Winter is coming for the blue social model in Europe as well the United States. Today’s Wall Street Journal offers a bracing look at the tenuousness of government pension guarantees in countries across the Continent, from Spain to Germany to Poland:
State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers, says the Bureau of Labor Statistics, which doesn’t have a projection for 2060.
The WSJ notes that the challenges facing America’s Social Security system, while significant, don’t compare to Europe’s dramatic pension shortfall. While the U.S. still has a Social Security trust fund of $2.8 trillion, most European nations have no money set aside, instead financing their pensions out of annual tax inflows. A closer comparison on this side of the Atlantic would be our state and local pension guarantees for public employees. These systems are underfunded to the tune of $2 trillion dollars, and politicians have offered few if any ideas for making up the difference.The global decline of the blue model stands to inflict even more pain on Europe than on the United States. Europeans are worse at making babies than the United States, worse at integrating immigrants, worse at saving money to pay boomer retirement bills—but no worse at making promises to voters that they will be unable to keep. In the meantime, Europe’s challenges are complicated by an unfinished and perhaps impossible federal project, an acute migrant crisis, and an ongoing military conflict to its East. How and whether the Continent will be able to dig itself out of its pension hole is one of the great questions of the next generation.