Modest salaries, high taxes, but high level of social safety net: that was the social contract stricken between the governments and their peoples across post-war European lands, in various forms. The welfare manifests itself in various forms: high level of labour market protection, unemployment benefits, guaranteed pension, subsidized housing and education, etc.
With greying populations and a fiscal trend that can only predict more costs and less tax revenues, the most logical thing for governments to do would’ve been to save more and borrow less. Growth does not seem to be an option.
But that is hardly an attractive option with voters with their own interests to protect. Voting with their ages and the social contract they still believe they are entitled to, working-class Europeans bought into their politicians’ utopian vision that they can live better without actually making things better.
Spain is now grappling with the highest unemployment level of Europe. And many people have no savings. After all, why bother with financial literacy and savings when you can never be sacked from your job, are supposedly guaranteed a pension, and are entitled to live forever in subsidized housing? And the perverse incentives of paternalistic policies is hardly unique to Spain, so you can betcha that this story of broken promises will only be repeated in more versions than one in the coming years.
In Greece, the trouble seems to be compounded with a troublesome political past (as recent as the 80s):
The Greek crisis reminds us that while Greece is a part of Western Europe, it is also a place where hammers and sickles and “F—- the Police” decorate the city walls; where references to civil wars and world wars and postwar American meddling come up in daily conversation; where immigrants fleeing violence and economic plunder scramble atop the life raft of Greece’s fragile European shores, only to fester in homogenous Athens. It is also a country that in some ways still mirrors the lands across the Mediterranean—the countries of North Africa and the Middle East that continue to be strangled by Third World ways and won’t simply acclimate to the rules of the West as one might have hoped.
A all-too-speedy embrace of American-style materialism without paying its dues:
“Greece had the mentality of the nouveau riche. We borrowed, and we spent.” The nation hungered for new status symbols. A 2008 Nielsen report found that, of all the countries in the world, Greece cared most about designer labels, trampling Hong Kong (the runner-up) in its taste for brand names.
And an even more profligate vote-buying arrangement:
Stereotypes of Greek people as lazy and sun-stroked may have roots in the public sector: For decades politicians plied poor citizens with cushy jobs and pensions in exchange for votes. The 2004-09 conservative New Democracy government added over 85,000 public-sector jobs in its tenure; the public sector accounts for 40 percent of Greece’s GDP and 15 percent of the active workforce. The government isn’t even sure how many people it employs. As Jens Bastian, an ELIAMEP economist, explains, “Every Greek has a relative who works as a civil servant in the public sector, excluding the military and police. Reducing employment levels in the public sector immediately becomes a very touchy, family affair.” Read more...