Solution to the Euro Debt Crisis: Destroy the European Welfare State! (WSJ)

According to an editorial in the Wall Street Journal (WSJ), the source of the European debt crisis lies in the failure of the European welfare state. With the PIIGS debt piles clearly undermining the sovereignty of each nation rather than bolstering it, European states have failed to grow fast enough to pay for their massive entitlement programs (and most decided to tax the hell out of its citizens for the privilege).

For Italy, with aging populations (20% of Italians or 12m people are 65+ ) and low birth rates (Italy ranks 207th of 221 territories/countries), pensions today cannot be fully funded by worker contributions at the entry level. The maths don’t work.

Italys failure was a political failure to tackle the low tax/high spend economy and the protected power of various trade ‘guilds.’ This was not helped by the ‘concertazione’ (concert) of Italian coalition politics which makes for unwieldly and shifting poliitcal blocs, making a cohesive and stable federal government next to impossible (hence the endorsement of ‘strong’ leaders instead such as that of Silvio Berlusconi (PM 1994-1995, 2001-2006, 2008-2011) with at least the appearance of control.

It boils down to this. The hard remedy to Europes problems lies in the reform or complete destruction of the European welfare state. But tough reforms requires strong leadership. The lesson? “Never to become a high-tax, slow growth entitlement state, because the inevitable reckoning is nasty, brutish and not short.”


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