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Europe loses its cool

A pampered continent protests the rollback of its lavish welfare state


 
Europe loses its cool

Charles Platiau/Reuters

Hugo Christy doesn’t have to worry about his pension for 40 years. He hasn’t even started working yet. None of this has stopped the 21-year-old student from the Institut d’Études Politiques de Paris from joining thousands of striking workers in mass protests against the French government’s pension reforms.

Rolling strikes and nationwide demonstrations against the move all but brought the country to its knees, as people from all walks of life decried the hike in the French age of retirement from 60 to 62, and the age for full state pension from 65 to 67. Last week, President Nicolas Sarkozy was forced to call in riot police, who used tear gas and batons to clear key fuel depots and get gas flowing to service stations—more than a quarter had run dry. Strikes shut Marseille’s docks, and left many of the southern port city’s sidewalks filled with rotting garbage. More than 300 high schools were blockaded, and streets from Paris to Nice were flooded with youth and workers carrying drums and bullhorns, chanting slogans, staging sit-ins, and singing the Internationale, the socialist anthem. Children as young as 10 demanded their government withdraw its reforms, suggesting either remarkable awareness, or some early instruction by their parents in the art of dissent.

“It’s a question of fairness, of social justice,” declares Christy, who studies urban planning and expects to enter the civil service when he graduates. Those who worked a tough job, like bus drivers and miners, he adds, should be allowed to retire even earlier than 60—anything less would be “unfair.” And he views benefits like five-week vacations, a 35-hour workweek and early retirement as a kind of birthright, much as Canadians might view universal public schooling. Despite numerous warnings that the country’s cushy pension scheme has become unsustainable, the majority of French citizens seem to share his view: polls suggest support for the protests tops 70 per cent, despite the fact the disruptions were costing the public treasury a half-billion euros per day.

To Denis Rivier, an electronic technician from the Loire Valley town of La Talaudière, even the slightest concession on those entitlements would be “catastrophic,” setting French workers on a path back to the Industrial Revolution. Working conditions at the factory where the 58-year-old repairs circuit boards have already “radically degraded,” he claims. Where once he worked on a flexible schedule—coming in between 7 and 9 a.m., and heading home anywhere from 4:30 to 7 p.m., so long as he put in seven hours—Rivier now has to work a set shift. “All the leeway I had to organize my work life disappeared,” he says, adding that his employer, in an apparent cost-cutting move, has removed lockers where workers once stored their lunches and pinned up family photos. “Misery,” he concludes, “is returning to the working class.”

To Canadian ears, such complaints sound absurd. Shift work during tough economic times? Better than no work at all. Retiring at 62? We wish. But Rivier’s outrage typifies a denial of economic reality among average Europeans that seems to be deepening as their governments hurtle toward the financial abyss. In the past four weeks, workers in no less than 12 European countries have staged crippling strikes or protests in response to austerity measures almost no one disputes are necessary to shore up their nations’ wobbly finances. France’s month of unrest, with the possibility of more strikes to come, has taken place despite warnings that the country’s 80 per cent debt-to-GDP ratio threatens its economic future. In Spain, where the annual deficit now stands at 11 per cent of GDP, a 24-hour general strike on Sept. 29 brought the country to a standstill, with more planned in protest of a labour reform bill tabled by Prime Minister José Luis Rodríguez Zapatero. In Italy, thousands joined a march in Rome organized by labour, while Britain faced a growing backlash to budget measures that would see nearly 500,000 civil servants axed from the public payroll: an Oct. 19 protest against the cuts at Westminster came two weeks after rail workers staged a 24-hour strike over staffing levels that shut down London’s underground. This despite a $250-billion deficit in Britain that, measured against GDP, is third worst in the world.

All of this has taken place against the backdrop of Greece’s financial catastrophe—a lesson on the dangers of fiscal procrastination if ever there was one. Two weeks ago, striking civil servants in that country shut down schools and tax offices in an aftershock from violent spring demonstrations that saw rioters in Athens tear-gassed and three people killed by a Molotov cocktail. What the bureaucrats expected to accomplish wasn’t clear. Their country is unable to borrow on the open market, while a recent crackdown on tax evasion drew as much public anger as the government’s aggressive cost-cutting program. Even if their politicians wanted to keep paying civil servants, they couldn’t find the money.

The reaction has fuelled fears that desperately needed financial reforms will run up against a sort of collective blindness—a peculiarly European belief that the cherished welfare state could defy the cold math of weak economies and aging workforces. “To us, something like raising the retirement age seems like a pragmatic step,” says Timothy Smith, a history professor at Queen’s University and author of France in Crisis, a 2004 book arguing that the French model is collapsing. “But the French have invested so much hope and energy in their social welfare system that having to give any of that up provokes this sort of reaction,” he says. That reflex is born partly of genuine egalitarianism, he says, but it also reflects a long-standing suspicion of employment as an instrument of capitalism. “In France,” says Smith, “work is seen by many people as oppressive.”

The irony, of course, is that if you have a job, there are few better places to work than Western Europe. Consider France, where, weeks after giving birth, women are offered state-paid, one-on-one, extended courses in vaginal therapy. The training, known as la rééducation périnéale après accouchement, or “perineal retraining after childbirth,” includes a personal trainer known as a kinesitherapist, along with wands and electric devices meant to strengthen muscles in the birth canal. After vaginal re-education, French women are then offered extended courses in abdominal training, aimed at flattening their tummies. The state picks up the tab for that, too.

It’s the beginning of an exhaustive, heavily subsidized set of benefits that carries through until a child reaches young adulthood—all in the name of encouraging French women to have children. The program begins with a birth or adoption bonus, a four-month paid maternity leave, plus a basic allowance. Laws allow a woman to opt not to work until her child is three, and guarantees her a full-time job on her return. At that point, the child is eligible for state-funded daycare, which runs to kindergarten, and every fall, parents receive a grant for every child they return to school, amounting to $420 for children over 11 this year. They also receive a housing benefit, tax benefits, and discounts on public transit, cultural events and shopping. In the summer, children are entitled to subsidized, full-day summer camps with activities like trips to the museum, farms and pools along with three square meals (and snacks). For some parents, daily fees for the camps start at as little as 65 cents.

Similar, if less extensive benefits prevail throughout the Continent, with each country adding its unique selection of perks. Ailing Greeks can tap a public insurance program for spa therapy, which aims to heal via “curing waters” or “aerotherapy,” which exposes patients to changes in atmospheric pressure. Pregnant Swedes are entitled to prenatal leave if they do work that can be considered physically demanding, while Germans who fall ill get domestic nurses if no one at home can provide them with attention and care.

You might think this sort of generosity would flag in a stagnant economy, but benefit-minded public officials remain emboldened. In April, the EU declared tourism to be a “human right,” meaning students, retirees and low-income earners would have their travel subsidized. Among other things, officials envisioned sending Greeks and Italians to England to tour “archaeological and industrial sites” such as shuttered mines, factories and power plants—and vice versa. The scheme was inspired by a European Parliament program that sends the children of Brussels Eurocrats to the Italian Alps on ski holidays and to summer camps in France, Malta, Germany and Brighton—all courtesy of EU taxpayers.

Then, in July, a German police officer in Münster argued successfully that he deserved an extra week’s holiday per year to make up for the time it takes him to get dressed. Martin Schauder, 44, had complained that it takes him 15 minutes to put on his regulation undershirt, pants, belt, handcuffs, weapon and gas canister, overshirt, tunic, boots, gloves and kneepads (when on riot control), and another 15 minutes at the end of the day to take it all off again. The benefit may soon be available to the entire force.

Suffice to say, this notion of fairness comes at a price, and the bills are starting to pile up (France’s family benefit schemes last year alone cost $140 billion—or five per cent of its GDP—with over 40 per cent of subsidies going to middle-class and wealthy families). To pay them, governments will need either punishing spending cuts or tax hikes that will discourage business. Growth during this painful period of “deleveraging” in Europe’s largest economies could sink as low as one per cent, a prediction that last summer prompted Jean-Claude Trichet, the president of the European Central Bank, to fret publicly about a “lost decade” for the world’s advanced economies.

What’s more, people in certain countries have shown a troubling ability to duck the harsh economic medicine. In Greece, tax evasion is thought to be costing the government some $20 billion a year, as everyone from doctors to cab drivers takes cash and understates their incomes. Athens has promised to crack down, but few on the street put stock in the brave talk. “Everyday life will go on,” says Mirisa Antonopoulou, a 24-year-old financial auditor in Athens, noting that tax evasion and cronyism were open secrets long before the economic crisis. “Everybody’s making out like it’s the government’s fault. There’s enough blame to go around.”

Even if they do draw more cents on the tax dollar owed, governments still face the monumental problem of their aging populations, something that most have only begun to acknowledge. The challenge is most acute in France, where the average person spends 21 years of his life on pension—the highest of any country in the world. By 2050, according to Organisation for Economic Co-operation and Development (OECD) projections, there will be one person on benefits for every two who are of working age in France, compared to the current ratio of 1:4. When you consider that only 62 per cent of working-age French people are actually in the labour force, it’s not hard to imagine the crisis that lies in wait.

The tweak to the retirement age, therefore, is a “baby step,” says Michael Hodin, an adjunct senior fellow at the Washington-based Council on Foreign Relations who specializes in population aging issues. “I don’t think it’s even close to the sort of profound shifts that need to be made, both from a cultural and behavioural point of view and in terms of public policy,” he says. Since 1900, average life expectancy in Western Europe and the U.S. has nearly doubled, and now stands around 80. Everything from health care services to labour laws to pension structures will have to change, Hodin says.

The pension systems in countries like France, Germany, Greece and Italy, where public plans represent all or most of retirement savings, will be particularly vulnerable. At last count, pension spending in Germany amounted to 11 per cent of GDP. In Italy, it had reached 11.5 per cent; in Belgium, 12.2 per cent. In France, where it now tops 10.6 per cent, the demands of an aging population have the potential to drive up deficits another five per cent, according to Martine Durand, deputy director of the OECD’s employment, labour and social affairs branch—this in a country that hasn’t passed a surplus budget for 40 years. “Everybody agrees that reform is necessary,” said Durand recently. “Without reform now, our children and grandchildren will pay the price.”

An increase in productivity might ease some of this burden, generating more income that could then theoretically be taxed. But here, too, Europe’s culture of entitlement stands in the way. While the region’s most advanced economies produce almost as much per hour worked as the U.S. (the OECD benchmark), they lag far behind when annual production is measured on a per-person basis, suggesting those five-week holidays are dragging down economies. Germany, for example, produces only nine per cent less per hour than the U.S., but 25 per cent less per person; France makes 30 per cent less per capita, and Spain 33 per cent. This might be understandable were those countries less technologically advanced than America, or if they had lousy education systems. But the culprit in this case is the basket of benefits enjoyed by workers, and labour laws that prevent firms from laying off workers due to swings in the market.
The latter issue is vital, says Smith at Queen’s, because the rules meant to protect workers are discouraging companies from hiring in the first place. Fully one in four people in France who are fired, laid off or fail to get their contracts renewed take their employer to court under laws allowing them to contest the decision. “It takes an average of six months to get one of those actions resolved,” says Smith. “It’s a huge disincentive to hire, and it is the key problem facing France’s economy.”

The question now is whether people in the most financially strapped nations can be pried away from their established ideas about work and entitlement. With bond-raters baying at their door, Britons did elect a Conservative minority that promised to aggressively cut spending. Yet the Cameron government’s plan to slash $130 billion over the next five years has already encountered stiff resistance from unions and left-wing pressure groups. On the Continent, meanwhile, politicians appear willing only to tinker. Spain’s government announced a modest five per cent pay cut for all civil servants, while a bill to raise the country’s retirement age to 67 from 65 makes its way through parliament. Italy, whose 115 per cent debt-to-GDP ratio is one of the highest in the industrialized world, is planning to raise the retirement age from 60 to 65, while Germany is debating raising it by two years to 67. The Netherlands is considering only a one-year hike, to 66.

European leaders are no doubt mindful of the dangers of telling unpopular truths, or setting their gaze beyond the next election (in the mid-1990s, far-sighted reforms in France unleashed strikes that paralyzed the country for weeks and, ultimately, cost prime minister Alain Juppé his job). Still, there are recent signs that younger Europeans are turning away from statist orthodoxy. No group characterizes this nascent thinking better than Stop la Grève (Stop the Strike), a French movement whose leader, Olivier Vial, believes endless disruptions paint a “ridiculous and archaic” portrait of his country. “We can’t keep replaying this spectacle indefinitely,” says the 35-year-old university researcher.

There is another France, Vial insists, populated by younger adults “who understand the need to restore the country, and who want to work.” Only five of France’s 82 universities have been shut down by strikes, he points out, and some 70 per cent of students at the notorious leftist fortress, Université Paris 1 (Panthéon-Sorbonne), voted last week against striking—aware, it seems, that the retirement reforms were in fact in their long-term interest. “We are the first generation who will not only have to finance our parents’ retirement, but also our grandparents’,” says Vial. “Without reform, we won’t have a retirement—not like the one the workers in the streets, who are close to retirement age, are going to have.”

Whether he and his contemporaries can get their message through is anyone’s guess. Harvard economist Jeffrey Miron sees a flicker of hope that Europe might seriously shift course but, he adds, “this isn’t going to be easy at all.” It is the fourth year in a row, after all, that Western Europe has seen its cities tied up in strikes and blockades, over an issue as minor as bumping up retirement ages a couple of years. Smith, the Queen’s historian, figures younger people fight on, considering the success of past protests. “They want what their parents and grandparents had,” he says, “and that’s just the problem. They can’t have it, because there’s no way to pay for it.”


 

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