The Veiled Chameleon: June 2005: Goodbye Europe

Europe as we know it is slowly going out of business.... Unless Europe reverses two trends -- low birthrates and meager economic growth -- it faces a bleak future of rising domestic discontent and falling global power. Actually, that future has already arrived.

...

It's hard to be a great power if your population is shriveling. Europe's birthrates have dropped well below the replacement rate of 2.1 children for each woman of childbearing age. For Western Europe as a whole, the rate is 1.5. It's 1.4 in Germany and 1.3 in Italy. In a century -- if these rates continue -- there won't be many Germans in Germany or Italians in Italy. Even assuming some increase in birthrates and continued immigration, Western Europe's population grows dramatically grayer, projects the U.S. Census Bureau. Now about one-sixth of the population is 65 and older. By 2030 that would be one-fourth, and by 2050 almost one-third.

No one knows how well modern economies will perform with so many elderly people, heavily dependent on government benefits (read: higher taxes). But Europe's economy is already faltering. In the 1970s annual growth for the 12 countries now using the euro averaged almost 3 percent; from 2001 to 2004 the annual average was 1.2 percent. In 1974 those countries had unemployment of 2.4 percent; in 2004 the rate was 8.9 percent.

...One way to revive economic growth would be to reduce social benefits, taxes and regulations. But that would imperil Europe's "social model," which supposedly blends capitalism's efficiency and socialism's compassion.

Consider some contrasts with the United States.... With high unemployment benefits, almost half of Western Europe's jobless have been out of work a year or more; the U.S. figure is about 12 percent. Or take early retirement. In 2003 about 60 percent of Americans ages 55 to 64 had jobs. The comparable figures for France, Italy and Germany were 37 percent, 30 percent and 39 percent. The truth is that Europeans like early retirement, high jobless benefits and long vacations.

The trouble is that so much benevolence requires a strong economy, while the sources of all this benevolence -- high taxes, stiff regulations -- weaken the economy. With aging populations, the contradictions will only thicken. Indeed, some scholarly research suggests that high old-age benefits partly explain low birthrates. With the state paying for old age, who needs children as caregivers? High taxes may also deter young couples from assuming the added costs of children.

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A few countries (Britain, Ireland, the Netherlands) have acted, and there are differences between Eastern and Western Europe. But in general Europe is immobilized by its problems. This is the classic dilemma of democracy: Too many people benefit from the status quo to change it; but the status quo isn't sustainable. Even modest efforts in France and Germany to curb social benefits have triggered backlashes. Many Europeans -- maybe most -- live in a state of delusion. Believing things should continue as before, they see almost any change as menacing....

All this is bad for Europe -- and the United States. A weak European economy is one reason that the world economy is shaky and so dependent on American growth. Preoccupied with divisions at home, Europe is history's has-been. It isn't a strong American ally, not simply because it disagrees with some U.S. policies but also because it doesn't want to make the commitments required of a strong ally. Unwilling to address their genuine problems, Europeans become more reflexively critical of America. This gives the impression that they're active on the world stage, even as they're quietly acquiescing in their own decline.

"What had once been an alleged ideal is now a ragged skeleton rattling like a scarecrow in the wind over the whole world, but men lack the courage to glance up and discover the grinning skull under the bloody rags. That skeleton is socialism."
--Ayn Rand, from The Virtue of Selfishness