NCPA - National Center for Policy Analysis

Europe Lacks Seriousness On Welfare State Reform

October 14, 1996

In order to be eligible to join the European Monetary System when it launches its "Euro" currency in 1999, countries are supposed to get their economic houses in order -- which often means reducing out-of-control pensions and bringing their budgets into balance. But few political leaders have the stomach to make tough decisions, international observers say.

  • Italy's Prime Minister, Romano Prodi, wants to cut the deficit by $41 billion -- largely by raising taxes, rather than cutting pensions.
  • Belgium is said to have not the slightest chance of ducking under the national debt ceiling applicants are supposed to observe.
  • Germany proposes to soak investors with a capital gains tax.
  • France and Belgium are being accused of engaging in "budgetary razzle-dazzle."

The one important country other than the Netherlands which could easily qualify for the EMU is the United Kingdom -- which has not made up its mind it wants to join.

Economic observers say that European leaders are counting on a single market to improve efficiency so they can preserve their welfare states and not have to take the political risks of serious reform. A recent study by the Wharton School and the Australian National University concludes that governments have invariably responded to the integration into international markets by increasing welfare.

Source: George Melloan, "Welfare State Reform is Mostly Mythological," Wall Street Journal, October 14, 1996.


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