Forbes.com
Current Events
Paul Johnson, 10.06.03, 12:00 AM ET
Europe's Utopian Hangover
One thing history teaches, over and over again, is that there are no shortcuts. Human societies advance the hard way; there is no alternative. Communism promised Utopia on Earth. After three-quarters of a century of unparalleled sufferings, the Soviet Union collapsed in privation and misery, leaving massive Russia with an economy no bigger than tiny Holland's. We are now watching the spectacle of another experiment in hedonism, the European Union, as it learns the grim facts of life.
The EU is built on a fantasy--that men and women can do less and less work, have longer and longer holidays and retire at an earlier age, while having their income, in real terms, and their standard of living increase. And this miracle is to be brought about by the enlightened bureaucratic regulation of every aspect of life.
The EU is a French concept and is still largely run according to French ideas. And France is the archetypal EU country. If you have a regular job in France, your life is, in theory, lyrical. You work 35 hours a week. You generally get four weeks of holiday in August, plus a further three weeks throughout the year, in addition to 11 state holidays. Full medical care is provided, even in retirement. Retirement age varies, but it is now typically 55. Pensions may be two-thirds to three-quarters of a person's salary at the time of retirement.
Tarnished Image
All this is wonderful, but it is dependent, even in theory, on the European Union's expanding continuously, its economy running at full throttle, its productivity steadily increasing and a profound peace cocooning the world in a nest of luxurious tranquility. But in the real world, things are different. The EU has discovered, since the autumn of 2001, that it has little ability to determine events because its armed forces are small, underfunded, obsolete and ill-trained. Apart from making trouble at the UN, France and Germany--those two former military giants that once made the world tremble--have been mere spectators. Now France, followed by a still more reluctant Germany, is being obliged to take defense seriously for the first time in many years, thus upsetting all its budget calculations.
France received a shock this summer, when more than 10,000 of its elderly citizens died in distress during a heat wave--some while supposedly under medical care in hospitals. Thanks to the 35-hour workweek and the long August holiday, these institutions were short-staffed. The families of those who died were on holiday, too.
Yet another shock--and at the same time--the French government discovered that its unemployment-benefit plan for part-time workers in the entertainment industry, though generous, was underfunded and in danger of imminent collapse. The government suddenly decided to cut the benefits radically. As a result, the workers went on strike, and virtually all the great cultural festivals that are the pride of France's tourist industry had to be canceled.
Reality Bites
These are all symptoms of a painful disease, a continental depression born of the realization that EU prosperity is a house built upon sand. While the American economy is picking up, the EU's remains in stagnation, bordering on recession. The 35-hour workweek is splendid, provided you have a job. But what of the growing millions who are out of work and whose social security payments are now threatened with reduction or cut-off dates? Unemployment, already high, is rising in France and Germany.
In virtually every industry there are plans to shrink the work force. People have become too expensive, especially in France and Germany, where social security payments cost an employer almost as much as wages. In a desperate attempt to get its economy moving, France is set to cut income taxes, though this will raise its deficit to a level strictly forbidden by the rules governing the common European currency (the euro). France thus risks having enormous fines levied against it or, more likely, a collapse in confidence in the euro.
The truth is that the EU has been living beyond its means, and its bills are coming due. The biggest bill of all--the cost of generous state pensions, which in most EU countries are underfunded--is looming. It's true that most advanced countries are having difficulties meeting pensions because people are living longer and work forces are expanding more slowly (or not at all). Britain is running into a pension crisis. Most of those who banked on a healthy private pension for their old age are going to be disappointed, partly because returns on investments are so low and partly because the Labour finance minister, Gordon Brown, has been raiding the till by abolishing tax-free pension dividends. This is the issue that will lose Tony Blair the next election, as the pain of Labour's "pension raid" is felt. But at least Britain has a properly funded public pension plan. And the British economy is moving forward, perhaps not as fast as America's, but at a healthy and accelerating rate.
The omens for continental Europe, however, are sinister. The entire plan for perpetual improvement upon which the EU depends is based on continuous economic expansion. There is no provision for stagnation. As we see in Japan, once stagnation sets in, it can last many years. Americans should count their blessings, above all the supreme blessing of having an economy that is run by businessmen not bureaucrats, or that--under wise governance--runs itself.
Paul Johnson, eminent British historian and author.
