer,” she said. “But I’m afraid I’ll never reach the same level of comfort. I won’t be able to do my job at 63; being a saleswoman requires a lot of energy.”
Gustave Brun d’Arre, 18, is still in high school. “The only thing we’re told is that we will have to pay for the others,” he said, sipping a beer at a cafe. The waiter interrupted, discussing plans to alter the French pension system. “It will be a mess,” the waiter said. “We’ll have to work harder and longer in our jobs.”
Figures show the severity of the problem. Gross public social expenditures across the European Union increased from 16% of gross domestic product in 1980 to 21% in 2005, compared with 15.9% in the US. In France, the current figure is 31%, the highest in Europe, with state pensions representing more than 44% of the total and health care, 30%.
The challenge is particularly daunting in France, which has done less to reduce the state’s obligations than some of its neighbours. In Sweden and Switzerland, seven of 10 people work past the age of 50. In France, only half do. The legal retirement age in France is 60, while Germany recently raised the age to 67 from 65 for those born after 1963.
With the retirement of the baby boomers, the number of pensioners will rise 47% in France between now and 2050, while the number under 60 will remain stagnant. The French call it “du baby boom au papy boom,” and the costs, if unchanged, are unsustainable. The French state pension system today is running a deficit of €11 billion, or about $13.8 billion; by 2050, it will be €103 billion, or $129.5 billion, about 2.6% of projected economic output.
President Nicolas Sarkozy has vowed to pass major pension reform this year. There have been two contentious overhauls, in 2003 and 2008; the government, afraid to lower pensions, wants to increase taxes on high salaries and increase the years of work.
But the unions are unhappy, the Socialist Party opposes raising the retirement age and polls show that while most French think a pension overhaul is necessary, up to 60% think working past 60 is not the answer.
Jean-Francois Cope is the parliamentary leader for Sarkozy’s centre-right party, and he says that change is painful, but necessary. “The point is to preserve our model and keep it,” he said, while acknowledging that the word “austerity” has become politically sensitive. “We need to get rid of bad habits. The Germans did it, and we can do the same.”
Jean-Claude Meunier is 68, a retired French Navy official and headhunter, who plays bridge three times a week to “train my memory and avoid Alzheimer’s.” His main worry is pensions. “For years, our political leaders acted with very little courage,” he said. “Pensions represent the failure of the leaders and the failure of the system.”
In Athens, Iordanidis, the economics graduate who makes €800 a month in a bookstore, said he saw one possible upside. “It could be a chance to overhaul the whole rancid system,” he said, “and create a state that actually works.”
© 2010/THE NEW YORK TIMES
Maïa de la Baume and Scott Sayre from Paris, Niki Kitsantonis from Athens, and Elisabetta Povoledo from Rome contributed to this story.